Nordstrom’s got goals. Now, if only it can get investors to be impressed by them.
The department store chain this week unveiled a five-year growth plan that — by several accounts — is both impressive and feasible. However, immovable investors sent the firm’s shares tumbling on the heels of Tuesday’s investor day presentation — a likely hint why its founding family sought to avoid the shareholder-gaze with a go-private transaction this year.
Either way, Nordstrom gave stockholders and market watchers quite a bit to digest this week.
Here, a look at four major takeaways.
Making it in Manhattan
The department store chain broke ground in the Big Apple in April with the grand opening of its men’s store and plans to unveil the adjacent women’s outpost in fall 2019.
What’s the draw? Other than the marketing pay-off of having a presence in the concrete jungle, Nordstrom sees a $700 million sales opportunity in Manhattan.
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“It’s really important to know, from our perspective, we have a total market approach for New York — it’s not just about what happens in the four walls,” Kenneth Worzel, chief digital officer and president of Nordstrom.com, told investors. “New York is already our No. 1 market for online sales. But we also know from experience that when we add to a digital-only experience, a flagship store experience, it not only generates four-wall sales, it generates a big lift in our digital business with customers. So we have a lot of confidence that New York remains on track to be a $700 million-plus market opportunity as we go forward with the maturation of our New York strategy.”
Living La Vida Local
The company unveiled its smaller concept shop Nordstrom Local in Los Angeles last year and is now ready to step on the gas, putting particular focus on LA, where it sees $1 billion in full-price sales.
“We’re here in LA because it is our top market and it’s where we’re starting this journey of really focusing on local markets,” Worzel said. “If you look at the combination of LA and New York … those two markets combined will represent over 25 percent of our full-price business … For customers, what we’re really doing is helping them be able to leverage our local market assets, our local market assets of people, product and place to serve them better.”
The company plans to open at least two more Nordstrom Local spaces — which offers trendy services like personal styling and manicures in lieu of inventory — in Los Angeles and eventually New York.
The Top Line
Of course, all of Nordstrom’s strategies would do little good if they didn’t improve the company’s bottom line. For now, the firm maintained its fiscal 2018 guidance — calling for sales of $15.2 billion to $15.4 billion and profits of $3.35 to $3.55 per share. However, it revealed new five-year compound annual growth rate of 3 to 4 percent.
“This reflects growth from generational investments of roughly $2 billion as well as around $1 billion from our core businesses with growth to be more balanced between full-price and off-price,” CFO Anne Bramman said.
Leveraging Off-Price
Between 2012 and 2017, Nordstrom’s off-price businesses — comprised of HauteLook and Nordstrom Rack — saw a 13 percent compound annual growth rate, outperforming competitors in 20 of the last 21 quarters, the company said.
It’s no wonder the firm sees the discount channel as a significant part of its plan for the five years ahead.
“For us, for Nordstrom to win, off-price has to be successful,” co-president Blake Nordstrom said. “There’ll be times over the years where one quarter full-price is better than off-price or off-price is better than full price, but over the long haul, we need a strong and robust off-price business.”
More specifically, Nordstrom said the firm’s off-price business — particularly Nordstrom Rack — helps it move merchandise, “create newness,” and build vendor partnerships. So much so that it has grown to become its No. 1 source of new customers. (Whereas Nordstrom full-line stores have a larger appeal among 40-something-year-old customers with household incomes of over $100,000, the off-price off-shoots draw in a younger, less affluent crowd.)
