Nordstrom posts 64% Q1 profit drop

But talks up e-commerce.

US Seattle-based department store chain Nordstrom has reported Q1 profit down 64% year-on-year. Same store sales decreased 1.7%, failing to keep pace with analyst expectations of flat sales.

However, despite the overall weak performance, the company’s online channels have performed well, accounting for more than 20% of sales. Sales across Nordstrom’s online channels were worth US$661 million in the first quarter of 2016, up 10.7% from last year.

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“Our first quarter results were impacted by lower than expected sales. In response we have made further adjustments to our inventory and expense plans,” Nordstrom co-president Blake Nordstrom said.

“As the pace of change in retail continues to accelerate, we remain committed to serving customers by taking steps that will continue to meet their expectations while driving profitable growth.”

As a result of the poor earnings report, Nordstrom shares sank 17% in after-hours trading.

In an effort to address the overall weak results, the retailer has outlined a number of measures, including in increased focus on its online strategy to try to bolster its thin e-commerce margins and capitalise on the growth of its online channels.

“One of the ways that we’ve been able to expand and grow our online business is through expanding the assortment and, at the same time, we also found that through expansion, some of our price points got to some lower levels; that it becomes more difficult to make money on. So we’re evaluating that,” Nordstrom CFO and EVP Michael Koppel said on an earnings call.

“We are refining our online assortment through greater focus on key brands and categories while editing less profitable items,” he said. “We’re also improving our merchandise allocation process between stores and fulfilment centres, leading to a reduction in split shipments, lower cancellation rates, and better in-stock positions, all of which ultimately improve our customer experience.”

Blake Nordstrom emphasised the off-price part of Nordstrom’s business, which includes HauteLook and Nordstromrack.com, as a way to drive online traffic and strengthen profit. “That’s a newer business for us. It’s been on a pretty steep curve. We have a much more mature business on the full-price side of it, and so [the off-price has] been contributing greatly.”

While online price discounting had hit Nordstrom’s bottom line, customer experience remains at the heart of the retailer’s online strategy. “There’s some heavy, heavy discounting going on. And we’re seeing that effect in our business,” co-president and director Erik Nordstrum.

“What gives us confidence and what we’re determined to stay focused on is giving customers great merchandise, a reason to come and buy something new, and give them a great experience.”

Part of that experience is price matching, which means bowing to the heavy discounting online to ensure customer trust.

“We have been more purposeful for, I’d say, the last couple years of matching price on products online, really for big online retailers, wherever they may be because there is no regionality to e-commerce,” Erik Nordstrom said.

“And that has served us well in gaining trust with the customers. We do not look to price matching or price promotion in any way as being a big strategic lever and a way of driving our top line. We look at price matching as a customer respect and a customer trust issue; that when a customer comes to us, they know that they’re being treated fairly.”

“On the technology and e-commerce side, we are investing to create a more seamless experience across stores and online,” Blake Nordstrom said. “This reflects continued modernisation of our technology platform, including a scalable merchandising solution as well as service and experience features. These are significant projects. They account for two-thirds of our overall technology investments this year.”

 

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