CFO Anne Bramman on the State of the Company
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Anne Bramman, chief financial officer of the 120-year-old Nordstrom Inc., has a clear idea of what’s behind the company’s longevity and its relative stability in a turbulent industry.
“The company has managed itself very conservatively, fiscally,” Bramman said. “In the last 120 years, it’s been through wars, depression, economic recession, a pandemic. So we take pride in making sure we can weather the storm out there. As a CFO, I really appreciate working for a company with that mind-set.”
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Being the CFO of a large public company — tracking the cash flow, dealing with Wall Street, guiding investments and the financing, and advocating for corrective actions when necessary — is no easy role. “If you asked me a year ago what was most challenging, it was dealing with the pandemic when the stores were closed and we were trying to keep people employed and maintain cash liquidity,” Bramman said. “Right now, our cash flow and our balance sheet are in great shape.”
Nordstrom ended the second quarter with $1.3 billion in available liquidity, including $487 million in cash, and in July retired $500 million in notes due in October using cash on hand, reducing annualized interest by $20 million. Long-term debt is about $2.85 billion.
The retailer has forecast annual revenue to reach $17 billion in three to five years, compared to $15.13 billion in 2019, and $10.38 billion in 2020 when the pandemic hit.
“There is still a lot of uncertainty and volatility, and the global supply chain environment is a great example of that. In an environment of volatility, it’s really about making sure that you’ve got scenarios that you can adapt and that you can be agile — and that is exactly what I am focused on in this role. But it’s also ensuring that we live by the values of the company as well, and deliver a great customer experience.”
That’s where Nordstrom’s “Closer to You” three-year agenda comes in. Unveiled last February, it calls for broadening the digital assortment from 300,000 items to potentially 1.5 million in three to five years; injecting lower price offerings into the Nordstrom Rack off-price matrix, and extending the reach and effectiveness of its three-year-old market strategy, which entails leveraging the physical assets of Nordstrom’s department stores, Rack off-price stores and Nordstrom Local service hubs, to increase services, conveniences, merchandise choices and speed deliveries.
“We are making progress” on the agenda, Bramman said. “There are definitely areas we are particularly happy with and other areas where we have more work to do.”
Nordstrom has begun building up its dot-com assortment to support the increasingly “digital first” orientation of the business. In 2020, digital sales accounted for about 50 percent of the company’s total revenues. “This year, it’s running a little under that given the recovery of our store business,” Bramman said. “We are still seeing good growth on the digital side so we do anticipate that the majority of business will be digital in the next couple of years.
“Prior to the pandemic, we imagined or assumed that we would end up being majority digital. So as you think about investments we made even before the pandemic, it was about integrating our physical and digital assets and really thinking about things from a digital perspective. It’s a shift in the mind-set. How do we integrate and serve the customers? That’s how the Closer to You strategy came about, meaning how are we getting closer to you, in any way that you want to engage with us.”
With the goal of having 1.5 million stock keeping units in the dot-com assortment, “We’re actually ahead of where we thought we would be at this point in time. Anniversary Sale was a great proof point for us. We really opened up on the offering from vendors.” More were added, and many were drop shipping.
Asked what being digital-first implies for the future of brick=and=mortar stores, Bramman said, “It doesn’t mean we don’t value physical assets. They are incredibly important in serving our customers. They want to engage with us in multiple ways. We have 100 department stores today, primarily in A and A-plus malls, with some in downtown urban centers like Michigan Avenue [in Chicago] and Manhattan. We have really good locations. It’s not that we stopped investing in them. We continue to spend money refreshing them. As you know, we opened a huge store in New York which was not a cheap prospect.” It’s said to have run well over the $500 million originally budgeted.
She pointed out that stores have become more than places to shop. Store inventories are used to fulfill dot-com orders. Stores serve as centers for services such as BOPIS and returns, and elevating the services at stores leads to “more meaningful customer experiences,” Bramman said. “Anytime we can engage with a customer, that customer spends and shops with us more. There’s lifetime customer value.”
Bramman characterized Nordstrom Local as another “engagement point” with customers and a convenient service alternative to going to a Nordstrom or Rack store that could be farther away. There are currently seven Nordstrom Local units: five in Los Angeles and two in Manhattan. “They do returns there. They meet a stylist there. They get alterations done. They can pick up orders there.”
