Nordstrom Sales Fall but Ecommerce Inches Up, Diversification Continues

Luxury retail bellwether Nordstrom saw ecommerce growth of 5% to more than $1 billion in the first quarter of 2020, while overall sales dropped nearly 40% as COVID-19 locked down its retail side, the company reported.

On the positive side, Nordstrom was able to reduce Q1 inventory receipts by 30%, lowering its total inventory level by more than 25% relative to a year ago, reducing its cash burn by 40% and putting it in a better position to weather the unprecedented downturn. Competitor Neiman Marcus is headed in the other direction, going through a Chapter 11 restructuring and debtor-in-possession financing.

“We increased our liquidity through proactive steps to shore up financing and reduce our cash burn,” CEO Erik Nordstrom told analysts on an earnings call. “The significant reduction in our inventory levels enhances our financial flexibility and enables us to provide customers with a relevant merchandise offering across price points, brands and key items.”

Nordstrom said the company’s full-line, mall-based stores contributed to 38% of sales in 2019, compared to 60% from its off-price locations and ecommerce combined. Nordstrom Rack locations, for instance, are all profitable and offer more flexibility in terms of leases and relocation if necessary.

“As retail continues to evolve, our flexible model supports a continued shift from what was predominantly a mall-based business toward a more diversified model that includes digital and off price,” the CEO said.

Even in the midst of a difficult environment, Nordstrom said the company is continuing to invest in technology, data analytics and supply chain with an eye to the future recovery, “scaling end-to-end platforms to support a single view of customers, inventory and product and integrating physical and digital capabilities in off price.”

Nordstrom has reopened about 40% of its 117 stores over the past two weeks in a phased approach, offering contactless curbside pickup in most full-line locations.

“We’ll continue to adjust and refine our approach as we learn more about this new environment,” Nordstrom said, adding customer feedback has been positive. “While most of these stores have only been opened for less than two weeks and are located in our smaller markets, we’re seeing some encouraging early reads with overall sales trending slightly ahead of expectations.”

While stores typically fulfill 20% of Nordstrom’s ecommerce orders, that number has bumped up to over 50% during the COVID-19 crisis, the CEO said, contributing to the inventory level reduction. In addition, the company’s technical team quickly stood up store fulfillment capabilities at its off-price Nordstrom Rack locations, enabling them to contribute 20% of the quarter’s ecommerce sales.

Erik Nordstrom said the company’s omnichannel operations at both full and off-price stores is going to be critical to meeting customer demands while shaving costs through supply chain efficiency as the new normal emerges post-COVID-19.

“That capability, we certainly believe, is going to be even more important in the future, being able to get inventory efficiency, get bigger selection to customers with faster delivery requires leveraging this inventory that’s in stores close to customers,” he said. “We’ve invested a lot in it, and there’s no doubt that the necessities of navigating this crisis has accelerated our capabilities there.”

North of the border, Nordstrom has also seen success with ecommerce during the pandemic. Beginning in March, it used its own internal resources and network to set up a dedicated ecommerce site for Canadian customers, with 100% of orders fulfilled from stores. Nordstrom has been lauded in the business press for its digital transformation.

“Both customer response and sales have well-exceeded expectations,” Nordstrom said. “Online sales are about 10 times the volume we previously had under our third-party ecommerce provider.”

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