Sometimes it's pricey to chase those shiny new toys.
The upscale department store bought Trunk Club, a now seven-year-old online service that helps men shop by giving advice and sending trunks full of handpicked premium clothes for them to try on at home and choose from, for $350 million in August 2014. It was part of Nordstrom's efforts to update its service and enhance its e-commerce offerings. But it has been a disappointment.
"While this business continues to deliver outsized top-line growth, current expectations for future growth and profitability are lower than initial estimates," Nordstrom said in a press release to disclose its third-quarter results.
Nordstrom's other e-commerce bets have been more successful: a few years ago, Nordstrom paid $180 million to buy online flash sale site HauteLook. And before that, it invested in Bonobos. More recently, it was part of a group that invested $15.5 million in Australia-based Shoes of Prey, which "sells customizable women’s shoes in a range of materials and designs online.
When it bought Trunk Club, Nordstrom saw it as a way to quickly add additional customer service into its successful men's business than if it were to launch a similar service on its own. Blake Nordstrom, the company's president, said on a conference call that the company "remains committed" to Trunk Club, despite its problems. One solution will be to integrate it into Nordstrom's supply chain.
Trunk Club is not the first e-commerce retail company to disappoint: earlier this year, Hudson's Bay Co (hbc) bought flash site Gilt, which was once valued at $1 billion, for about $250 million. Earlier this year, Bed, Bath & Beyond (bbby) paid $11.78 million to acquire online retailer One Kings Lane, a company that was once valued at $800 million.
Still, Nordstrom's overall performance impressed Wall Street otherwise, and shares soared 8% after its third-quarter results were disclosed.
The company reported adjusted earnings of $0.84 per share, well above analyst expectations of $0.51. Revenue rose 7.2% from a year earlier to $3.54 billion, beating $3.48 billion expected by Wall Street. Nordstrom credited better inventory management for the result, something that reduces the amount of merchandise that ends up discounted in clearance sales. That led Nordstrom to raise its full year profit forecast.
Nonetheless, there were some ongoing challenges: same-store sales fell 4.5% at Nordstrom's department stores and rose only 0.9% at its discount Rack stores. However, online sales in both those chains rose more than 20%, leading to a solid company increase of 2.4%, an improvement over recent quarters.