Nordstrom is Struggling with the Same Issues All Retailers Have

Last week was spent in Arizona on an annual excursion with old friends playing golf.  In my case, bad golf.  There may also have been a cocktail or two involved.  Anyway, as I left, GoPro came out with its 10K annual report and, while I was gone, Billabong reported its half yearly numbers.  So I’m behind.

But before I dig into those many pages of small print, my research department has sent me an article on Nordstrom that is worth a few words.

Nordstrom would be considered by most of us to be a quality retailer.  But you will learn, when you read the article, that they have exactly the same problems adjusting to the new retail environment that literally every other retailer has.  The first problem is not knowing exactly what that new retail environment is.  Perhaps it’s better put if we say that they know what it is right now, but they aren’t quite so clear what it will look like 20 minutes from now.  The pace of change is remarkable and the direction unclear (except to say that online sales seem destined to continue to grow).

The second is the immense cost of doing online well, where I define “well” as up to the level that meets your customers’ expectations.  Those customers, we all know, are in charge and have many options.  If you spend all that money, you better not just meet your customers’ online expectations, but generate some additional revenue.  As I’ve written, if you don’t generate enough incremental operating income to pay for those expenses, you reduce your bottom line.  Each retailer is searching for the secret sauce that combines brick and mortar and online revenues in such a way that online revenue growth doesn’t cannibalize brick and mortar.

Legacy brick and mortar retailers know that they probably don’t have the right number of stores in the right places configured in the right way.  They are experimenting improve that.

And finally, though this isn’t specifically discussed in the article, there’s still too much retail space and more consolidation to come.  I used to think there were things you just couldn’t sell online.  Now, I’m not so sure.

Until we work through that, the definition of success in retail may be maintaining your balance sheet, not shrinking revenues, and keeping your profitability from declining (at least too much).

Here’s the link to the article.