Sunday, February 21, 2016
NORDSTROM CUTS BACK ON E-COMMERCE
To the rear march. Shortsighted. Seeing ecommerce as fulfillment and not as Supply Chain Management underscores issue.
Nordstrom's focus on e-commerce, which has grown from 8 percent of overall sales to 20 percent in just five years, has come at a cost to the Seattle retailer.
Nordstrom (NYSE: JWN) has been forced to cut costs in the e-commerce division, company executives said Thursday.
"This business model has a high variable cost structure driven by fulfillment and marketing costs in addition to ongoing technology investments," Nordstrom CFO Mike Koppel said Thursday on a call with analysts.
Because of that, he said, "expenses in recent years have grown faster than sales."
Thursday, the company reported fourth quarter profit – which includes the busy holiday season – fell nearly 30 percent to $180 million. Nordstrom's annual profit dipped almost 17 percent to $600 million. The stock closed down almost 7 percent Friday to $49.17 a share.
The company has been increasing the amount it spends on building out technology and fulfillment to support its e-commerce business by about 35 percent each year for the past five years Koppel said. Now, though, Nordstrom plans to spend roughly $300 million on technology and fulfillment in 2016, which is flat compared to last year.
During the call, Koppel said Nordstrom is focusing on how to turn its growth into more profit and that plans are in motions to increase efficiencies and lower costs in technology, fulfillment and marketing.
The company did not go into specifics about what changes it will be making other than to say it is wants to lower shipping costs with efficiencies around deliveries, refine online assortments to focus on profitable items, focus on fewer, more meaningful projects and improve effectiveness across all channels.
Overall, Nordstrom plans to spend $4 billion on a variety of capital improvements over the next five years. That, however, is a $300 million reduction in store investments compared to what the company planned to spend last year.
The company still plans to open 20 new Rack stores and three new full-line stores in 2016, continuing its focus on the discounted Rack locations.