Nordstrom's Omnichannel Strategy Comes at a Price

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Nordstrom's Omnichannel Strategy Comes at a Price

By Jamie Grill-Goodman - 02/23/2016
Nordstrom has been investing heavily in online sales, but the omnichannel strategy comes at a high cost for the fashion specialty retailer. With over $3 billion invested in capital over the last five years, Nordstrom's grew its top line by 50%, which was nearly $5 billion, but the company says it's mindful of the importance for these investments to flow through to the bottom line.

E-commerce for Nordstrom now represents over 20% of its sales, an increase from 8% five years ago, but these investments in e-commerce have resulted in structural changes to operating costs for the company.

"This business model has a high variable cost structure driven by fulfillment and marketing costs in addition to ongoing technology investments," said Nordstrom CFO & EVP Michael G. Koppel. "With our increased investments to gain market share along with the changing business model, expenses in recent years have grown faster than sales."

Nordstrom says it's planning improvements by focusing on fewer, "more meaningful" technology projects, such as a scalable merchandising solution that supports seamless integration across multiple channels.

The company is also accelerating its efforts to re-platform its architecture to streamline development while reducing costs. Koppel noted that Nordstrom's is re-architecting how it thinks about its technology so as the company wants to add new features and new applications, it can do so efficiently and cost-effectively.

In fulfillment, Nordstrom's is seeking ways to improve efficiencies around delivery in order to generate lower shipping costs. The company is also refining online assortments with a focus on unit profitability.

"While we have successfully gained market share, we are also committed to growing profitability," said Koppel. "With our investments moderating, we view 2016 as an inflection point of earnings growth improvement. We are focused on reshaping our business model and continuing that effort over the next several years to achieve our previously stated goal of mid-teens return on invested capital."