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Here’s the Inventory Issue Nordstrom Didn’t Expect to Have

Nordstrom found itself facing an unexpected hiccup when it slashed expenses and began battening down the hatches when the coronavirus pandemic swept the nation in March.

The retailer’s “very conservative approach” to managing COVID-19’s disruption, said president and chief brand officer Pete Nordstrom, meant drastically pulling back on orders and whittling down inventory in the hopes of avoiding massive markdowns and putting off buying new goods, given the uncertainty around consumer spending and when its own stores could reopen. But when the department store company was ready to funnel new orders into its pipeline, it discovered that wasn’t such an easy task—because its suppliers had shut their doors, too, the executive said Tuesday in a fireside chat with Dana Telsey, CEO and chief research officer at Telsey Advisory Group, along with others from the Nordstrom C-suite.

Now, the company is gearing up for its annual Anniversary Sale, which will take place in August this year instead of July in part because it had to clear out merchandise to make room for sale-worthy goods. The pandemic forced some merchandising changes in the yearly sale event, the chief brand officer admitted. The ability to sell wear to work is not nearly what it was,” he added. “We took a look at our Anniversary content, and pivoted to the casualization of America, particularly in active.”

If there was an upside to its inability to quickly flow in new product, it was that Nordstrom was able reroute some funds toward bringing in “fresh goods” for the Anniversary Sale, according to chief financial officer Anne Bramman.

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This holiday, Nordstrom is hoping to stake its claim as a gifting destination after working for the past several years to improve its positioning. The company learned a lot last year, Nordstrom explained, and armed with performance data on top-selling categories and effective price points, “we’re going to have more inventory at lower prices, probably more than we’ve ever had.”

What foot traffic will look like, however, will be anyone’s guess. With several states reversing lifted lockdowns and the country seeming to backslide on virus containment, consumer spending looks set to recede yet again—and no one can guess how that will spill over into the year-end selling season. As a result, the Seattle-based retailer is focusing on how to best fulfill demand stemming its digital channels. “We think we’ll have a successful holiday, relatively speaking,” Nordstrom said.

Current brick-and-mortar trends might support that optimism. Bramman said store sales are “down 40 percent in comping,” but steadily improving and with monthly cash flow around the break-even point. She sees a “highly promotional environment” lingering in retail for the foreseeable future, however, with sales ramping up through 2021.

According to Bramman, Nordstrom settled its first-quarter rent bills and is in ongoing dialogue with landlords seeking a workable resolution on its current real estate expenses. Reports indicate the retailer will only pay half of its rent for the remainder of the year. Though Bramman didn’t address those reports, she indicated that “everything out there is considered a variable expense”—which could include vendors and suppliers, too.

A common refrain in the pandemic-retail conversation is how the disruption is putting the sector’s transformation into hyperdrive. That’s happening at Nordstrom, too. Chief operating officer Ken Worzel said the company is rolling out services like buy online, pickup in store—once reserved exclusively for its full-price stores—to its off-price operation. The goal, he added, is to offer “super seamless” service across all 350 stores under the company umbrella. After all, customer lifetime value jumps tenfold when a shopper buys from both nameplates instead of just one, Worzel said.

The pandemic accelerated Nordstrom’s store closing plans as well. The 16 full-line stores slated for closure as of May were on the chopping block anyway, Worzel said—just maybe not so quickly. On average, the retailer has closed between three to four stores each year in markets where it has multiple locations, enabling Nordstrom to continue serving the local shopper.

While customers now are more comfortable shopping in strip malls where many Racks are located, one thing Worzel remains confident about is the “great future in experiential shopping in physical stores, particularly in a great mall.” With most of its full-line locations in A or A-plus locations, Worzel said those “retail centers will continue to be important. At this point in time, it’s hard to read through the fog of what’s going on with COVID.”