Nord­strom: Go­ing Long By Go­ing Lo­cal Route

The depart­ment store re­tailer sees it­self at a piv­otal point for a busi­ness ex­pected to heat up in the next few years.

WWD Digital Daily - - Front Page - BY KARI HAMANAKA

LOS AN­GE­LES — Nord­strom Inc. is tak­ing a nar­rower fo­cus with a play on lo­cal mar­kets, in a bid for long-term growth across all facets of its busi­ness.

In­vest­ments over the past few years in dig­i­tal, the sup­ply chain and ac­qui­si­tions of com­pa­nies such as Trunk Club and HauteLook have set the stage for where the re­tailer’s man­age­ment team now sees the busi­ness headed, points that have helped in­su­late it from the rugged re­tail land­scape to­day, co­pres­i­dent Erik Nord­strom said dur­ing his pre­sen­ta­tion at the com­pany’s

in­vestor day held here Tues­day.

“The macro en­vi­ron­ment is chang­ing,” Erik said. “There are forces that seem to be ac­cel­er­at­ing that put a lot of chal­lenges to the sec­tor. For us, we’re in a dif­fer­ent place.”

The com­pany’s 122 full-line stores and

239 Nord­strom Rack stores are cash­flow pos­i­tive, with no plans to close dozens over the next sev­eral years akin to some com­peti­tors, Erik con­firmed. Nord­strom, on av­er­age, has been shut­ter­ing roughly two doors an­nu­ally over the past few years as leases come due.

The re­tailer’s fo­cus is on fash­ion and an as­sort­ment the ex­ec­u­tive called “cross­brand dis­cov­ery.”

“A mod­ern cus­tomer does not set­tle on one brand and go 24/7 on that one brand,” he said. “I don’t be­lieve that we’re go­ing to be here five years from now and wear­ing one of five brands. Part of fash­ion is new­ness.”

To that end, the com­pany’s prod­uct strat­egy fo­cuses on four buck­ets that make up what it’s call­ing its ros­ter of strate­gic brands: pre­ferred brands, such as Top­shop and Madewell; de­sign­ers in the vein of Valentino and Gucci; emerg­ing brands with lines such as Re­for­ma­tion and Great, and its own Nord­strom brands.

That group of strate­gic brands ac­counted for 31 per­cent of full-price sales in 2015, with the per­cent­age grow­ing to 40 per­cent in 2017. By 2020, that group of la­bels is ex­pected to ac­count for half of over­all full­price sales.

The other ma­jor play is lo­cal­iza­tion, where the com­pany is ini­tially fo­cus­ing ef­forts on its largest mar­ket, Los An­ge­les, where Nord­strom gen­er­ates more than $1 bil­lion in sales.

The first-ever Nord­strom Lo­cal on Mel­rose Place will be joined by two ad­di­tional Lo­cals this year, in down­town Los An­ge­les and Brent­wood, Calif., which were re­vealed Mon­day.

“While it’s [in the] early days, we’re mea­sur­ing this very closely,” said Ken Worzel, chief dig­i­tal of­fi­cer and president of nord­, of the Lo­cal store. “It has al­ready re­sulted in a very big in­crease with our cus­tomers.”

Worzel added that those learn­ings will then be tai­lored to ex­pe­ri­ences that will even­tu­ally be brought to New York, an­other ma­jor mar­ket for the re­tailer.

That’s part of a game plan fo­cused on hy­per­local ser­vice of­fer­ings — rang­ing from style boards backed by ma­chine-learn­ing tech­nol­ogy to per­sonal styling and lo­cal pick up — that are now be­ing ag­gre­gated via an app that’s been beta tested over the past roughly five months with a group of about 800 cus­tomers in L.A.

Those ser­vice of­fer­ings are ex­pected to roll out to all cus­tomers in the Los An­ge­les mar­ket later this year. In­te­gra­tion of the in­ven­tory from the fu­ture ful­fill­ment cen­ter here and stores even­tu­ally will be added to that bun­dle of ser­vices to al­low for cus­tomer ac­cess to a broader as­sort­ment of­fer­ing.

Next year the fo­cus will con­tinue to be on L.A. be­fore mov­ing on in 2020 to fo­cus on New York. Man­hat­tan is where Nord­strom is set to open its women’s tower near Colum­bus Cir­cle in 2019, which will join the men’s store that bowed in that neigh­bor­hood ear­lier this year. The New York mar­ket is even­tu­ally ex­pected to grow to more than $700 mil­lion in full-price sales, Worzel said.

Nord­strom’s off-price chan­nel, the largest source of new cus­tomers for the com­pany, lost a bit of its foot­ing in the re­cently ended quar­ter after out­per­form­ing com­peti­tors in 20 of the last 21 quar­ters. The de­cline was largely due to misses in the women’s ap­parel buys that dragged the num­bers down, co­pres­i­dent Blake Nord­strom explained be­fore con­firm­ing to in­vestors the com­pany’s cor­rec­tion.

“We don’t view this as some­thing out of our con­trol,” he said. “The ball’s in our court. We need to ex­e­cute bet­ter.”

The com­pany ear­lier in the day had up­dated in­vestors on its out­look through 2022, which in­di­cated Nord­strom’s fo­cus on ex­e­cu­tion.

“This is not an out­line for sur­vival,” co­pres­i­dent Pete Nord­strom said as he wrapped the day. “We don’t want to be in that re­ac­tion busi­ness. We want to get in front of it….What we re­ally have here is a blue­print for suc­cess.”

The com­pany said it ex­pects net sales of $15.2 bil­lion to $15.4 bil­lion for fis­cal year 2018, with same-store sales ex­pected to grow 0.5 per­cent to 1.5 per­cent. Earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion and amor­ti­za­tion for the same 12-month pe­riod are ex­pected to be in the range of $895 mil­lion to $940 mil­lion.

The out­look through 2022 ap­pears to seize on the cur­rent year’s growth with net sales pro­jected to rise 3 per­cent to 4 per­cent on av­er­age per year on an an­nu­al­ized ba­sis be­tween 2017 and 2022.

“We be­lieve that Nord­strom is defining the fu­ture of re­tail,” Pete said. “Our am­bi­tion is to be the best fash­ion re­tailer in a dig­i­tal world and we have plans to get there.”

The new Nord­strom men’s store in

New York.

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