COVID-19 Turned Nordstrom Into a ‘Majority-Digital’ Business — What Analysts Are Saying About the Department Store’s Strategy
As consumers continue to stay indoors and shift their spending online, e-commerce now comprises more than half of Nordstrom Inc.’s business — and top management said it has the coronavirus pandemic to thank for that.
During a conference call on Tuesday afternoon, the department store chain noted that its digital sales, which increased 37% to $1.6 billion in the third quarter, now accounts for 54% of its overall revenues. It’s a marked jump from the prior year period, when e-commerce represented just 34% of its total sales.
According to CEO Erik Nordstrom, the COVID-19 health crisis was less about “change that no one saw coming” and more about “a massive acceleration” of digital initiatives that were already in place.
“We would not be where we’re at today if it wasn’t for COVID,” he told analysts. “That got us very focused on embracing the new world where we’re a majority-digital [business].”
While it operates 357 locations across 40 states, the Seattle-based company also serves consumers through its Nordstrom.com, Nordstrom.ca, Nordstromrack.com, HauteLook.com and TrunkClub.com platforms. The velocity of its digital business, however, is most evident in Nordstrom Rack, which makes up a third of the retailer’s revenues; online comprises roughly 40% of the off-price banner’s sales. (Rack serves as an important pipeline to Nordstrom, with more than a third of Rack customers cross-shopping to the full-price chain.)
“We view this as a fundamental shift in shopping behavior,” Nordstrom said, “and we are well positioned to support our customers across both Nordstrom and Rack with a scalable platform that has been built to support many years of growth.”
Over the past several months, more retailers have adapted to consumers’ shopping preferences amid the pandemic. Many firms have outfitted their units with autonomous options like cashierless checkout and are using their locations as fulfillment centers for last-mile deliveries. Meanwhile buy online, pick up in store services and curbside pickup are also gaining significant traction. Nordstrom said it has also taken steps to keep up with this changing role of stores: Last month, the chain expanded its contactless services to allow customers to pick up their online orders at nearly 350 Nordstrom and Nordstrom Rack units across the country.
“It’s particularly important right now given the uncertainty that we face with the pandemic,” Nordstrom added. “What gives us the confidence is we’re in a much better position now than we were in March when stores first closed down… We really don’t have any place in our ecosystem where inventory gets trapped.”
For the three months ended Oct. 31, Nordstrom posted earnings of 34 cents per share, compared with the previous year’s earnings of 81 cents per share and market watchers’ predictions for a loss of 6 cents per share. Revenues also declined nearly 16% to $3.09 billion but bested consensus bets of $3.1 billion.
While analysts have cautioned that Nordstrom could face increased headwinds from shipping surcharges and a promotional environment in the fourth quarter, many market watchers maintain that the retailer is on more solid footing than its rivals due to its strength in digital.
“We see COVID-19 accelerating Nordstrom and department store sub-sector market share losses as consumers increasingly shop brands directly online, shop less physically in mall-based stores and increase their focus on convenience and value,” J.P. Morgan analyst Matthew Boss wrote in a distribution note. “That said, we note Nordstrom is relatively better positioned than department store peers given higher e-commerce penetration.”
Similarly, Cowen analyst Oliver Chen was optimistic even as the company enters the critical holiday season with heavy competition and contends with another surge in the COVID-19 outbreak.
“Shares have rallied more than 85% over the past month as investors see Nordstrom as one of the bigger turnaround beneficiaries in retail,” he said. “We concur with this sentiment as Nordstrom’s category mix does position sales to accelerate next year as the environment normalizes… Further, competitor closures and market share gains bode well for long-term customer health and loyalty growth.”
More from Footwear News
Sign up for FN's Newsletter. For the latest news, follow us on Facebook, Twitter, and Instagram.
