As Nordstrom Recasts Itself Under ‘Closer to You’ Model, Digital Sales & Rack Take Starring Roles

Sheena Butler-Young
·3 min read

Nordstrom Inc. today unveiled a new business strategy, dubbed Closer to You, which sees the department store employ key learnings from COVID-19, including heightened focus on digital and its off-price business.

During its 2021 virtual investor presentation today, CEO Erik Nordstrom said the retailer’s digital revenues have already risen — from 30% in 2019 — to represent 50% of its overall sales. Meanwhile, as the company studies fundamental shifts in the demographics and preferences of its core customers, it expects Nordstrom Rack — and its connectedness to the mainline stores —to become increasingly important.

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“[Our] new direction is centered on unlocking the full power of the digital first platform that we have built by significantly expanding the aperture of who we serve and where and how we serve them,” Erik Nordstrom told investors. “ We have two powerful, interconnected brands that create a unique value proposition for our customers. We have built on this advantage through the investments we have made to create a connected experience across our digital and physical assets.”

Since announcing its market strategy in 2018, Nordstrom’s chief said the company has expanded the integration of Nordstrom Rack “faster than scheduled.”

“Nordstrom Rack is the premier of price destination offering in-demand products and a treasure hunt experience at compelling price,” he added. “Importantly, Nordstrom Rack also serves as an entry point to our platform as the largest source of [new-to-Nordstrom] customers.”

Regarding overall digital acceleration, the chief exec went on to tout the company’s ongoing acceleration of omnichannel services such as buy online, pick-up in store, curbside pickup and contactless payment options as well as its efforts to grow its dropshipping capabilities.

“We enabled online order pickup and in-store fulfillment more than ten years ago at Nordstrom and we continue to scale and optimize the customer experience,” he said. “Notably, we recently expanded ship-to-store fulfillment and order pickup to include both Nordstrom and Nordstrom Rack.”

The executive said the company’s strategy boils down to a focus on three areas: extending the rollout of its market strategy to its 20 top markets that represent 75% of sales and integrating Nordstrom Rack assets; broadening the reach of Nordstrom Rack by expanding its price range and better connecting physical and digital inventory helping to boost its incremental revenues to $2 billion over the long-term; and increasing the “digital velocity” of Nordstrom Inc.’s overall business.

All told, Nordstrom expects to reach $17 billion in sales over the medium term; expand profit margin with the potential to sustain 6% or higher EBIT margin going forward; a “significant improvement” in ROIC; and “consistently” generate more than one $1 billion in operating cash flow annually.

Nordstrom today reiterated its Q4 2020 outlook and continues to expect sales during the period to decrease in the low 20% range relative to the prior year and positive operating cash flow and earnings before interest and taxes. The company also introduced its fiscal year 2021 financial outlook, calling for revenue, including retail sales and credit card revenues, to grow more than 25%, with digital representing 50% of total sales and positive EBIT.

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