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Nordstrom Discovers It’s No Amazon, Will Reduce Online Assortment

May 12, 2016, 10:37 PM UTC
Nordstrom Expects First Quarter Earnings Per Share To Drop
CHICAGO - APRIL 01: Shoppers enter the Nordstrom store April 1, 2003 on Michigan Avenue in Chicago. Nordstrom, Inc. announced yesterday that based on quarter-to-date sales, first quarter 2003 earnings per share are expected to be below expectations. (Photo by Scott Olson/Getty Images)
Photograph by Scott Olson — Getty Images

Nordstrom (JWN) has learned the hard way how expensive and ultimately pointless it is to have a massive selection online.

The upscale department store reported an awful set of quarterly results that saw among other things sales at its luxury department stores fall 7.7%, while online sales of its full price business rose a mere 3.1% a far cry the 20%+ growth Nordstrom had gotten investors used to. (Nordstrom also operates the Rack chain of discount stores and Hautelook, businesses that fared much better.)

Nordstrom’s sales, well below Wall Street expectations, led to a sharp reduction in its profits with earnings before interest and taxes (EBIT) from its retail business falling by more than half. Those results followed dismal reports this week from rivals like Macy’s (M) and Kohl’s (KSS). Nordstrom shares fell 15% on the results.

The company has long been a leader in e-commerce, being among the first to recognize the need to integrate stores and e-commerce, and having one of the best mobile apps in retail. But with its sudden losing streak (3 quarters of weak sales in a row, after years of almost peerless growth in retail), Nordstrom is pulling back. In March, the company said it would slow down the pace of spending on tech. (This year, Nordstrom plans to spend $300 million on tech and e-commerce. A big number to be sure, but the same amount as last year, when those investments rose 35%.) Last month, Nordstrom announced 400 job cuts.

And on Thursday, executives said that Nordstrom would cut some of its assortment online.

“We are refining our online assortment through greater focus on key brands and categories while editing less profitable items,” Chief Financial Officer Michael Koppel told Wall Street analysts on a conference call.

Turns out it’s pointless for a high-end store to try to be like Amazon (AMZN)and sell a wide array of products. (Of course, Nordstrom offers nowhere near what Amazon does, but its selection is too wide.)

By definition, luxury should be about things other stores don’t have. And Nordstrom, which offers price matching, has found itself competing on price on easy-to-find items, something that is anathema to what luxury stands for. It’s hard to leave money on the table, so Nordstrom had expanded its assortment widely. But that has come at a cost.

“We also found that through expansion, some of our price points got to some lower levels that it becomes more difficult to make money,” Koppel said.

It’s basically the luxury version of what’s afflicting middle of the road department stores: by offering so much of the same merchandise as other stores, fighting on price is the only way to go, gross profit margins be damned.

So now, because of the new approach, Nordstrom’s buyers will need to look harder for items that will set Nordstrom apart. Koppel said Nordstrom’s new approach will give company buyers “opportunities to try some new vendors, some new programs, some new things.”

And that, in turn, would help customers not see Nordstrom’s wares as commodities they can find at all of its peers.

Nordstrom might come from Seattle, but there is only room for one Amazon in that town.