Nordstrom Inc.: What Lies Ahead
After stabilizing its financial position and resetting inventory to better meet demand, Nordstrom Inc. is eyeing improved results in the back half of the year and has several key areas of growth on the agenda.
Among the strategies — expanding luxury distribution, opening additional Rack off-price stores, offering a larger assortment of lower prices at Rack, and increasing the digital business.
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“We have a big designer business. It’s been the biggest area of growth in the last several years and has actually performed pretty darn well during the pandemic,” said Erik Nordstrom, chief executive officer, during the Goldman Sachs Annual Global Retailing Conference on Thursday.
“There is a synergy with our designer business with the rest of our business. The modern approach to dressing is to mix and match, and [shop] the high and the low,” prices, he said. “We can expand our price range in Rack while still having the growth we had in the last couple of years in our designer business. Having the scarcity of distribution with designer product is important. We see opportunities to gain more distribution.”
Providing an outlook for the rest of 2020, “We don’t expect the external environment to necessarily get better, but we believe we will show sequential sales improvement in the back half,” said Nordstrom.
Coming out of the second quarter with $185 million in cash, and $1.3 billion in liquidity, “We are a better company today than we were five months ago and certainly in better position for the times we are in,” he said.
“We got our inventory levels down and shifted our inventory investments to really stay relevant to our customer,” Nordstrom said, referring to the accelerating trend to casualization.
He said he was “very pleased” with results from Nordstrom’s Anniversary Sale, the biggest event of the year for the Seattle-based retailer. It shifted from July to August, and was therefore more in tune with when customers wanted to shop for fall fashion. By moving the event later, the store was able to receive merchandise with a higher level of newness and more casual goods to meet the changing demand.
“We had the highest sell-through of Anniversary merchandise ever. We exited the sale with super-clean inventory,” said Nordstrom.
He said he sees opportunities for the Rack off-price brand to open more stores and beef up lower price offerings.
“At Rack, there are two main efforts. There is an opportunity for us to expand our price point, particularly lower prices. We have historically participated at a little higher price. We think there is room for physical store growth,” at Rack. “The stores don’t take a lot of advance planning.…Also, we haven’t had store fulfillment capabilities in off-price. That will launch in October, and will result in a significant increase in the selection we have online.
“Digital is the third growth piece. We are growing our assortment. A broad selection online is essential, and we are working differently with vendors.”
Nordstrom also cited a goal to deliver personalization “at scale,” and increase links between digital and physical.
He said by the end of this year, the company will have its market strategy in its top 10 markets, which account for half of the retailer’s business. The market strategy entails linking the assets of Nordstrom full-line, Rack and Nordstrom Local stores to provide additional conveniences for customers and greater engagement by them.
In the second half of 2020, “We do expect top-line, EBIT [earnings before interest and taxes] and cash-flow improvement,” said Anne Bramman, chief financial officer. She attributed projected gains to the shift of the Anniversary Sale (which offers deals on fresh fall merchandise for a limited time) from the second to the third quarter; that stores were closed for 50 percent of days in the second quarter, and because the store has amplified categories becoming increasingly relevant. The company also eliminated 20 percent of costs, excluding occupancy.
