Tags: Nordstrom | record | sales | JWN

Nordstrom Seeing Record Sales Online

By    |   Tuesday, 27 March 2012 09:42 AM

Despite what is still felt by many as a weak economy, Nordstrom (JWN) is seeing record sales, increased same-store growth, and it is investing heavily in its already-successful online business. All thanks to free shipping.

Whereas many of Nordstrom’s competitors have floundered by focusing on sales alone — such as J.C. Penney (JCP), which saw 72 percent of 2011 sales come from merchandise discounted 50 percent or more — the upscale retailer instead is able to sell as much merchandise at full price, just as before the recession.

The key seems to be Nordstrom’s success in divining what customers want, which appears to be something akin to “I want it right now, but don’t make it hard for me.”

For instance, when customers are ready to check out online and find a big shipping bill, that is seen as a deterrent. So the company first dropped shipping costs on orders of $200 or more, and then when its fourth quarter 2011 sales jumped, it decided to drop shipping on online orders altogether.

Now the company has decided that it will drop shipping on in-store orders as well, plus it will trial a $10 flat rate shipping on orders for same-day shipping.

Part of the online psychology that the company has tapped into is something that rivals such as Macy’s (M) and other big-name department stores haven’t yet achieved: integration of inventory channels, that is, instantly knowing what is where, which allows Nordstrom to ship much faster and more smoothly than competitors.

Free not cheap

Online and in-store orders may be free, but such offers on top of systems integration don’t come cheap. The company spent $430 million during fiscal 2011 on capital expenditures but expects that to jump to up to $530 million in 2012, primarily as a result of e-commerce investments.

The company so far seems able to turn those investments into more sales, with net sales reaching their highest-ever last year at $10.5 billion, up 12.7 percent on the year. With more than a 7 percent increase in same-store sales for the year, Nordstrom is expecting up to a 6 percent same-store sales increase for 2012.

It’s off to a good start with February, up 10.2 percent year-on-year, even if that includes a shoe sale that normally happens in March. The key for the company’s success will be its ability to continue turning investments into higher sales despite concerns about yet another dip in the economy that might hit customers in the pocket.

CLSA recently downgraded JWN to underperform from buy, in line with Piper Jaffray’s earlier overweight rating.

The company reports first quarter earnings on or about May 10.

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