Nordstrom Inc. admits it’s seeing the “Amazon effect.”
Seeing thinning mall traffic and broad-based softness across channels and many categories, the retailer on Thursday reported a 64 percent drop in first-quarter net earnings. Nordstrom’s poor results followed similar ones from Macy’s Inc., Kohl’s Corp. and Dillard’s Inc.
“There’s a general softness and malaise across multiple parts of the business,” Pete Nordstrom, co-president, told WWD in an interview. “It’s not a regional thing. It’s not a product specific thing. It’s happening to everybody.
“Clearly Amazon is a major factor in our industry. No doubt about it. How much does it impact us, I don’t know, but we take it really seriously. They’re a formidable competitor. Our traffic is down. If you look at the brick-and-mortar part of our business, that demand didn’t just entirely go away. Amazon has a lot to do it.”
Nordstrom said the malaise could be cyclical. “Every six or seven years, the industry goes through some cyclical stuff. Election years typically have enough uncertainty. If you step back, it’s not as though this is a complete anomaly. The difference is the online business — Amazon.”
The retailer said first-quarter net earnings fell 64 percent to $46 million, compared with net earnings of $128 million in the year-ago period.
Earnings before interest and taxes were $106 million, or 3.3 percent of net sales, compared to earnings before interest and taxes of $245 million, or 7.9 percent of net sales during the same period in fiscal 2015. Diluted earnings per share were 26 cents, compared to 66 cents a year ago.
Total sales increased 2.5 percent to $3.2 billion, versus $3.1 billion a year ago, while comparable sales decreased 1.7 percent.
“Despite our focused efforts through this current environment, we are not satisfied with our results,” said Blake Nordstrom, co-president, during a conference call. He cited pressure on margins and said the company had “aggressively addressed our inventory position. Our lowered inventory plans puts us in a much stronger position to manage our business more proactively.”
“The clearance and promotional environment is really noisy,” said Erik Nordstrom, co-president. “There’s a lot of excess merchandise in the marketplace. We are seeing heavy, heavy discounting.”
There was broad-based softness across stores and online. Jewelry, handbags and some larger brands saw tougher trends. Nordstrom did not specify the brands hurting the most.
However, exclusive lines and those with limited distributed at Nordstrom, such as Madewell, Topshop, Brandy Melville and Ivy Park from Beyoncé, continued to perform well. “We still have good examples of product that comes in and performs exceeding well,” said Pete Nordstrom. “Anywhere we can do something limited to our stores around a brand a customer has confidence and interest in, that’s a great formula for us. We are big enough that we can create some special programs that can be really compelling to a vendor.”
“The customers are coming to us for newness and a great experience. That portion of our business remains pretty darn healthy,” said Erik Nordstrom, co-president.
In April, the company unveiled efforts to reduce expenses by $60 million, including cutting 400 jobs, or 7 percent of corporate positions.
“We expect uncertainty in sales trends will continue and have built that into our outlook,” said Mike Koppel, executive vice president and chief financial officer.
Among the steps to drive better top-line growth and customer experience, executives cited an expansion of the rewards program, which only one of five customers participate in. Rewards customers spend four times the amount and visit the store three times as much as other customers.
Nordstrom is also investing to create a more seamless experience across channels, including a scalable merchandising solution and updating the scheduling of staff in stores, and opening two more full-line stores in Canada, both in Toronto in the fall, as planned. Nordstrom executives said the Canadian stores could be among the chain’s highest-volume stores. The company also has full-line stores in Vancouver, considered the international flagship, Calgary and Ottawa, and a sixth will open in 2017.
The Rack continues its steady expansion, with six opened so far this year and another 15 set for the fall. The outlet chain experienced some softening in last year’s third and fourth quarters, but improved in the first quarter of this year.
The company is conducting a “thorough review” of its five-year capital plan, where it could reduce expenditures.
While brands remain an important part of Nordstrom’s presentation, the company is also seeking to increase the penetration of Nordstrom Product Group, which accounts for about 10 percent of the business and is growing relatively faster than the branded part of the business and has better margins.
There has been some speculation that the downturn of the retail industry, as well as New York’s saturated luxury housing market, could impact plans for Nordstrom’s Manhattan flagship on 57th Street, planned for a 2019 opening.
“We just met with Extell,” the developer of the site, where Nordstrom will occupy the first seven levels, and luxury condos will be built above. The market for luxury residences in Manhattan has reportedly slowed, which could complicate funding the project.
“We’re still marching toward the 2019 opening,” Nordstrom said. “There are a lot factors out of our control. It’s a complex project.…We invested a lot of money. We are highly motivated, but it’s not entirely within our control. Progress is being made — the whole shell of what we are doing is pretty much built. The floors are in. It’s moving right along.…It’s a go. We are going to be there.”
Nordstrom has assembled four neighboring parcels in the Columbus Circle area, creating a formidable footprint in a pocket of the city that’s filled with affluent residents and tourists yet remains a relative void in terms of fashion retailing, with 225 West 57th Street, the flagship’s biggest component. It will have seven levels and 292,000 square feet at the base of Extell Development Co.’s Central Park Tower, which will be the world’s tallest residential building at 1,550 feet high, with a spire reaching another 200 feet.
According to a statement from Nordstrom Inc., “Plans for our Manhattan full-line store, which we expect to open in 2019, ultimately include owning a condominium interest in a mixed-use tower and leasing certain nearby properties. As of Jan. 30, we had approximately $176 million of fee interest in land, which is expected to convert to the condominium interest once the store is constructed. We have committed to make future installment payments based on the developer meeting pre-established construction and development milestones. In the unlikely event that this project is not completed, the opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our previous investments in the land.”