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Nordstrom Details 'Go Forward' Strategy

Key industry customer Nordstrom outlined it's inventory strategy during COVID-19 closures and inventory plans for the rest of Summer during an earnings call Thursday afternoon.

In other big news, the company said it is merging it's full price and off-price teams to streamline processes and cut costs, a major restructuring of the company. Nordstrom is also downsizing it's corporate staff.

The goal is to be leaner and more flexible, executives said.

Aggressive Inventory Moves

Inventory is Nordstrom’s biggest lever for reducing cash burn and increasing liquidity, CEO Pete Nordstrom said.

After stores closed in March, the company moved aggressively to cut incoming receipts, reducing orders by 80% for April and May. And while Nordstrom is not known for being promotional, it reduced prices aggressively during the quarter to unload excess inventory. As a result of those actions, the company ended the quarter with inventory down 25% compared to the same period last year.

Pete Nordstrom said that puts the company in a good position to bring in fresh merchandise starting in June and reduces the need for extreme promotions going forward.

However, the company expects the competitive environment to be extremely promotional in June and July as more stores reopen and thus Nordstrom may need to respond in kind.

The company also pushed back its annual Anniversary Sale to August so it wouldn’t have to compete with the expected overload of sales in the marketplace in July, the month when the Anniversary Sale is typically held.

With its off-price chain Nordstrom Rack, the company cut nearly all receipts through Q2 to take advantage of what it sees as an excellent buying opportunity because brands have warehouses overflowing with goods. It also wanted Nordstrom Rack to have room for excess inventory from the company’s full price stores.

Nordstrom has used it's full price stores to help fulfill online orders for years. Typically about 25% of online orders are fulfilled that way, but that jumped to 50% during the store closures. The company also added store fulfillment capabilities to Nordstrom Rack during the quarter.

Q1 Results

  • Total sales fell 40% to $2 billion for the quarter ended May 2.

  • Net loss totaled $521 million compared to net earnings of $37 million the same period last year.

  • Gross margin totaled 11% vs. 34% during the same period last year because of increased markdowns and deleverage from lower sales volume.

Not Much Clarity on Store Performance

Unlike many other publicly traded retailers, Nordstrom did not detail how reopened stores are performing compared to last year. Executives only said off price stores were exceeding expectations, and full price stores were in line with expectations. However, they did not quantify what those reopening expectations were and how they compare to the typical sales levels in stores.

They cautioned about reading too much into sales trends since only 40% of Nordstrom’s total fleet is open, and those stores have only been open for about two weeks. Plus, Nordstrom’s biggest markets such as California, New York and Seattle are still closed.

Changing Sales Mix

The off price and e-commerce businesses combined now account for 60% of Nordstrom’s total sales, while the U.S. full price business accounts for 38%. They expect that shift to accelerate going forward.

Store Closures

The company previously announced it is permanently closing 16 full price stores, which are older stores in the fleet and are located in markets with multiple full line stores.

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