Nordstrom is in a bit of a pickle. Customers aren’t spending as much in the company’s department stores, and the Seattle retailer is facing new competition from Amazon.com which is expanding into fashion in new ways.
This conundrum was all too apparent in the company’s fourth quarter earnings released this week.
Sales at Nordstrom’s 117 department stores decreased 3.3 percent during the fourth quarter, compared to the same period last year, and were down 2.1 percent for the full year. Meanwhile, sales per square foot at the company’s retail stores decreased 2.4 percent. Overall, total sales of $3.6 billion were essentially flat when compared to the fourth quarter of 2012.
At the same time, online sales increased 30 percent.
The situation is pretty apparent. Nordstrom’s historical business is getting run over by the emerging online channel.
So, what is Nordstrom to do?
Well, for one, it is betting big on Internet retail, saying this week that it plans to boost spending on the channel. The company now plans to spend 30 percent of its capital expenditures on online retail and other technology expenditures over the next five years, up from 20 percent in the past, reports The Wall Street Journal.
In the earnings release, the company said it will spend between $840 million and $880 million this year, compared with $714 million in fiscal 2013, with the increase tied to added investments in online retail, Nordstrom Rack expansion and entry into Canada.
Online efforts are critical to Nordstrom’s future, but they come with a cost. Stock analyst Richard Jaffe said this week that there’s an “uncertain correlation to sales growth and increased profit contribution” from online retail. He cut his rating on Nordstrom stock — which is up seven percent in the past year — to “hold” versus “buy.”
Nordstrom has been more experimental than many traditional retailers when it comes to online retail, as well as how it combines physical and digital shopping. It has partnered with online jewelry retailer Blue Nile, as well as incorporated Pinterest into the physical shopping experience.
Will those types of efforts be enough to keep Nordstrom humming for another 113 years?