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Robert Stephens, CFA
Robert Stephens, CFA
Articles (195) 

Nordstrom Has Turnaround Potential

The company’s evolving strategy could produce a stock price recovery

July 11, 2019 | About:

Nordstrom Inc.'s (NYSE:JWN) plan to expand its local store concept could provide it with a stronger competitive position versus peers. The concept’s enhanced e-commerce offering and improved customer service levels may lead to a higher degree of customer loyalty.

Although the company’s recent quarterly financial performance was disappointing, its plans to become more efficient and increase the size of its store estate could enhance its future prospects.

Having declined 43% in the last year versus a 7% rise for the S&P 500, the stock offers turnaround potential.


Local strategy

Nordstrom’s planned rollout of its local market stores has the potential to differentiate its offering from sector peers and improve the customer experience. Its local stores provide improved customer service levels through offering free in-store stylists as well as refreshments, tailoring and manicures. In the most recent quarter, the retailer recorded higher digital sales and store traffic growth versus the rest of the company’s estate. The local market stores are currently only open in Los Angeles, but there are plans to scale them up so they are available in all of its locations.

The retailer is planning to offer an improving buy online, pickup in store service as it rolls out local market stores. It is in the process of leveraging its inventory across multiple stores so that customers can collect items they have ordered online from a variety of locations. This will increase convenience for customers and is expected to improve customer engagement levels. Company data from the recent quarter shows more frequent customer engagement is leading to higher sales, as well as market share gains.

Growth catalysts

The company’s plans to increase the size of its store estate could boost its financial performance. For example, it is planning to open two local market stores and a flagship store in New York in the final quarter of 2019. Since New York is its largest market for online sales, its new stores are expected to provide a step change in the financial performance of the business.

Nordstrom is making changes to its marketing strategy in order to improve the customer experience. For example, during its upcoming anniversary sale event, it will offer a wider range of new products that are focused on core categories that have previously proven popular with customers. It is also planning to extend the pre-shop period for its most frequent customers in order to encourage greater loyalty. In addition, the company is investing in its gifting assortment across a variety of categories in order to make them more accessible to a wider range of customers at different price points.


The performance of the company in its most recent quarter was disappointing. For example, its net sales declined 3.5% versus the same period of the previous year due to a reduction in traffic across full-price and off-price categories. This was caused by changes made by the business to its loyalty program, with the decision to eliminate paper notes in favor of a digital-only program, causing many customers to shop elsewhere. The company also reduced digital marketing spending in favor of its loyalty program. This led to a severe decline in online traffic.

Nordstrom has now reinstated paper notes in its loyalty program and increased its investment in digital marketing. Its latest update showed there has been an improvement in customer engagement and sales since the action was implemented.

The company is seeking to become increasingly efficient to mitigate the impact of declining sales. For example, it is making operational changes in stores to better align itself with customer requirements. In addition, it is investing in new technology across its supply chain as it seeks to deliver $200 million in total cost savings.


In the current fiscal year, Nordstrom is forecasted to post a 7.8% increase in earnings per share. This is due to be followed by growth of 6% next year. Since the stock trades with a price-earnings ratio of 9.8, it offers a margin of safety given its growth outlook.

Its plans to rollout its successful local market strategy across the store estate could enhance the customer experience and lead to higher engagement levels.

Nordstrom's investment to increase the size of its store estate and improve its marketing strategy could catalyze its growth rate over the long run.

Having underperformed the S&P 500 in the last year, the stock offers recovery potential.

Disclosure: The author has no positions in any stocks mentioned.

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