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Trunk Club isn’t producing the gains Nordstrom thought it would

November 11, 2016 10:43 AM
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Nordstrom Inc.’s $350 million acquisition of men’s and women’s apparel e-retailer Trunk Club isn’t working out nearly as well as the retailer hoped it would.

Nordstrom, No. 18 in the Internet Retailer 2016 Top 500 Guide, wrote in its third quarter 2016 earnings report on Thursday it will be taking a $197 million write-down on the e-retailer, reflecting the reduction in its value to the company.

Co-president Blake Nordstrom announced his disappointment in Trunk Club’s performance on the retail chain’s earnings call.

“Unfortunately, the business has not performed to the expectations we had when we acquired it, and as a result, we have reduced the value of that asset,” he told analysts on the call, according to a transcript from Seeking Alpha. “Trunk Club continues to be well in line with our customer service commitment and value proposition. We remain committed to this business and view it as a part of our customer strategy.”

Later in the call, chief financial officer Mike Koppel discussed some of the changes that will be coming to Trunk Club as Nordstrom looks to salvage its investment in the company.

“To help give Trunk Club customers a broader selection of brands. We are also integrating supply chain and fulfillment capabilities over the next year,” he said. “We anticipate that these, and other changes we're making, will drive continued growth and improve Trunk Club's results going forward.”

“We've seen some early results in just better connecting with our customers on a more consistent basis that gets them sticky with the brand, and the other is that we could be more accurate in what we put in the trunks and what we're sending out to customers that makes for a much better customer experience and it helps the model significantly,” co-president Erik Nordstrom added.

But while Nordstrom is taking a loss on Trunk Club, one area where it has seen some financial gains is on the fulfillment side of its business.

Koppel told analysts the retail chain is on pace to recognize $50 million in savings due to improvements in its fulfillment and shipping operations.

“The last couple of years, we've made some pretty big investments to ensure that our supply chain is in lockstep with our customers' demands,” Blake Nordstrom said.

Nordstrom reported overall e-commerce sales of $656 million during the third quarter, up 20.8% from $543 million during the same time last year. Online accounted for 18.9% of overall sales during the quarter, compared to 16.8% last year.

Through the first nine months of 2016, Nordstrom reported total e-commerce sales of $2.157 billion, up 14.7% from $1.881 billion last year. Online now accounts for 21.0% of overall sales, compared to 18.9% last year.

With online sales growing and overall store sales sliding, Nordstrom is looking at new ways of leveraging its digital and mobile assets to drive in-store traffic and sales.

Executive vice president of stores Jamie Nordstrom said the retailer is testing out a new initiative on its mobile app it calls “Reserve Online and Try Out in Store.” The feature, currently available only for shoppers in its Seattle-area stores, allows shoppers to pick out items on Nordstrom’s mobile app and have them set aside in a dressing room so they can then try them on in a store before making their purchases. Early results from the test from over the last month have been “really, really encouraging,” he says.

Nordstrom says the feature will be rolled out nationwide early next year.

For the third quarter ended Oct. 29, Nordstrom reported:

  • Total sales of $3.472 billion, up 7.2% from $3.239 billion last year.
  • Online sales through its flagship Nordstrom.com site of $497 million, up 20.0% from $414 million last year.
  • Sales through its off-price NordstromRack.com and HauteLook sites of $159 million, up 23.3% from $129 million last year.
  • A year-over-year comparable sales gain including e-commerce of 2.4%.
  • A net loss of $10 million, compared to an $81 million profit last year.

For the first nine months of 2016, Nordstrom reported:

  • Total sales of $10.255 billion, up 3.0% from $9.953 billion last year.
  • Sales through Nordstrom.com of $1.675 billion, up 10.3% from $1.518 billion last year.
  • Sales through NordstromRack.com and HauteLook of $482 million, up 32.8% from $363 million last year.
  • A net profit of $153 million, down from $420 million last year.
 

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