An increasing focus on omnichannel capabilities has the potential to push Nordstrom Inc.'s (JWN, Financial) stock price higher. The company is aiming to deliver a seamless ecosystem between its online and in-store offerings, with data suggesting that customers spend more if they interact with the company through various channels.
Innovative new store offerings may increase the company’s addressable market, while also appealing to new customer demographics. Although retail sales figures have disappointed in recent months, a focus on improving the efficiency of its supply chain could catalyze the company’s financial performance.
While the stock has gained 65% in the last year versus a 3% increase for the S&P 500, further outperformance could be ahead.
Omnichannel opportunity
Omnichannel growth could catalyze Nordstrom’s financial performance, with the company focused on improving the synergies between its stores and online sales channels. The company has found that a customer who uses both online and in-store channels, as well as its off-price Rack stores and off-price e-commerce channels, averages around 13 times as many transactions and 11 times the total amount spent versus a customer who engages with the company via only one channel.
It is, therefore, bringing all of its digital and physical assets together in one seamless ecosystem. It has also hired Edmund Mesrobian as chief technology officer, with his role being to further enhance the company’s integrated sales efforts. Further innovation could be ahead following the acquisition of BevyUp, an app that seeks to improve the social experience when shopping through various tools, such as text messaging and video chat.
Store potential
The company has become increasingly innovative in order to retain a competitive advantage in the brick-and-mortar retail segment. It has opened a small-format store in Los Angeles called Nordstrom Local, which offers services such as order pickup, alterations and personal stylist consultations. There is no inventory at the store, with its aim being to provide customers with offerings that cannot be replicated online. Due to its success, a number of other Local stores will be opened as the company seeks to improve customer loyalty.
The growth in the company’s off-price Nordstrom Rack stores has allowed it to reach a younger generation of shoppers who cannot always afford its full-priced items. This has increased its total addressable market. It has also rationalized its real estate, with two closures in the current fiscal year. Due to the opening of the Nordstrom Rack side of the business, it opened seven stores in the first half of the current year.
Possible threat
Retail sales have disappointed over the last two months. In August, they increased 0.1% compared with July. This was weaker than the 0.4% increase economists had forecast. In September, retail sales also increased 0.1%, which was significantly lower than the 0.7% consensus market forecast. August and September figures were lower than the 0.6% sales growth recorded in July. Retailers like Sears (SHLD, Financial), J. C. Penney (JCP, Financial) and Bon-Ton have experienced financial challenges, partly as a result of consumer weakness. This trend could be a risk facing other retail stocks such as Nordstrom as well.
The company, though, is making changes to its business model in order to become increasingly efficient. The planned integration of its supply chain for physical stores and e-commerce operations could allow it to hold more inventory in its distribution centers and less in its stores. This should lead to an improvement in full-line inventory allocation. It is also intending to increase its supply chain footprint in order to provide same-day delivery. These plans are expected to yield revenue growth of up to 4% per year, which is ahead of the wider industry growth rate.
Outlook
An increasing focus on its omnichannel capabilities could lead to an improving financial performance. A seamless ecosystem may encourage higher spending among customers, while further online innovation may lead to a stronger competitive advantage versus sector peers.
An increasingly efficient supply chain could improve profitability and also provide a better customer experience. Innovative new store openings may widen the company’s customer demographics, while countering the relatively weak recent industry sales figures. Having outperformed the S&P 500 in the last year, Nordstrom’s stock price could continue to offer investment appeal.
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