Asked if customers, at this point at least, are aware of all of Nordstrom’s expanded service options, Bramman acknowledged, “There is an opportunity to continue to share with customers all the features and functionality that we have available.” In the fall of 2020, Nordstrom added order pickup at Rack stores for nordstrom.com, nordstromrack.com and HauteLook.com purchases. “We didn’t do a lot of marketing during the Anniversary Sale about picking up orders with the Rack, but customers figured it out.” During the last Anniversary Sale, 40 percent of orders made online were picked up the next day at a Rack store. “Adoption was quick,” Bramman said. “The same thing happened with Nordstrom Local, particularly in New York. Customers got what the concept was about and engaged with it very quickly.” Two Nordstrom Locals opened in Manhattan in the fall of 2019.
Another opportunity centers on “getting more data-driven” and using predictive models to allocate the right inventory at the appropriate levels, market by market, to better meet customer demand and provide speedier deliveries, be it a next day or two-day delivery. “That is really the piece of the strategy to unlock,” observed Bramman.
At Rack’s 250 stores, about 70 have shifted to lower-priced merchandise in an attempt to capture a customer shopping at TJX, Ross and Burlington. Prices at Rack are generally two to three times higher than the prices in other major off-price chains. “We’re getting more into that $10 to $15 price point for some Racks. We won’t do all 250 Rack stores” that way, Bramman explained.
Other Racks will continue with their high penetration of branded products. They share a lot of the same brands with Nordstrom’s full line stores, but are sharply discounted.
A third group of Racks will be “hybrids,” Bramman said, meaning they will have a mix of lower-priced goods and the branded goods. “Over time, we will have a smattering of all three.”
Getting goods for those 70 Racks with lower priced merchandise “has been a little slower given some of the global supply chain issues on getting access to goods, but where we have landed, the customer has really responded,” Bramman said. “We have actually seen those stores perform well. We knew from research that our customers engaging with the Rack were also shopping competitors on those lower price points. It’s about just getting more share of wallet from our Rack customers.”
Last July, Nordstrom acquired a minority interest in the Topshop, Topman, Miss Selfridge and HIIT brands owned by Asos, the London-based fashion website. The deal established a new kind of partnership, marked the first time Nordstrom invested in fashion brands, and it’s intended to strengthen the store’s appeal to younger audiences, particularly twentysomethings. Nordstrom began operating Topshop and Topman shops inside its stores in 2012.
“We think it’s a great example of an alternative partnership model to build out,” Bramman said. “Part of being in a digital space is having more choices for customers. It’s challenging to have a radically expanded choice count with a wholesale model, so we are looking at alternative models where we share the economics with our partners and share the partners’ catalogue of product but don’t necessarily have to own all the inventory, from a wholesale perspective.
“Nordstrom does own Topshop merchandise currently, but there is certainly an opportunity to expand the offering by partnering on the Asos brand and Topshop brand,” Bramman said. “It could be a shared inventory model, or a revenue sharing model. There are a lot of different ways you can structure this. We are in the early stages of this and will be testing some things with them this fall.”
Recently, Nordstrom raised its guidance for 2021 revenue growth of 35 percent, versus 25 percent previously forecast, and EBIT margin at 3 to 3.5 percent of sales, versus around 3 percent previously forecast. Net sales in the 2021 second quarter increased 101 percent to $3.57 billion, from $1.79 billion in the same period in fiscal 2020, and decreased 6 percent from the same period in fiscal 2019.
“The consumer is spending. We are all seeing it,” Bramman said. “They’re coming back, even in markets with higher COVID-19 cases. People are socializing and want to refresh their wardrobes. Some things don’t fit anymore. Some people just want to refresh. So we think holiday will be good, given our guidance.”
The outlook comes despite strong headwinds.
“You are hearing across the industry about global supply disruption, choppiness in sourcing goods and flowing inventory. It’s going to be competitive,” Bramman observed. But on the upside, “It’s actually going to help sell-through at good prices and not take markdowns.”
She said Nordstrom has been working to have enough inventory for the holiday season. “We’re doing things like pulling forward receipts and expanding our receiving windows with vendors to make sure we can meet our customer demand.”
There’s also the nation’s labor shortage to contend with. “We staffed up for our anniversary event. I think we were ahead of some others in the marketplace getting staff. We are in a pretty good place with staffing levels right now. We plan to keep the people we hired for Anniversary through holiday. We have been doing a lot of hiring and working to make sure we can retain our talent…It should be a good holiday season.”
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