There is a myth in America that looking good isn’t worth it.
You see it in the streets — people in their 70s walking around in t-shirts and gym shorts. You can even see it on TV, with anchors going on without ties, slowly dressing down to meet the audience.
It is this, far less than Amazon.Com (NASDAQ:AMZN), that has been killing Nordstrom (NYSE:JWN). And maybe the trend is finally ready to change.
On Aug. 16, JWN stock managed to surprise Wall Street by earning $162 million, 95 cents per share, for the quarter ending Aug. 4, against $110 million or 66 cents per share a year ago. This beat estimates by 11 cents per share. Revenue was up 7.1% to $4.07 billion.
Why Now?
The company’s efforts at e-commerce were given much of the credit, but same-store sales rose 4%. And the results were the same across the board — at both the Nordstrom Rack discount chain and the department stores.
In some ways, this should not have been a surprise. With new homes unaffordable, consumers have been rushing to stores this summer. Walmart (NYSE:WMT) and Home Depot (NYSE:HD) both did well in the second quarter.
But with JC Penney (NYSE:JCP) and Macy’s (NYSE:M) disappointing, why was JWN stock a standout?
It’s because people who can afford quality see bargains there. I demonstrated this to my son recently, having him buy a suit jacket at a discount clothier, while I went to a Nordstrom for a suit. My suit cost less, and the service was great.
People will pay for good service. People will pay for people to help them look their best. If consumers see value, they will pay for service. Call it the Lululemon Athletica (NASDAQ:LULU) effect. That stock has more than doubled this year, with quarterly sales up 13% sequentially, thanks to great service and perceived value.
Perhaps, too, aging baby boomers whose kids are grown are tired of looking like slobs.
Why Nordstrom?
Nordstrom has been working hard for this turnaround, with careful siting of stores in high-traffic locations and an “omnichannel” strategy that includes not just in-store pickup and online delivery, but having its stylists online. Maybe it helps that this retailer is based in Seattle, home to Microsoft (NASDAQ:MSFT), Amazon and Starbucks (NASDAQ:SBUX).
People who haven’t cared about their clothing don’t know what to buy, and Nordstrom has always specialized in these customers. It was Stitch Fix (NASDAQ:SFIX) before that was a gleam in founder Katrina Lake’s eye.
Perhaps there was a clue that something like this was in the offing. The board rejected a $50 per share offer from the Nordstrom family to take the company private, made when JWN stock was selling in the mid-$40s. The stock opened for trade Aug. 17 at almost $56 per share. The family’s not crying. Direct descendants of the founding Nordstrom family are listed as owning about 30 million shares, so they’ve got a $300 million gain over six months. Maybe they should spend some of that at Nordstrom!
The Bottom Line on JWN Stock
There are two ways to a consumer’s heart these days.
You can offer a bargain price on bargain merchandise, or you can win with higher prices and great service. But that service must compete with what Amazon offers, the personal side layered on top of the electronic. Consumers must be convinced that they’re getting something unique from a full-priced retailer, something they can’t get by clicking a button.
Nordstrom’s understood this, and it persisted through the hard times. You’re paying a fat 20 times earnings for JWN stock today, and about 60% of its annual revenue, but that’s cheaper than other upper-middle class success stories, like Costco Wholesale (NASDAQ:COST).
If you need a retail stock for diversification, this is now a good one.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, 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 BABA and AMZN.
