By Neil Saunders
Nordstrom has bucked the gloom associated with other department stores to post a strong set of second-quarter numbers. Total sales rose by a robust 7.1%. A helpful shift in revenue recognition from the Anniversary Sale was the cherry on top of a good underlying performance, which saw comparables increase by a solid 4.0%.
As other department stores suffer from the withdrawal of premium brands, Nordstrom has actively developed proprietary labels and partnerships. This has allowed the company to stand out in a sea of sameness and has given customers a reason to visit.
On the bottom line, net income increased by 47.3%. As well as higher sales volumes, this healthy uplift was aided by less promotional activity and lower rates of discounting. Much of this is due to the fact that Nordstrom has worked hard to create a compelling and differentiated assortment, especially in fashion, which has both protected margins and stimulated sales growth. As other department stores suffer from the withdrawal of premium brands, Nordstrom has actively developed proprietary labels and partnerships. This has allowed the company to stand out in a sea of sameness and has given customers a reason to visit.
Developing, growing the Rack
An excellent assortment is not the only area where Nordstrom has succeeded. The company has, for a long time, invested in its retail proposition. This means that it has far fewer legacy issues, such as a long tail of shabby stores in need of investment. This ensures that gains in sales fall quickly through to the bottom line.
Historically, Nordstrom has also been savvy at making sound strategic decisions at the right time. One of these was to develop and grow the Rack business, which has provided a strong stream of growth over the past few years. This quarter was no exception with the off-price business growing by 7.1% on a total basis and by 4.0% in comparable terms. This comes as a slight relief after a softer performance last quarter caused by a sub-optimal product mix and some issues with inventory. That Nordstrom achieved much better numbers this time around underscores the continued value and relevance of its off-price division.
Looking ahead, we see further significant opportunities in off-price. These include increasing the penetration among male shoppers and doing more in categories like home. Both of these things, along with future store openings, especially in Canada, should help Nordstrom further grow.
Benefitting the most from upswing in spending
In the full-price part of the business, comparable sales grew by a comfortable 4.1%. However, total revenue was dragged down by the sales return reserve allocation. Over the period, a more confident consumer traded up to higher-end fashion products, which helped Nordstrom’s sales. Out of all the mainstream department stores, Nordstrom benefitted most from this upswing in spending at the premium end of the market.
Online and omnichannel also played a role in Nordstrom’s growth. Over the same period last year, digital sales increased by a respectable 23%. This is a little way above the total market indicating that Nordstrom is still gaining share online. Nordstrom has worked hard to create as seamless a shopping process as possible, including the introduction of Nordstrom Local stores, and this is paying dividends. Its advanced thinking gives Nordstrom a significant opportunity to further improve the shopping experience across all channels and bolster its share.
Overall, Nordstrom is in good shape. It is certainly benefitting from the strong consumer economy, but it is also helping itself to superior growth.
Neil Saunders is managing director of research firm GlobalData Retail.