Nordstrom Needs to Bring Back What Made it Special

Nordstrom (NYSE:JWN) announced May 18 that it was closing its three Jeffrey stores as part of its effort to stay alive. That’s on top of its decision to close 16 of 117 of its full-line stores. If you own Nordstrom stock, it’s a good start, but it needs to do more. 

Nordstrom Needs to Bring Back What Made it Special
Source: Jonathan Weiss /

Here’s why.

Too Many Stores Is Bad for Nordstrom Stock

It didn’t take the novel coronavirus for investors to figure out America has too many department stores. The oversaturation of retail stores of every kind, and not just department stores, has been going on for years. 

It shouldn’t come as a surprise to anyone that JCPenney (OTC:JPCNQ) is closing 30% of its 846 stores as part of its bankruptcy restructuring, leading to the stock being suspended from the New York Stock Exchange. I would be shocked if it doesn’t close more stores over the next two years. 

If I was CEO Erik Nordstrom, I would definitely look to shrink its brick-and-mortar footprint well below 101 full-line stores in the U.S. and Canada it will have after closing 16. But not for the reason you’re probably thinking. 

I believe the company would be well-served by moving to a scarcity model that makes a visit to a Nordstrom store a special experience. I can remember watching Miracle on 34th Street as a kid and thinking what a special treat it would have been to visit Santa Claus at Macy’s (NYSE:M) in New York City. 

People keep talking about the death of the department store, and why these real estate behemoths are unable to compete in an online world, but the truth is department stores have faltered because they became mediocre, trying to cater to every segment of the market; jack of all trades, master of none. 

That’s especially true of brands like JCPenney. Why go there for clothes when you can get a better deal from Ross Stores (NASDAQ:ROSS) or TJX (NYSE:TJX)?

Nordstrom Lost What Makes it Special

Nordstrom used to be special. Its customer service was legendary. And then it expanded. 

I went back to January 1994, the oldest Nordstrom 10-K available on the Securities and Exchange Commission’s website. At the end of that fiscal year, Nordstrom had 53 full-line stores, less than half what it has today. I’ve tried to find out how many stores it had when it went public in 1971. All I’ve been able to find out is that it had $100 million in sales in 1973, the same year it opened the first Nordstrom Rack. 

So, in 46 years (1974-2019), Nordstrom grew its sales by 11.5%, compounded annually, to $15.1 billion in 2019. That’s a pretty good pace. Looking at its selected financial data from different 10-Ks, it looks as though a big chunk of its modern-day sales came between 2009 and 2013, when they increased by 47% over four years. 

In October 2019, Nordstrom opened a 320,000-square-foot flagship store at 57th Street and Broadway in New York City. If I can ever get back to Manhattan, I’d love to check it out. 

“We believe Nordstrom’s entry into the New York market should help drive a multi-year sales lift in the region … which the company has previously identified as a [more than] $700 million full-price opportunity,” Telsey Advisory Group’s founder and analyst Dana Telsey said in a note to clients at the time. 

The company has said that when it opens a physical location in a new market, online sales tend to grow by 20% or more. While that makes it lucrative to consider new markets, it also could be a reason for the retailer’s excessive expansion. 

Take Canada, for example. It has six full-line stores (four in Toronto, one in Calgary, and one in Vancouver) and six Rack stores. Nordstrom has 248 Rack stores in the U.S. and Canada and 117 full-line stores for a total of 365. Subtract the 16 full-line stores and it will have 349 with Rack accounting for 71% of the total. 

If it were to reduce the number of full-line stores per major U.S. city to one or two, while keeping the Rack percentage around three-quarters of the total, I think you could make the case that the full-line stores would become more of a destination while driving more business online and to the Rack in cities where there aren’t full-line stores.

At the end of the day, 101 full-line stores are still way too many. I guess we’ll see soon enough.  

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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