Nordstrom Eyes Local Markets, Experiences After Q1 Sales Miss

With loyalty, digital marketing and merchandise contributing to declines across its full-priced and off-priced businesses, Nordstrom reported first-quarter earnings that were below analysts’ expectations. The department store retailer reported revenues of $3.4 billion and earnings per share of 23 cents compared to analyst’s expectations of $3.6 billion and 43 cents.

Nordstrom co-president Erik Nordstrom said in the company’s earnings conference call, “We’re making the changes we believe are necessary to drive our top line” and he reiterated that “our strength is our commitment to the customer.” But the company knows that it has areas for improvement and has gone through many cycles that provide it with confidence to address its business to serve its shoppers better. He noted that the entire leadership team has a high degree of urgency to improve the top line as well as profitability. At the same time, the company has its eye on three key strategies.

For starters, the company has a focus on a local market strategy that enables greater customer engagement via services as well as greater access to merchandise selection with faster delivery and a lower cost to the company. Last year, it launched three Nordstrom Local service hubs in Los Angles, for instance. And, during the first quarter, it continued to see positive outcomes with outsized growth in digital sales and store traffic in the market. At the same time, Nordstrom noted that one-third of its order pickup services happen through its three Nordstrom Locals.

In New York, the company is on track to open its flagship on October 24 along with two Nordstrom Local hubs in autumn, which were previously said to open in the West Village and the Upper East Side. “We expect these physical assets to greatly add to our ability to engage with customers across multiple touchpoints,” Nordstrom said. He added that “we know that engaged customers spend more,” which is expected to result in a meaningful sales lift for the market. The company looks to improve the customer experience during events.

Nordstrom noted that the company’s anniversary sale is a special event that has new arrivals at reduced prices for a limited time. He noted that the company is curating its assortment to focus on customer’s favorite brands and also growing the period for pre-shop for its top loyalty shoppers. And, for the holidays, the company is aiming to become more of a destination for gift-giving for both new and existing shoppers by bolstering its assortment across different categories and more accessible price points.

The Top-Line Results

During the quarter, Nordstrom noted that the company had some “executional misses” with its customer experience that had an impact on sales across the board of full-price, off-price, in-stores and online. The company identified loyalty, digital marketing and merchandise as three factors that contributed to the sales miss. “These areas are within our control to turn around,” Nordstrom said, adding that the company has already taken measures to correct its course and drive its top-line.

When it comes to loyalty, the company evolved the program last fall with the Nordy Club introduction that enabled shoppers to earn reward notes faster and provide early access to products as well as events. “However, the execution of our rollout was not as successful as we had planned,” Nordstrom said. The company eliminated paper notes as part of its decision to move to a digital-first program, but it found that a segment of shoppers relied on receiving the notes by mail. The company saw a reduction in traffic across full-priced and off-priced as a result.

Digital marketing was another factor related to the results, as the company deliberately cut back on this area as it shifted its resources to loyalty. But, with the Nordy Club rollout not ramping as it had projected, the company experienced incremental traffic declines in its business. The company has since increased its investments in digital marketing to drive traffic as well as sales. And, when it comes to merchandising, Nordstrom noted there are opportunities to rebalance its assortment mix to better resonate with shoppers.

Nordstrom noted, in all, that the company is making the changes it believes are needed to drive its top-line and the company is committed to better serving customers on their terms.