Nordstrom Inc. Coping With COVID-19 and What’s Ahead

David Moin

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The pandemic is accelerating change at Nordstrom Inc.

Executives see Nordstrom’s full-line department stores representing a smaller but still big piece of its pie; Rack off-price stores adopting services and conveniences seen at full-line stores, and a holiday 2020 assortment with a greater proportion of lower-priced goods and “gifty” type products.

For Christmas, “We are going to have more inventory at lower prices than we probably ever had and certainly more around gifting categories,” said Pete Nordstrom, president and chief brand officer. “We want to make sure Nordstrom is a convenient gifting destination. The wild card is going to be the traffic we get through our physical stores given the sensibilities people have around COVID-19. We think we are going to have a successful holiday, relatively speaking.”

The outlook and changes in the business were outlined by Nordstrom as well as Ken Worzel, chief operating officer, and Anne Bramman, chief financial officer, during a “fireside chat” with Dana Telsey of Telsey Advisory Group on Tuesday afternoon.

Nordstrom didn’t detail the holiday assortment, but lower-priced holiday items often include beauty gift sets, wellness, candy, trim, jewelry, cold weather accessories, small electronics and tech gadgets.

Nordstrom couched department stores in a different light. “A little less than 40 percent of our business is in mall-based department stores. Clearly, it will be less than that in 2020. Rack is not caught up in a lot of dynamics detrimental to malls. That business has been solid and strong, even during COVID-19. Rack has performed better than a mall store,” he said.

Rack units are typically situated in strip and outlet centers where currently shoppers feel more comfortable than in a mall because they’re easier to get in and out of, Nordstrom noted.

The retailer has been closing about three full-line stores annually in recent years, though 16 will close this year, representing less than 3 percent of the company’s total volume. The increased closings were made possible by intensified analysis (spurred by the pandemic) of the overall brick-and-mortar footprint, and the ability to transfer sales from stores being closed to others operating in the same market, and online.

Pete Nordstrom gave no indication of further full-line closings and was upbeat about the remaining fleet. “Over 90 percent of our full-line stores are in A or A-plus malls. Those really important retail centers are going to continue to be important centers,” he said.

Regarding June trends at the stores, “Sales were down around 40 percent as stores were opening up,” said Bramman. “Full-line stores are a little bit below that and Rack is trending better than that. We opened stores a little bit sooner than our plan” with “more favorable” business than expected, she said. “Sales in our stores are exceeding expectations. We are seeing Rack doing better than our full-line stores, but both are exceeding expectations.”

“If you walked in any number of our full-line stores now, you would say they don’t have a lot of inventory right now,” said Nordstrom. “That’s due to taking a conservative approach, filling online orders [from the stores] and not being able to buy inventory as quickly as we wanted…It was harder to ramp into that” as vendors also had to adapt to challenges posed by the coronavirus.

With coronavirus cases spiking in most states around the country, “Going into a store is not something everyone wants to do,” Nordstrom acknowledged. “For right now, there is still a level of reticence and caution by a lot of customers.” Still, he said many shoppers like to pick up or return items that they ordered online, at the store or curbside, without actually shopping inside of the store.

Worzel cited “adaptability” in Nordstrom’s labor model required during the pandemic. “We invested in more labor to clean dressing rooms, point of sales and greeting areas,” he said. In addition, “The labor model in stores does flex with sales,” to make sure the investment is commensurate with the level of sales.

Nordstrom said the store’s promotional cadence “really hasn’t changed,” though the Anniversary Sale has been postponed from July into August to make sure old merchandise was cleared out (inventory was down over 25 percent at the end of Q1) and new merchandise would be received. In June, Nordstrom started getting fresh receipts. In July, the process has accelerated.

In addition, the Anniversary Sale, which features new fall designer and upscale goods at discounts for a limited time and gives early access to Nordstrom cardholders, will have noticeably more casual and activewear and less wear-to-work and occasion wear. “We pivoted to be more relevant,” Nordstrom said.

Rack off-price units are being rigged to provide many of the services and conveniences seen at the full-line stores, such as alterations, fulfilling orders, and providing pick-ups and returns of full-price orders.

There could be a change in rent payments to landlords. “Through the end of Q1 and May we paid our rent,” said Bramman. With conversations ongoing with landlords, “Everything out there is considered a variable expense at this point,” said the cfo.

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