Nordstrom investors balk at 5-year plan
Nordstrom has some lofty goals over the next five years and some investors don't seem to think they're feasible. Shares of the department store retailer fell on Tuesday morning by as much as 6% after the company issued new guidance that anticipates net sales will grow between 3% and 4% on an average annualized basis from 2017 to 2022.
The company also reaffirmed its annual outlook for the year with expectations to rake in net sales of between $15.2 billion and $15.4 billion. The company anticipates comparable sales will increase between 5% and 1.5%. The company also formally announced it will expand the merchandise-free Local concept with two more stores opening this fall in the Los Angeles area.
During a presentation for investors, Nordstrom executives laid out a number of initiatives aimed at getting the company to those growth targets. In short, the retailer is focused on three things: making more investments in digital as well as full-price, off-price and new markets; improving profitability and returns to investors; and maintaining disciplined capital allocation.
Nordstrom has big ambitions for growth, but investors and analysts don't seem to be entirely convinced. The upscale department store retailer was downgraded by Cowen & Co. analysts early this month, citing pressures on full-line sales, store traffic and margins and a need to improve its off-price Rack division.
Executives on Tuesday acknowledged that women's apparel at Rack missed the mark in a big way and that they're attuned to what they need to do to execute better. Off-price comps grew just 0.4% in the first quarter of 2018, down from 4% growth in the fourth quarter of 2017.
To meet the companies goals overall, executives said they're planning to invest in marketing to develop more personalization capabilities, technology to product early investments to modernize its platform and delivery to aid all stages of the shopping process. More strategic relationships with brands like Reformation are also a priority, with the focus being on four buckets: preferred brands, designer, emerging and private label.
Services and customer service, which sit at the very core of Nordstrom, are being touted. Executives highlighted the local market strategy as a "key part of our ability to win." If the company's new service-centered stores, which unlike full-line stores do not contain racks of clothing, continue to show the same promise as the first location (which opened up last fall), more could pop up in other key markets like Manhattan, Chicago and San Francisco.
Not everyone is hesitant to accept Nordstrom's plan. Bloomberg Opinion's Sarah Halzack wrote on Tuesday that growth plan seems feasible, citing new initiatives like its men's store and slated new flagship in New York City. It's priorities also fall in line with spaces that allow for growth, and stay away from competing directly with Amazon.
"Nordstrom has successfully nurtured relationships with aspirational brands — from newcomers such as Allbirds and Reformation to luxury powerhouses such as Gucci and Valentino," she wrote. "Upscale brands of that kind largely can’t be found on Amazon. And it doesn’t hurt that Nordstrom was early to offer free shipping and free returns to remove some of the risk of shopping for such goods online."
- Bloomberg Opinion Nordstrom Investors Spurn Growth Plan That Fits Just Fine
- Retail Dive A peek inside Nordstrom's merchandise-free 'Local' shop
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