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Nordstrom Inc. is looking for big-time growth online.
This story first appeared in the September 12, 2013 issue of WWD. Subscribe Today.
“Our e-commerce business, it was $1.3 billion last year, and we think it could be maybe roughly $6 billion by 2020 and significantly grow market share,” said Blake Nordstrom, president, at the Goldman Sachs 20th Annual Global Retailing Conference in New York Wednesday.
Analysts project the Seattle-based retailer will post sales of $12.6 billion this year, including e-commerce, full-line stores, the Nordstrom Rack off-price division and flash-sale site HauteLook.
Nordstrom assured investors at the conference that the online and offline worlds work well together.
“It helps our full-line stores to have a robust e-commerce offering,” the executive said. “I think if you dig into our business a little bit, the e-commerce business has been really healthy. We’re showing a little bit of softness in the full-line stores….It is not fair and appropriate to say e-commerce is taking some of those sales. We just think there is a higher bar from a customer about the customer experience that needs to happen in the stores.”
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Nordstrom’s $6 billion projection shows just how far e-commerce still has to go. Despite all the buzz and executive focus around everything digital, e-commerce accounted for just 5.3 percent, or $60.22 billion, of total retail sales in the second quarter, according to the most-recent Commerce Department figures. But the channel is expanding fast and grew at an 18.4 percent clip versus a year earlier.
And Nordstrom is also working to keep its brick-and-mortar doors churning.
The company sees its move into Canada as a $1 billion-plus opportunity, and the 127-door Rack unit, which drew sales of $2.4 billion last year, is expected to grow to more than 230 doors by 2016.
“Eighteen percent to 19 percent of the merchandise in the Racks originated from the full-line stores,” Nordstrom said. “One of the reasons for the Rack is to get that merchandise as quickly and as efficiently out of the full-line stores so we can turn the fashion in full-line stores.”
The company is opening its first full-line store in Manhattan in 2018. Nordstrom said the store “will be about 280,000 square feet on seven floors.…I went to visit it last night. It’s a hole right now. You can see there’s a lot of work to take place between now and then. It will be over 1,500 feet high. We’ll have seven floors, two below grade…above us will be a high-end athletic club. Above that will be a high-end hotel and then condominiums.”
Also selling its growth story to investors at the conference was Wal-Mart Stores Inc.
The world’s largest retailer hasn’t spoken a lot about apparel in recent years. After the Metro 7 debacle in 2005 when the company tried to make the leap into fashion — it flopped and was cycled out of stores — Wal-Mart returned to selling basics and decided that the less said about apparel, the better. That’s until the category started performing.
“The greatest story for us is in home and apparel,” said Bill Simon, president and chief executive officer of Wal-Mart U.S. “Home and apparel may be the story of the year for us. We have a great new team in place and a focus on some basics. I’m very proud of how things have turned around.”
Ben Hogan and Avia athleticwear are among the new brands in stores. Russell Athletic is bowing in the third quarter. Simon said Wal-Mart’s strategy was not to oversell its apparel offerings, but to surprise consumers with more than they were expecting. “If you can take a basic promise to customers and deliver a plus to exceed their expectations — we think we have that in place today,” he said.
Simon praised Wal-Mart’s senior merchant team for home and apparel. “It is as good as it’s ever been,” he said. “These are really talented people and they’re experts.”
Simon said Wal-Mart is aiming for staying power among its merchants. “With long lead times in categories like home and apparel, you have to be there for a while,” he said. “If you’re buying for a season, then skedaddle, you’re not learning.”
Wal-Mart has succeeded with basics, so now it “gets permission to sell fashion basics in apparel and a little fancier [product] in home. With the acquisition of some great national brands in home and apparel, we’re selling fashion basics, and we’re seeing great response to that,” Simon said.
“Increasingly, access is becoming more important to customers,” Simon said, explaining that giant Supercenters aren’t always convenient. “We have an opportunity to take the brand closer to our customers,” he said. “Supercenters have the best returns. Neighborhood Markets are providing operating leverage and returns approaching Supercenters.”
In the next 18 months, Wal-Mart will unveil 200 new Neighborhood Markets for a total of 500 units, and there are plans for more. Wal-Mart Express’ 20 stores are logging double-digit comps. The “little hybrid stores” of 10,000 to 12,000 square feet compete against dollar stores, drug stores and small groceries. “Drug and dollar have created quick-trip fill-in occasions,” Simon said. “That’s fascinating to us. We’re evaluating how to respond with smaller stores.”
Here’s a look at what other top executives had to say at the two-day conference.
John Idol, chairman and ceo, Michael Kors Holdings Ltd.
• “We’re not going to continue forward with 30 percent comp-store sales forever.…If this company can continue to grow at double-digit comp-store sales in North America, and obviously much greater than that in Europe and Asia, that’s what we’re going to consider to be healthy.”
• “We did about 84 percent of our business the first quarter in accessories, which is our handbags, our footwear, our watches, jewelry, eyewear.…We are a unique North American designer brand in that we are so dominated by accessories, much closer to European luxury brands, and it was, quite frankly, our model.”
• “We think that North America, the business is healthy…we think the American consumer is feeling positive and we see her shopping.”
Frank Conforti, chief financial officer, Urban Outfitters Inc.
• “The Urban brand right now is the brand that is the most challenged out of the three big brands that are in our portfolio.…We’re certainly not blind to some of the news and what’s going on in the industry and whatever is going on with the consumer. But right now we believe that we can do a better job executing.”
• “We feel like we’re competing with everyone that’s out there on the Web, social media, news, people who are selling products, because we feel like we’re competing for the consumers’ attention.”
• “There’ll be a certain amount of capital that will be deployed for [mergers and acquisitions]….What we’re looking for is small companies that have talented management teams and have significant growth opportunities….The company could be a wholesaler. They could operate stores, they could operate online and they could operate in all three.”
Robert Hanson, ceo, American Eagle Outfitters Inc.
• “D through F mall, regional mall doors that are under pressure in general, are going to be under pressure from technology and the growing outlet channel distribution. So we’re looking very carefully at that, and we’ve established nonnegotiable hurdle rates….Given our balance sheet and given the returns that our new initiatives are driving, we have no hesitation to take action on those stores.”
• “We think that the consumer environment is choppy, and what we’re doing is reacting aggressively in that situation to improve our own performance and control the controllables.”