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Nordstrom soars, but its 'digital velocity' isn't apparent

Stuart Lauchlan Profile picture for user slauchlan March 3, 2022
Nordstrom's promised increase in 'digital velocity' remains a work-in-progress, but the re-opening of stores has bolstered the retailer's prospects.


Last time diginomica checked in on Nordstrom, CEO Erik Nordstrom was promising more “digital velocity" and more speed, admitting:

We have long benefited from a commitment to customer service, interconnected digital and physical assets and innovative brand partnerships. However, we need to move faster and more aggressively to better capitalize on those strengths.

Flash forward to this week and the retailer has done better than perhaps many of us might have expected in delivering on that commitment. Certainly Wall Street took the firm’s Q4 numbers  - with total revenues rising 23% year-on-year to hit $4.48 billion - to heart and sent the stock price soaring by nearly 38% at one point this week. 

But as for that “digital velocity”, that still looks like an aspiration. While digital sales in Q4 made up 44% of total, that was down from 54% for the same period last year. Online sales were down one percent year-on-year, although still up 23% on the pre-COVID 2019 number.

Progress is being made, insists CEO Nordstrom:

We are leveraging a strong store fleet that positions us physically closer to the customer. Our strategy links our omni-channel capabilities at the local market level, allowing us to drive customer engagement through better service and greater access to product no matter how customers choose to shop. This platform is a unique differentiator, delivering unmatched convenience and providing customers with 4 times more product available for next day pickup, a one day reduction in average shipping time, and the ability to pick up orders at the Nordstrom, Nordstrom Local or Nordstrom Rack location of their choice.

He adds:

Customers clearly value the strength of our omni-channel model as evidenced by a dramatic increase in spend when they engage across our multiple channels, banners, and services. For example, the average customer that shops across both banners, in-store and online, spends over 12 times more than a customer utilizing a single channel and banner.

Fulfilment options introduced during the COVID crisis, such as Buy Online, Pick-up In Store and Ship-to-Store, are still being scaled, he says, with order pick-up now accounting for 11% of sales in Q4:

One-third of next day demand was picked up at Rack stores, demonstrating the power of integrating capabilities across our two banners and across our digital and physical platforms. We are encouraged by increases in order pick-up demand, a leading indicator of future growth as customers utilizing in-store pickup have higher engagement and spend 3.5 times more than customers who don’t utilize the service. Increasing Buy Online Pick Up In Store utilization is advantageous as it is both our highest satisfaction customer experience and most profitable customer journey.

And the performance of the websites for both Nordstrom and the lower-priced Nordstrom Rack is good, he insists, using 2019 as a base for comparison:

With continued growth in digital, our total penetration has increased by nine percentage points over the past two years to 44%. In the fourth quarter, we also saw record high mobile app usage, with mobile users representing approximately 70% of total digital traffic.


The firm continues to invest in a more data-driven approach to merchandizing. President Pete Nordstrom says this is showing results, citing the most recent Holiday period as a case in point:

As we entered the Holiday season, our team focused on driving sales and engaging customers through our compelling Holiday offering, while also increasing profitability. Leveraging advanced analytical tools, we identified opportunities to expand holiday gifting and increase our promotional effectiveness by optimizing the pace and depth of markdowns. We’re very encouraged by the results, with merchandise margins up 235 basis points over 2019 and we see more opportunity to drive additional margin improvements in 2022.

Analytics tech is also to the fore in determining how Nordstrom gets the right goods on the right shelves at the right time. Nordstrom (P) explains:

To provide the best possible assortment for our customers, we are also using a data-driven, customer-centric approach to optimize our Category Management. Through this work, we are defining the role of each category at Nordstrom and Nordstrom Rack, and then optimizing our assortment for the role each category plays. Our goal is to attract new customers, increase share of wallet with existing customers and improve merchandise margins by focusing on the most highly sought after items.

Women’s Denim is a good exemplar, he adds:

Denim has always been an important category for our customers and a strong performer for us too, but our analysis highlighted an opportunity to lean into it as more of a destination category.

In response to our analysis, we increased inventory depth for the most highly sought after jeans to ensure that we are in-stock for our customers, piloted a dedicated in-store Women’s Denim shop to better highlight our extensive selection and make it easier to shop, and planned a campaign aligned with April’s Earth Month to showcase a curated group of denim brands with a focus on sustainability.

We are very pleased with the initial results we’ve seen with our category management initiative and plan to build on this momentum in 2022.

My take

The transformation is still underway and has lots to do yet, but Nordstrom has clearly benefitted from the re-opening of stores, most particularly Nordstrom Rack outlets.

The “digital velocity” is still somewhat uninspiring, but the spade work is clearly being done, particularly at the back end with the analytics work that Nordstrom (P) referred to. Surprisingly perhaps, on the post results analyst call there was only one brief mention made of the firm’s e-commerce partner ASOS.

Still, that’s Macy’s and now Nordstrom that have come up with healthy performance and been given a big thumbs up by Wall Street. Will GAP make it a trend?  We’ll find that out later today…

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