On Thursday, Nordstrom announced its latest earnings, including disappointing sales for Nordstrom Rack. It hinted the days of the off-price cash cow are coming to a close.
For the third quarter of fiscal 2017, Nordstrom reported “deterioration” in its off-price business Nordstrom Rack: Comparable sales for Rack fell 5 percent, bringing its growth trend to a halt. In the six quarters prior, total comparable sales (in store and online) had grown 2.3 percent, which accounted for a 3.1 percent hike in the second quarter alone.
“Our sales plan at the beginning of the year was too aggressive,” said Nordstrom president Blake Nordstrom. “As a result, we found ourselves over-inventoried without the fluidity necessary to chase the business.”
For many, the appeal of the off-price business model is the “treasure hunt” experience it provides. For those in search of a killer deal, seeing the same inventory repeatedly doesn’t fly. Nordstrom said plans are in place to right course in the fourth quarter.
Nordstrom has been investing heavily in the Rack concept, opening 15 new stores in the U.S. and Canada this year. It currently has 232 locations and plans to build on that number in 2018.
A number of Rack’s competitors — Moody’s Investors Service calls TJX Companies, Ross Stores, Burlington and Nordstrom Rack the leaders in the space — are aggressively expanding, as well. For example, TJX — the parent company of off-price retailers including T.J.Maxx and Marshalls — has added nearly 200 stores this year alone.
As a whole, Nordstrom’s earnings were strong. Revenue came in at $3.6 billion, up 2.5 percent year-over-year and surpassing predictions. Net sales grew 2 percent, to $3.5 billion.
Nordstrom touted success with Nordstrom Local, a test concept centered on services like styling and alterations; the Reserve Online and Try In-Store service; and in-store boutiques and capsule collections.
“While Nordstrom Rack has been the cool kid for a while, it’s lost its luster,” said said Adrien Nussenbaum, U.S. CEO and co-founder of marketplace platform Mirakl. “Pure off-price players like Ross and T.J.Maxx are seeing stronger results. It might be time for Nordstrom to decide if it wants to be a full-price or an off-price retailer, and establish a single identity.”
