Supply chain delays, labor shortages and soaring inflation further stress margin-sensitive retailers already struggling to shift to omni-channel business models.
Known for impeccable customer service and premier product lines, Nordstrom was particularly rattled by the pandemic. Reduced high-end apparel demand coupled with in-store experience limitations required the retail giant to rely much more heavily on digital business and Nordstrom Rack discount stores.
That strategy sounds sensible — if well executed. With its stock price down over 35% in the past year, Nordstrom retail revitalization faces increasing scrutiny.
On the most recent earnings call, investment analysts pointed to an unusual culprit —underperforming data analytics. Quite ironically, the business intelligence tools designed to sharpen decisions are now being re-labeled impediments.
Mismatch
Flagship Nordstrom stores remain strong. Total sales, customer engagement and average transaction size are all up from pre-pandemic levels. Digital revenues also continue to grow — now accounting for 40% of the business. However, Nordstrom Rack sales still trail 2019 performance by 8%. That’s a major problem.
CEO Erik Nordstrom initiated the 2021 Q3 earnings call by acknowledging that, “Nordstrom Rack has been challenged by low inventory levels in premium brands in key categories — 90% of the top brands at Nordstrom are also sold at the Rack.”
That understocking resulted in a sales mix weighted down by lower price points and tight margins. “Rack's top 50 brands represented approximately 50% of sales in 2019. Year-to-date, these brands represented only 42% of sales, highlighting the outsized gap in the merchandise availability,” Nordstrom explained.
“As we adjusted our assortment over the last year to add more product at lower price points, we found that we went too far in certain categories. We are now rebalancing our assortment to increase the breadth of selection in premium brands, improve average selling price and better align with customer expectations.”
These issues quickly caught the attention of investment analysts.
Sharp questions
In a rare move, two analysts explicitly questioned the role of data analytics.
Evercore ISI Institutional Equities’ Omar Saad asked, “Could you help us understand why all the data and analytics that comes out of your [omni-channel digital] ecosystem isn't helping you to be better at buying and placing the right inventory where it needs to be?”
Cowen & Company’s Oliver Chen followed, inquiring, “I do think you have a pretty advanced digital analytics platform. So what happened with promotion effectiveness?”
In response, the Nordstrom CEO conceded inventory selection, buying and pricing shortcomings. "We did bring and have brought more lower-priced product in over the year. Frankly, we went too far. We brought some lower price product in categories that we've heard from customers is not what they [want].”
President and chief brand officer Peter Nordstrom cited needed improvements in determining markdowns. “What you're going to see from us is more of a surgical effort to leverage that data to make markdowns, both related to timing and depth of markdowns, in a way that maximizes the profitability, ” he added.
Management’s responses did not sway the analysts. Chen concluded afterwards, “We are cautious [Nordstrom] is losing shoppers and wallet share to better executing retailers, and looking ahead could see challenges winning them back."
Nordstrom’s shares plunged over 23% after the call and remain stagnant since.
To the rescue
CIOs have a great opportunity to identify where decision technologies can best improve key business activities. Companies can no longer afford to limit database use to transaction processing, history referencing and periodic reporting. Truly strategic leaders must proactively mine data in novel ways to drive future results.
Far too often data analytics initiatives are funded on the allure of “what could go right,” without adequate plans for “what could go wrong.” While companies are quick to herald IT modernization as digital transformation success, leaders must not underestimate tech’s untapped potential to avert choices that balloon inventory, drain cash, erode competitive position and diminish enterprise value.
That difficult, data-driven candor is better suited for the c-suite long before it surfaces on an earnings call. Who’s speaking up before it’s too late? Anyone?
