Nordstrom Looking to Address High Cost of Omnichannel Fulfillment

While it has seen impressive increases in ecommerce, now representing 20% of sales compared to 8% just five years ago, Nordstrom is looking for ways to address the high cost of omnichannel operations, an executive told analysts on its fourth quarter earnings call.

“In evolving with our customers, we made significant investments to enable customers to shop in multiple ways,” said Nordstrom CFO Michael Koppel. “This has resulted in market share gains, but also structural changes to our operating costs.”

Koppel said the company’s commitment to shopping choice has “a high variable cost structure driven by fulfillment and marketing costs in addition to ongoing technology investments. With our increased investments to gain market share along with the changing business model, expenses in recent years have grown faster than sales.”

He said the company is taking a number of steps to reduce these costs, including:

  • Productivity improvements that focus on fewer, more meaningful projects, such as a scalable merchandising solution that supports seamless integration across multiple channels
  • Accelerating efforts to re-platform its architecture to streamline development, while reducing costs
  • Assessing ways to improve fulfillment efficiencies around product delivery, which is expected to generate lower shipping costs
  • Refining online assortments with a focus on unit profitability

Asked to elaborate on moves to reduce fulfillment costs, Koppel said things being looked at include optimizing Nordstrom’s network model and product assortment.

“Currently we fulfill out of multiple locations, and are there opportunities for us to get more efficient at that?” he said. “That creates not only additional labor costs but additional shipping costs because you’re shipping multiple items per order. We’re also looking at how spread out we want our assortment to be, because the more lower-price items we have in it, the less unit profitability we gain.”

For the quarter, Nordstrom reported overall net sales of $4.1 billion, up 5.2% from 2014, while same-store sales were up 1%. Full-price net sales from its U.S. full-line stores and Nordstrom.com increased 0.7%, while comps were up 0.2%. Off-price sales, however, including Rack.com and Haute Look, jumped 12% and comps increased 3.6%. The east was the top-performing off-price geographic region.

The company’s net earnings were $180 million in Q4, down from $255 million in the year-ago quarter.

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