(Bloomberg Opinion)—If you’ve spent any time in the Instagram fashion bubble recently, you probably know that Nordstrom Inc. is holding a massive promotional event that kicks into high gear on Friday. It’s called the Anniversary Sale, and it’s a weeks-long run of price reductions on new merchandise that the retailer has done a remarkable job of getting the fashion influencer-set to hype.
This time around, the deals bonanza represents an especially important test for the department store. Some of it has to do with the timing. Wall Street sentiment has curdled on this chain in recent months. In fact, Nordstrom is the worst-performing stock in the S&P 500 Index year-to-date. (Fellow department store heavyweights Macy’s Inc. and Kohl’s Corp., it should be noted, aren’t far behind.)
In The Basement
A particularly sharp drop in share price came after its first-quarter earnings report, which rightly set off alarm bells for investors. Sales sank 3.5% from a year earlier in that period as a result of a raft of missteps: It changed how it distributed rewards to loyalty program members and that didn’t go well; it was out of stock on key beauty items; and didn’t have the right mix of entry-level and higher-price items in its women’s clothing business.
That pricing issue might be a particular concern. UBS retail analyst Jay Sole wrote in a July research note that, in his recent customer survey, 5% more shoppers said Nordstrom has become more expensive than said so last year. Of course, Nordstrom isn’t aiming to be a discount retailer; weakening price perception would be a worse finding for, say, Kohl’s. But this still represents a risk that Nordstrom is alienating one-time devotees and could fail to attract younger shoppers.
The Anniversary Sale, with its bounty of deals, is a good opportunity to chip away at that perception. But I’m going to be watching more than the price tags. It’ll be important to see whether Nordstrom is able to stay in-stock on those entry-price items, as well as particularly trendy ones, through the early days of the sale. I’ll also have an eye out for any website glitches that might frustrate online shoppers. During last year’s event, the company had to apologize for website problems; the site also had issues the previous year amid the surge in visits. Nordstrom needs to demonstrate it has learned from those mistakes and has invested technology resources appropriately to move past them.
Big sale events sometimes can seem meaningless these days, when the likes of Gap Inc. and Macy’s seem to be having a promotion practically every day of the week. And another splashy deals event – Amazon.com Inc.’s coming Prime Day – seems to be taking up quite a lot of retail-industry oxygen.
But the Anniversary Sale really matters for Nordstrom. The company indicated as much in its annual report:
“Due to our Anniversary Sale in July and the holidays in the fourth quarter, our sales are typically higher in the second and fourth quarters than in the first and third quarters of the fiscal year. Any factor that negatively impacts these selling seasons could have an adverse effect on our results of operations for the entire year.”
I still think Nordstrom has many advantages compared to its apparel-industry peers, including its not-bloated store fleet, its strong customer service, and its potentially potent idea for small-format local service centers. But for now, Nordstrom badly needs a win in the second quarter. Strong execution of this deals event will help determine whether it gets one.
To contact the author of this story: Sarah Halzack at [email protected].
To contact the editor responsible for this story: Beth Williams at [email protected].
Loyalty members who are top-tier spenders got access to the sale previously, but Friday is the kickoff for the masses, when any Nordstrom cardholder can start shopping.
© 2019 Bloomberg L.P.