With less than a month of sales on its books, Nordstrom’s huge new Manhattan flagship hasn’t been open long enough to change the direction of the retailer’s still-faltering sales. But its performance so far has given management some confidence that their turnaround strategy is getting traction just in time for the crucial holiday shopping season.
During Thursday’s third-quarter earnings report, co-presidents Erik and Pete Nordstrom shared a few early metrics from the Manhattan store, which opened October 24 after years of planning, and which, as Erik Nordstrom noted, is “perhaps the most important milestone in our company’s long history.”
They reported that the flagship has not only drawn substantial traffic on its own — 85,000 visits during the opening weekend alone — but also has generated a substantial “halo” effect on Nordstrom’s business elsewhere in the New York market.
That includes Nordstrom’s internet sales in New York, which is the company’s biggest online market, and at the Nordstrom men’s store in Manhattan, which saw a larger-than-expected uptick in sales, Erik Nordstrom said. They did not offer any more specific numbers, however.
Those early signs are in line with the expectations of some industry analysts, who have cautiously praised the family-run retailer for the concepts and capital — as much as $500 million, by some estimates — it has put into the flagship.
“It’s a really good store,” said Neil Saunders, a veteran retail analyst with GlobalData “It’s a really nice environment that Nordstrom has very clearly put a lot of investment into.”
Still, the halo of positive news around the Manhattan flagship contrasted with the mixed results from Thursday’s earnings report. For the third quarter, which ended November 2, Nordstrom saw an 88 percent year-over-year jump in net income, to $126 million, but a 2.1% year-over-year decline in overall sales, down to $3.7 billion.
And tellingly, in the context of a posh new flagship store, the sales decline was especially pronounced across Nordstrom’s 130 full-price stores, where sales fell 4.1 %, to $2.3 billion. That drop more than outweighed solid sales increases at Nordstrom’s online business and at its 251 Rack and other off-price stores.
Nordstrom’s outlook “is quite mixed,” Saunders said. While the recent sales improvement at the Rack and online shows the company has successfully addressed some previous problems, he said, “from the department store point of view, the story is still fairly negative. The numbers obviously were not great.”
In fact, while the quarterly numbers beat Wall Street’s expectations, which sent shares up 10.6% Friday, they underscore the challenges Nordstrom still faces as it updates its business model for a market that has been upended both by online retailers and down-marketers alike.
The stock, ending the week at just under $38, is still down substantially from a year ago, when shares were trading above $65.
Still, the intensive focus on the New York flagship illustrates just how heavily Nordstrom is leaning into its turnaround strategy. The company has made large investments not only in new full-line stores, but also in a network of so-called “local” stores as part of an effort to expand business between its physical stores and its online market.
Encouragingly, where that strategy has been rolled out, in Los Angeles and New York, sales have jumped, the Nordstrom brothers said Thursday. In New York especially, customer traffic at two new local stores “ramped up much faster than we saw in Los Angeles,” Pete Nordstrom said.
Likewise, the Manhattan flagship, with its plentiful cafes and other amenities, has shown an early ability to attract traffic and, ideally, become a “gifting destination.”
That, says Saunders, is half the battle. “There are a lot of very active buyers in the New York market — but there is also a lot of choice, a lot of other luxury stores,” he said. The key will being converting those “footfalls … into sales.”