Retailers that try to get traditional margins on mid-market merchandise are getting the business, and not the good kind, courtesy of Amazon.com, Inc. (NASDAQ:AMZN). So it is no surprise that Macy’s Inc (NYSE:M), J C Penney Company Inc (NYSE:JCP) and Kohl’s Corporation (NYSE:KSS) are barely hanging in there … but Nordstrom, Inc. (NYSE:JWN) stock should be different.
That’s because JWN sells high-end merchandise with an extremely helpful staff, acting as personal shoppers rather than clerks, whom make me look good. Well, et tu Nordstrom?
The company’s same store sales fell 0.8% for the quarter ending in April and JWN stock was taken out behind the woodshed Friday, with shares opening at $43.57 after closing on May 10 at $50.
As the late Jimmy Breslin wrote, quoting Casey Stengel, “Can’t anyone here play this game?” In this case, the game is retail. Why, yes. Some companies are surviving “retail-mageddon” quite well. And JWN stock actually fits into that mold.
Cut Margins
Costco Wholesale Corp. (NASDAQ:COST) is holding up. COST stock is up 17% in the past year. It paid a special $7 per share dividend on May 8, and it did it with wafer-thin margins, estimated at less than 13%. Costco relies on memberships for its profit, and it doesn’t even take all of it to the bottom line.
Then there’s Wal-Mart Stores Inc (NYSE:WMT), which is up over 10% so far in 2017 because it takes retail margins of just 25%. By contrast, Macy’s, like Sears Holding Corp (NASDAQ:SHLD), is in the position of hocking the family silver to stay in business. It reportedly will sell its flagship store in Chicago, and the huge store in New York’s Herald Square could be next.
Companies that can’t live with low margins and sell me-too merchandise, can be replaced at a click. They have nowhere to go because we have somewhere else to go.
Be Exclusive
Nordstrom, is trying to get by on service and exclusivity. In today’s stock market, that’s just a way of hanging in, as Lululemon Athletica inc. (NASDAQ:LULU), now selling midway between its 2014 low and 2015 high at $54 per share, demonstrates.
The difference is that all is not lost, as it seems to be for the mid-market retailers. Capital Research Global Investors recently took a position in Lululemon, which designs and sources its own merchandise, then sells it in its own stores. The stake is worth $832 million, barely one-tenth its AMZN stake, but worth noting.
Ulta Beauty Inc (NASDAQ:ULTA) is also growing on exclusivity. ULTA stock is up 43% over the last year, and revenues are growing as fast as those at Amazon. Its “superstore of beauty” delivers service, not just sales, and is replacing many of the salons, spas and make-up stores that once cluttered American main streets.
Nordstrom, for what it’s worth, has a similar formula for success in the new retailing environment.
How Nordstrom Will Make It
The same store sales number was the worst news in what was otherwise a decent report for JWN stock. Earnings of 43 cents per share easily beat Wall Street estimates of 27 cents. Sales, too, were in line with estimates, at $3.35 billion.
The company’s Nordstrom Rack stores, a lower-margin business, saw sales increase 8.7%, and online sales were up 24%.
My own guess is that Nordstrom has a formula that can make it a survivor in this market, that people who want service, and can pay for it, are going to continue going there, and that its early-day collapse is the result of reporting alongside so many other retail names that don’t have such great stories to tell.
But that could be just wishful thinking.
Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
