The second quarter marked something of an improvement for the apparel business, but Nordstrom Inc. is taking a conservative approach with hopes of having to chase business this fall if the fashion rebound is for real.
Michael Koppel, Nordstrom’s chief financial officer and executive vice president, said: “Roughly a year ago now, we started to see a fairly precipitous drop in sales…and what you started to see in the second quarter was the stabilization….We are not looking for any substantial change in the trends. I think one of the things we’ve all learned in this business, sometimes when you get a little out ahead yourself, you create a high-risk profile for your business and that’s what happened last year. We have found there is much better value if business does perform better than we expect to chase it a little bit more.”
Koppel was speaking to analysts at The Goldman Sachs 23rd annual Global Retailing Conference in New York, where he was repeatedly asked about the digital revolution that’s pulled retail off its moorings.
“We’re like many others who are seeing traffic declines in malls,” he said. “On the other hand we have seen very good growth in the e-commerce business and you know, we’ve been pretty clear over the years in saying we’re relatively somewhat agnostic about where customers shop as long as they are shopping with us, because how you know forcing a customer to shop in one channel versus another channel isn’t necessarily a good service experience because it’s more about the company than it is about the customer.”
This fall, Nordstrom is going to start offering a buy-online-try-on-in-store option — a spin on the buy-online-pick-up-in-store craze, where the store will reserve looks a shopper requests and put them in a dressing room.
That is just one minor tweak in what’s been a whole host of changes brought to retail by the rise of e-commerce and the increasing competitiveness of Amazon.
“One of the biggest challenges we have in our industry is that for a long time, we operated it on a relatively well understood highly predictable four-wall model, that was built well over half a century ago that everybody understood, learned how to make it operate and got very good at it,” Koppel said. “Now all of a sudden we’re dealing with two models and the four-wall model is high fixed cost base, which means when the sales improve you leverage, when sales go down, you don’t leverage. And then we have an e-commerce model that has a very high variable component.”
So the Internet business continues to cost more as it grows, while stores become more profitable.
“We’re all working through as to what is the best way to operate that model, I think economics are creating new ways to do things, new ways to be productive,” Koppel said.