What Nordstrom Will Focus On in 2023
For Nordstrom Inc., high on the agenda for 2023 is starting with clean inventories, improving Rack, and elevating the customer experience.
“As we look to 2023, there’s a lot of uncertainty. There’s certainly macroeconomic factors that for a shoe salesman like myself is hard to predict. So what’s our response to that? It’s really to be as agile as possible and for us, that really started in earnest coming out of Q2,” said Erik Nordstrom, chief executive officer of the family-run Nordstrom Inc. business.
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Speaking Tuesday at the Morgan Stanley Global Consumer and Retail Conference, Nordstrom called out three key focus areas for 2023. He began by discussing the Rack off-price business, indicating the goal was getting the business to produce “much more sustainable, demonstrable growth results and in particular getting to 2019 run rates, which we expect by the end of the year. It will really take optimizing our inventory,” involving having a larger proportion of the inventory represented by the same premium brands sold at Nordstrom department stores and on Nordstrom.com.
“We see that happening over the course of the first half of the year,” predicted Nordstrom.
At the beginning of 2022, the Seattle-based company started “simplifying Rack’s focus to great brands at great prices,” Nordstrom said.
“When we talk about great brands, it’s mostly about brands we carry in our Nordstrom banner. Ninety percent of our top brands in the Nordstrom banner are represented in our Rack business. Many of those brands do not show up in the off-price channel. Our mix is unique. And really the reason customers come to Nordstrom Rack is to find the premium brands they see in our Nordstrom banner. That’s kind of a two-step process. One is obviously getting more of those brands. As brands have had more availability, we’ve been increasing the percentage of our buys on those brands.
“The second piece is in clearing out the less productive inventory we’ve had…We’ve seen a softening of demand for clearance. So there’s always clearance. There’s always less productive parts of inventory. Clearing that out has [required] more markdowns and has been slower than normal.”
Nordstrom is intent on entering 2023 with clean inventories, as are many retailers that this year find themselves with bloated levels of merchandise. “We’ve had some inventory to clear out. We are on pace to do that, to round the corner and enter 2023 clean. That’s vital for us,” said the CEO.
He stressed being responsive to “these more uncertain times, to the greater volatility, and to increase our agility, not only entering [2023] clean but to plan for faster turns and to be more positioned to chase the business and really invest into what the customer is responding to.” It’s about putting enough open-to-buy dollars aside, to be able to quickly jump on emerging trends.
“I think the biggest change over the last couple of years is the volatility, is the need for agility. That’s just more important,” said Nordstrom.
He also called out the supply chain, where the company will “continue to build better customer experiences by providing faster, more consistent deliveries and continue to leverage expenses there.”
Another priority is introducing brands to customers. “We really need to differentiate ourselves in the discovery part,” said Nordstrom. “We are really good at exposing customers to new brands and introducing those new brands to customers. And customers come to us less so for price promotions, and [more so] for newness.
“In particular, a sweet spot for us is not necessarily launching new brands, but brands that are early stage and hitting their growth” stride. “That’s where we can really help them scale,” Nordstrom said.
On Running, Spirit of God, and Allbirds “are in our top five fastest-growing brands. They’re different brands” generating real interest from customers, and with limited distribution, Nordstrom said.
Regarding business trends, Nordstrom said that beginning in late June, “we have seen signs of customer pullback, but it is most pronounced at the lower income levels,” which is more the Rack customer.
“We still see customers responding to newness and responding to our higher-ticket items,” whether that’s at the Nordstrom banner or at Rack. “What the common thread there, for us, is newness and to bring in a flow of really desirable product. Designer has in the last several years been our strongest merchandise category. There’s still real strength there.” Nordstrom also cited “continued strength” in dressier categories for work, going out and traveling.
“So there is strain. I think customers are being more selective — a little more careful in their purchasing,” Nordstrom observed. “And again, there is correlation with income levels, but it’s not the case where across the board customers are breaking down.
“The change in category performance over the last 18 months has been unlike anything I’ve seen,” Nordstrom said. “You think of the categories that were hot during the pandemic, home and active wear and everyone’s wearing yoga pants and slippers, and we sold a lot of that stuff. We didn’t sell many men’s suits or high-heel shoes during that time. That shifted. And I think you’ve seen excess supply of a lot of those pandemic-hot categories in the industry that people are looking to clear through.
“It feels like that those shifts, those quick shifts, are kind of here to stay.”
Regarding the holiday season so far, Michael W. Maher, Nordstrom’s senior vice president, chief accounting officer and interim chief financial officer, said the company expects holiday sales and customer demand to build “consistent with what we used to see pre-pandemic — really accelerating as you get closer to Christmas. And that the level of promotional intensity would be consistent with what we saw late October, early November.
“At this point, we’re seeing the demand build a little bit slower and the promotional intensity is a little bit higher than what we saw pre-pandemic levels. But I think it’s important for us to emphasize that about two thirds of our expected volume is still in front of us for the fourth quarter. So a lot is going to depend on how the next few weeks play out for us.”
For holiday, “There is a sense of customers holding back,” Nordstrom explained. “Some of it is the way the calendar falls this year. There’s an extra Saturday before Christmas, Hanukkah is later. There’s some calendar reasons for holiday to be pushed back a bit. But I do think there’s something to the environment of the promotional environment where customers hold back then. We’ve seen some signs of that.
“Our inventory is very current,” Nordstrom added. “The softest part of our inventory would be clearance that we’re looking to work through the system. But we feel really good about our inventory position for holiday.”
Nordstrom reported top- and bottom-line declines for the third quarter ended Oct. 29, though the company managed to meet its expectations on both fronts. The third-quarter net loss was $20 million, compared to a net profit of $64 million in the year-ago period.
Net sales decreased 2.9 percent to $3.43 billion, from $3.53 billion in the same period in fiscal 2021, with Nordstrom banner down 3.4 percent and Rack slipping 1.9 percent.
