Nordstrom Rack Takes On Renewed Urgency as Luxury Retailer Departs Canada
BY PYMNTS | MARCH 2, 2023
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Nordstrom Considers Spinning off Rack
Nine years after taking its high-end brand north of the border, luxury retailer Nordstrom says it will now shutter all 13 of its Canadian locations to shift focus on revamping its struggling off-price Rack division.
“We entered Canada in 2014 because we believed it presented a compelling opportunity,” Nordstrom CEO Erik Nordstrom told analysts on the company’s Q4 conference call Thursday (March 2), noting that despite the company’s best efforts and the many great customer relationships it had built over the years, the Canadian business was never profitable.
“Canada accounts for less than 3% of our total sales, and we believe [by closing it] we will benefit from a sharper focus on our U.S. business,” he added, without making any mention of the company’s new top outside shareholder, billionaire activist Ryan Cohen.
The news comes as the Seattle-based and family-controlled brand confirmed preliminary results it pre-announced a month ago that its companywide fourth quarter sales fell 4.1% for the three months ended Jan. 28. This, compared to a 2.4% Q4 sales decline at the flagship stores, a dip that paled in comparison to the 8.1% drop in sales at Nordstrom Rack and the 13.1% dive in its digital revenues.
According to the company, most of the revenue declines at the Rack were the result of the company’s own actions.
“We estimate that a little over half of the [sales] decrease was driven by specific actions we took to improve profitability,” Nordstrom said, namely eliminating costly Rack store-based order fulfillment and raising the minimum amount to receive free ship-to-store delivery on Rack.com order. “These actions reduced order cancellations, simplified Rack operations and improved profitability but [they also] negatively impacted top line growth at the Rack,” he added.
As to the digital sales decline, Nordstrom said the Rack fulfillment change played a hand in that slump too, as did the sunsetting of its Trunk Club curated clothing subscription business.
In addition to improving performance at the Rack, the new generation of leaders running the 120-year-old brand said their other two priorities include increasing inventory productivity and continued efforts to advance supply chain optimization.
For President and Chief Brand Officer Pete Nordstrom, that also means a push to drive greater customer engagement, and in turn, profitability, via what it is calling a strategic focus on 100 top brands.
“By increasing the penetration of strategic brands online and leveraging our digital marketing capabilities, we will drive traffic and sales both at Nordstrom Rack.com and in our stores,” Pete Nordstrom said, before pointing to plans to boost omnichannel engagement across all brands.
As it is, Nordstrom said 1 in 5 Nordstrom.com buy online, pickup in-store (BOPIS) orders are picked up at Rack locations.
Given that the off-price unit now accounts for 30% of Nordstrom’s sales and nearly half its new customers, it is unsurprising that rehabbing — and growing — the division is a top priority.
“We’re expanding our reach and convenience for customers by opening 20 new Rack stores this year,” Nordstrom said. “Rack stores continue to be our largest source of new customer acquisition, accounting for more than 40% of newly acquired customers in 2022.”
Shares of Nordstrom are still sitting on about a 20% year-to-date advance, having slipped from their early February peak after a 35% rally following reports that Cohen, the billionaire Chewy founder, was adding a stake in the luxury retail to his turnaround portfolio, which includes stakes in GameStop, and Bed, Bath & Beyond.
