Nordstrom Walks Back on Luxury and Leans Into Deep Discounts

Nordstrom Rack store

Following its recent earnings report in early March, fashion retailer Nordstrom has announced the upcoming launch of nine additional stores for its Nordstrom Rack off-price retail concept. Most of the stores are planned to debut in the spring of 2024, while one store is scheduled to open in 2025.

According to a statement by Carl Jenkins, senior vice president of Nordstrom Rack Stores, the new store locations will reinforce the company’s network and introduce new customers to the off-price retail concept. The stores will also offer online order pickup and return services.

The move is an interesting one as the retailer is known for its high-end products and customer service, which were bolstered by its investments in tools and technologies like virtual style boards and online styling appointments. Those investments yielded positive results, with digital customers spending five times more than the typical Nordstrom shopper.

Despite this, the company’s performance is currently being hindered by excess inventory. This isn’t a total surprise, as according to PYMNTS’ Consumer Inflation Sentiment study, “The False Appeal of Deal-Chasing Consumers,” 74% of consumers have cut back on nonessential retail purchases. As a result of the shift, Nordstrom had to offer more discounts than anticipated on its merchandise during November and December to ensure a strong start to the fiscal year.

See also: Deal Chasers Flock to Nordstrom, but Will They Stay for the Service?

The Big Blue Mistake and the Discount Curse 

Last month PYMNTS discussed Nordstrom’s “big blue mistake,” referencing Bed Bath & Beyond’s long-standing “big blue” coupon strategy marked by sending 20% discount coupons to millions of households.

According to the company’s former president, Arthur Stark, the tactic proved to be a bad long-term strategy.

“Once you’re addicted to it and your customer is addicted to it, it’s a very difficult thing to wean them off of,” he said.

While discounting has become a common practice for many brands and retailers looking to attract customers and drive sales, continuous discounting can have negative consequences. When brands offer discounts too frequently or too steeply, it can decrease the perceived value of their products or services in the eyes of customers. With that, customers may begin to associate the brand with cheap or low-quality products, which can be difficult to overcome. As a result, brands may struggle to maintain a premium image.

It can also impact profit margins, making it difficult for a company to invest in product development, marketing and other growth initiatives. As a result, companies that rely too heavily on discounts may find it challenging to sustain profitability.

Continuous discounting can also create a culture of bargain hunting among customers. Customers may start to expect discounts, and may begin to delay purchases until a discount is offered.

This also impacts loyalty. When customers feel that discounts are the only reason to shop with a particular brand, they may not feel a strong sense of loyalty, and may be more likely to switch to a competitor that offers better discounts or promotions.

Customers who are constantly bombarded with discounts may become more sensitive to price and less attentive to other factors such as quality or customer service. This can pose a challenge for brands that are striving to distinguish themselves from competitors based on factors other than price.

Moreover, the practice of constant discounting can generate a sense of urgency among customers to make a purchase before a discount offer expires — resulting in impulsive purchases that customers may regret later on. Consequently, consumers may become doubtful of discounts and promotions, making it challenging for brands to employ them effectively.

The Future of Nordstrom 

Nordstrom has seemingly leaned into its discounts further through its Nordstrom Rack extension.

With its recent plans to expand, Nordstrom Rack will have three new locations in Ohio, Illinois and Florida. Additionally, five Nordstrom Rack stores will open in California.

Nordstrom Rack is a part of the retailer’s “Close to You” strategy, which aims to provide customers with seamless and convenient experiences both in-store and online. The Nordstrom Rack concept offers clothing, accessories, home decor and beauty products at discounts of up to 70% off the original retail price.

With this latest shift, Nordstrom may be looking to become the go-to destination for discount pricing instead of luxury and service.