Online sales gains come at a cost for Nordstrom
February 19, 2016 11:22 AM
Off-price items helped contribute to big online sales gains for upscale department store chain Nordstrom Inc.
In its Q4 2015 earnings report, Nordstrom, No. 19 in the Internet Retailer 2015 Top 500 Guide, reported online sales of $2.832 billion during fiscal 2015, up 20.2% from $2.356 billion last year. Online accounted for 19.6% of overall sales in 2015, compared to 17.4% last year.
Customers continued to show strong interest in its off-price online stores NordstromRack.com and HauteLook. Nordstrom did a combined $532 million in online sales through those two sites, up 47.8% from $360 million last year. Meanwhile, sales through its flagship Nordstrom.com site meanwhile eclipsed $2 billion for the first time, with sales of $2.30 billion, up 15.0% from $2.00 billion last year.
While online sales posted double-digit gains for the fourth quarter and the fiscal year, those gains may have come at the expense of Nordstrom’s profits. Nordstrom reported net earnings of $600 million for fiscal 2015, down 16.7% from $720 million last year. The decline was even sharper during the fourth quarter, with Nordstrom reporting net earnings of $180 million, down 29.4% from $255 million during the same time last year.
Nordstrom chief financial officer Michael Koppel acknowledged that Nordstrom’s significant online sales gains have come at a not-insignificant cost.
“E-commerce now represents over 20% of our sales, a notable increase from 8% five years ago,” he told analysts on the earnings call, according to a transcript from Seeking Alpha. “This business model has a high variable cost structure driven by fulfillment and marketing costs in addition to ongoing technology investments. With our increased investments to gain market share, along with the changing business model, expenses in recent years have grown faster than sales.”
Koppel said Nordstrom’s investments to upgrade its e-commerce presence have been growing 35% per year over the past five years. Co-president Blake Nordstrom told analysts that investment will slow in 2016, with the retailer looking to spend less money, and the money Nordstrom does invest will be more focused.
“In technology, we are planning productivity improvements by focusing on fewer, more meaningful projects, such as a scalable merchandising solution that supports seamless integration across multiple channels,” Koppel said. “In fulfillment, we are assessing ways to improve efficiencies around delivering product to customers which is expected to generate lower shipping costs. We are also refining our online assortments with a focus on unit profitability.”
For the fourth quarter ended Jan. 30, Nordstrom reported:
- Net revenue of $4.143 billion, up 5.2% from $3.938 billion last year.
- Online sales accounted for 23.0% of overall sales during the quarter, compared to 20.7% last year.
For fiscal 2015, Nordstrom reported:
- Net revenue of $14.095 billion, up 7.5% from $13.110 billion last year.
- Online sales accounted for 20.1% of the company’s overall sales, compared to 18.0% last year.