It takes a lot of e-commerce strength to take your online sales to a high level in today's market, especially with the way Amazon is spearheading many new business trends. Macy's is another retailer that has boosted online sales with Same-Day Delivery, as well as online order store pick up. Nordstrom has made several strategic moves to increase online sales; however, its' shares fell 30% last year, which tells the company it may be time to make a pivotal shift once more. From a recent article from Internet Retailer via Bloomberg News, the shift will have to do with online selling.
Chief financial officer Mike Koppel explained in the article what is hurting Nordstrom's bottom line. It has to do with the entire retail industry turning from running fleets of bricks-and-mortar stores to also selling their goods online. The article said, "He explained that the "old model"—big physical stores located mostly in malls—came with high fixed costs, but high leverage. In other words, you had to pour a lot of money into literal bricks and mortar to build stores and train staff, but once your sales reached a sort of break-even point, all the rest was gravy. In essence, the money from a banner sales year could flow straight down to the bottom line once those initial costs were paid for. And that became pretty easy to anticipate and plan against."
One benefit of online sales is that it comes with low fixed costs, but the price tag was high variable cost. His conclusion is that the more Nordstrom sells online, the more it has to shell out to pick, pack and deliver those goods. In his own words, Koppel stated as a result "business has been flattening in malls and growing in e-commerce, and so the two strong trends are impacting operating margins". It appears that Luxury retailer Michael Kors is having a similar issue, even mentioning in the article that e-commerce isn't as profitable as business at physical stores. Koppel said if there is "anyone out there" who has figured it out, because "we have a lot of work to do."
Nordstrom raised its' promotions in order to try and keep pace with Amazon. The robust e-retailer is making strides within the online retail industry that is puzzling a number of retailers on how they can compete. Amazon even has implemented same-day delivery in a number of major US cities nationwide. It provides same-day delivery in the San Francisco Bay Area, Seattle-Tacoma, Dallas-Fort Worth, San Diego, Indianapolis, New York, Philadelphia, Phoenix, Washington DC, Tampa Bay, Baltimore, Boston, and Atlanta. It also launched free same-day delivery last year in 14 metropolitan cities the US, starting with California cities, recently adding Orlando and Chicago as well.
To attract more customers and to establish a deeper loyalty with current Prime members, Amazon raised its' minimum order size for non-Prime members from $35 to $49 to qualify for free shipping. This threshold increase could be used to steer customers into becoming Prime members, which pay an annual $99 fee and receive unlimited two-day shipping. This is just one example of what innovative direction Nordstrom may have to go in to thrive online.
With the growth of same-day delivery in the US, partnering with a Same-Day Courier like A-1 Express may be the move to make for Nordstrom. The service will attract luxury apparel customers via more shopping convenience. The Chicago Courier has all the right delivery technology and courier expertise to compete online.
Reference: 3.14.16, www.internetretailer.com, Bloomberg News, E-commerce eats into Nordstrom’s profits, and that’s OK
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