Nordstrom Looks to Digital Transformation to Drive Premium Sales

As Nordstrom looks to return its full-priced banner to revenue growth, the department store chain is turning to digital technology to meet upscale shoppers’ increasing demand for convenience.

The retailer announced Tuesday (Mar. 5) in its fourth quarter fiscal 2023 financial results that its premium Nordstrom banner saw net sales dip 3% year over year, while its off-priced banner Nordstrom Rack saw net sales rise by 14.6%. Digital sales across these banners decreased 1.7%.

“We will focus our Nordstrom banner efforts on digital-led growth supported by our stores,” CEO Erik Nordstrom told analysts. “One thing we’re excited about is the launch of our digital marketplace on Nordstrom.com starting in April. … As we do this, we’re also creating a more personalized digital experience that makes it easy for our customers to navigate our growing assortment.”

He noted that this eCommerce marketplace will enable the retailer to reach consumers on more occasions, meeting their demand for greater choice, without increasing its investment in owned inventory.

Indeed, PYMNTS Intelligence’s study, “The ConnectedEconomy Monthly Report: Digitally Divided — Work, Health and the Income Gap,” found that higher-income consumers are more digitally engaged. Fifty-five percent of those who make more than $100,000 a year reported participating in connected activities, the study found, versus just 48% of those who make $50,000 to $100,000 and 32% of those who make less than $50,000.

The full-priced banner’s eCommerce business is significantly more profitable than its Rack digital channels, the retailer’s CFO Cathy Smith told analysts, noting that the former’s customers demand digital convenience and that eCommerce channels are how these customers are “choosing to shop going forward.”

Additionally, the rise in the Rack banner’s sales and decline in the full-priced chain’s comes as consumers continue to make cutbacks amid ongoing economic challenges.

“We continue to see a cautious consumer that is mindful of discretionary purchases in light of inflation, higher interest rates, and the resumption of student loan payments,” Smith said, noting that the company expects revenue change between -2% and +1% for the year.

Indeed, the 2023 PYMNTS Intelligence study “Consumer Inflation Sentiment Report: Consumers Cut Back by Trading Down,” which drew from a survey of more than 2,000 U.S. consumers, found that 69% have reduced nonessential spending on retail products because of high inflation.

Plus, the “Back to School Means Back to Federal Loan Repayments” edition of the Consumer Inflation Sentiment series revealed that, among the 19% of consumers had federal student loans and were at least slightly concerned about their student loan payments resuming, 35% said their ability to afford everyday expenses would be negatively impacted.

Still, by catering to deal-seeking consumers, the retailer has the opportunity to drive full-priced sales down the line, leveraging the variety of its portfolio.

“Rack stores continue to be a growth engine for our company as they are our largest source of new customer acquisition, accounting for over 40%,” Nordstrom said. “… Roughly a quarter of retained Rack customers migrate to the Nordstrom banner within four years.”