Why Nordstrom Stopped Reporting Same-Store Sales

NEW YORK, United States — Nordstrom Inc.'s sluggish first-quarter sales came as a shock to investors this week, but perhaps more puzzling was the absence of another figure normally included in the department store chain's financial results. For the first time, the company omitted data on the performance of stores open at least one year — widely considered the gold standard for gauging a retailer's health.

That metric likely would have underscored just how miserable the start of 2019 was for the Seattle-based chain. Net earnings dipped 57 percent, and overall sales of $3.35 billion were below analysts’ expectations, reflecting a rocky start to a new loyalty programme and poor merchandising choices, among other factors.

But in a way, Nordstrom’s decision indicates the company is looking toward its future. Same-store sales are seen in some corners of the industry as increasingly irrelevant. Consumers don’t distinguish between sales channels, shopping online, offline and countless permutations that combine elements of both. The savviest retailers — including direct-to-consumer brands that are stealing market share from Nordstrom and other traditional mall players — prefer cross-channel metrics like spend per customer and lifetime value of repeat customers.

The truth is that retail hasn't been growing all that quickly over time and department stores have been losing share in general.

Of course, Nordstrom’s problems appear to run deeper than how it slices its data. Nordstrom wasn’t the only retailer to struggle last quarter: Kohl’s and J.C.Penney both missed Wall Street earnings estimates this week, while Macy’s reported surprisingly strong sales but faced skepticism that it could maintain its momentum.

Department stores have long struggled in the wake of surging e-commerce sales, facing competition from Amazon as well as a crop of fully vertical, direct-to-consumer brands. Even vendors that once depended on these retailers are investing in their own direct digital channels, such as Levi’s and Nike.

Worryingly, Nordstrom’s online sales appear to be slowing as well, growing 7 percent in the three months ending May 4, compared with 16 percent across all of 2018. The company’s shares fell 9 percent on Wednesday to $34.35, an eight-year low.

“The truth is that retail hasn’t been growing all that quickly over time and department stores have been losing share in general,” said Sucharita Mulpuru, an analyst at Forrester, noting that Nordstrom vendors like Nike have steered more sales to direct-to-consumer channels. “Consumers just have so much choice today, and it’s especially competitive in apparel.”

Nordstrom did not respond to a request for comment about earnings.

Nordstrom has had success with some of its digitally minded innovations. Its Nordstrom Local pilot program, which it initiated in Los Angeles, doesn't carry any inventory but allows customers to try on their online orders with the help of on-site stylists. These store concepts feature custom tailor shops, nail salons and refreshments. Today, Nordstrom's LA market is growing twice as fast compared to elsewhere, thanks in part to that store concept, Co-President Erik Nordstrom said in a call with analysts Tuesday. The retailer plans to open additional LA locations as well as two new local hubs in New York City, alongside its new flagship in the city opening October 24.

With its new loyalty programme, they're trying to keep up with a new, digital customer but ended up alienating a large number of customers who use their physical mailers.

“Here is a massive piece of engagement that customers love that we think we can do in a fairly unique way and really do it on customers terms that drives higher engagement [and] drives bigger spend,” he said.

Its new loyalty programme — an increasingly popular tool for retailers facing stiff online competition — ended up backfiring, however. The “Nordy Club” launch drew on funding previously earmarked for digital marketing, hurting online sales. A decision to forego a direct mail campaign caused some customers to overlook the reward programme.

“With its new loyalty programme, they’re trying to keep up with a new, digital customer but ended up alienating a large number of customers who use their physical mailers,” said Corey Pierson, the co-founder and chief executive of Custora, a retail analytics software company. That, plus the merchandising issues “point to Nordstrom losing touch with the customers.”

Nordstrom will need to “rebalance” product assortment in women’s apparel in order to regain sales strength, executives said after the results were released.

We definitely have an opportunity to be better connected with customers in terms of the relevance that we have to offer and the relative price points.

"I think in particular [we need to find] ways to appeal more to young customers," said Co-President Pete Nordstrom in the earnings call Tuesday. "We definitely have an opportunity to be better connected with customers in terms of the relevance that we have to offer and the relative price points."

This week, Nordstrom heads into its biggest annual sale with hopes that deeper-than-usual markdowns will result in a higher sell-through rate. But lower prices will mean lower margins. At a time when online native disruptors are still wreaking havoc on the industry, even forward-thinking brick-and-mortar chains like Nordstrom need stability in their bottom lines.

“While credit is rightly due to the company for growing share amid the structural decline of department stores, we see risk Nordstrom will have to more dramatically correct” by closing stores, Dylan Carden, an analyst at William Blair, wrote in a note published Wednesday. Nordstrom Local alone, he added, “can likely only be impactful in larger markets.”

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