In yet another sign of the rapidly shrinking landscape for traditional retailers and shopping malls, Nordstrom announced plans to close its Northgate location in Seattle, one of the oldest in the family-run company, in August.
The Northgate store’s approximately 170 employees were given the news Friday morning, according to a Nordstrom statement. The Seattle-based retailer is “confident we’ll be able to offer new roles to each employee,” said spokesperson Emily Sterken in an email. The Nordstrom Rack at Northgate will remain open.
“Looking at our business needs in the Seattle market and the future plans for Northgate Mall as it prepares for a significant transformation, we’ve made the decision to close our Northgate Mall store,” the company statement said of the closure, which is set for Aug. 9.
The closure comes amid a major redevelopment of Northgate Mall, but also deep challenges for Nordstrom.
The upscale retailer has been shuttering under-performing stores at the rate of two a year as it struggles against stiff competition from online retailers and discount brick-and-mortar stores. In May, Nordstrom reported a sharp drop in first-quarter profits and faltering sales due in part to what co-president Erik Nordstrom described as “executional misses with the customer experience.”
At Friday’s close, Nordstrom’s share price was at $31.67, roughly half of what it was in 2015 — or last October.
But Friday’s news, first reported by Puget Sound Business Journal, goes beyond the tribulations of a single retailer.
All three decisions reflect brutal challenges facing traditional retailers — but they also point to challenges facing shopping malls as their owners scramble for more profitable strategies.
When Nordstrom opened its location at the then-new Northgate Mall in 1950 (initially, selling shoes only) both mall and store were part of the leading edge of an emerging retail model. In the years that followed, as malls popped up in even midsized towns, national department store chains went with them.
Until the Great Recession, “if you were a department store, you sought to be at every mall that you could be at,” said Alexander Goldfarb, a senior real estate analyst at Sandler O’Neill + Partners in New York.
Since the recession, however, that model has faltered. Thanks in part to the rise of online shopping as well as changing consumer tastes, department stores have seen a decline in need for physical space.
The typical department store today “is down to shoes, fashion, and cosmetics, but it’s still in the same 200,000-square-foot box that it was 20, 30 years ago,” Goldfarb said.
Retailers still need physical locations — that’s why newcomers like Tesla and Apple and Bonobos continue to open stores. But now they’re trying to consolidate their remaining physical presence at high-traffic malls, says Goldfarb.
As Nordstom’s Friday statement noted, the closure “will allow us to focus on serving customers at nearby Nordstrom stores, including our Northgate Nordstrom Rack, as well as online.”
But shopping malls have been undergoing a parallel disruption, Goldfarb said. Malls in prime locations, typically, upscale, high-traffic neighborhoods far from other malls, are often doubling down with expensive remodels that include high-end retailers.
That’s one reason Nordstrom is still opening new locations in key urban markets — including a massive new flagship store slated to launch in October in New York City. And, as Friday’s statement emphasized, Nordstrom has made “significant investments” to renovate both its downtown Seattle and Alderwood mall locations.
But for malls in other locations, even high-end retail may no longer be the best fit — or the most profitable one.
At Northgate, owner Simon Property Group is redeveloping the site to include a practice space for the city’s new NHL team. But the main economic attraction may be new residential and office buildings, which may reflect a more profitable use of the property in a city like Seattle, where rapid job growth is putting a premium on housing and office space — especially in a location next to a future transit hub.
As Goldfarb put it, the true value of a piece of real estate isn’t determined by its current use, but by what that property could be used for in the future, whether that means “backfilling it with another tenant or … totally redeveloping it into something new.”
Whether the ongoing woes of Nordstrom, Macy’s and Penney factored into Simon’s redevelopment plans is hard to say. (A Simon spokesperson declined to comment specifically on Friday’s news, other than to say, “We’re excited for the future and to share with Seattleites the reimagined Northgate and are working full steam ahead to prepare for the NHL Seattle facilities that will call Northgate home.”)
But in Amazon-era Seattle, where housing and office space are at such a premium, it’s not clear whether better performance at Nordstrom, Macy’s or Penney would have mattered.
Northgate, said Goldfarb, “is an incredible piece of real estate that is worth more in another form.”