Nordstrom’s Inventory Crunch Worries Investors

Nordstrom’s Inventory Crunch Worries Investors


Shortages in categories such as women's designer apparel and shoes impacted Nordstrom's off-price Rack business in the third quarter. CREDIT: Vanessa Kockegei/picture-alliance/dpa/AP Images

Rivet’s 2021 winter issue has dropped! This in-depth issue examines the steps the global denim industry is taking to minimize its impact on the environment, from implementing zero waste production and design processes to establishing greenhouse gas emissions goals aligned with the Paris Agreement.

Nordstrom Inc. reported third-quarter earnings results that left investors worrying about the state of its off-price Rack business.

In a Nutshell: Like many of its competitors, Nordstrom had an easy beat to year-ago sales figures because of the pandemic impact. It wasn’t so lucky when third quarter sales were compared on a two-year basis to 2019. While full-price Nordstrom stores posted a 3 percent gain, Rack sales fell 8 percent on a two-year basis, mostly due to supply chain issues. It was noticeable to investors, especially following earnings reports from competitors such as Macy’s and Kohl’s, both of which last week said their sales surpassed pre-pandemic levels. “We have not responded as quickly and as aggressively as we need to. With Rack, in particular, it really starts with our source of goods [which] got disrupted with the pandemic, and it resulted in both just a flat-out shortage of inventory. We’ve been significantly under inventory plans all year,” CEO Erik Nordstrom said on a conference call to Wall Street analysts on Tuesday. While he noted that the shortages were most evident at Rack, the CEO also acknowledged that the company had been too slow in making the needed adjustments. He zeroed in on its off-price business and cited the need for improving performance, profitability and optimizing its supply chain and inventory flow. “We need to grow market share and deliver greater profitability. And we are acting with a sense of urgency to do so,” he added. Rack was challenged by low inventory levels in premium brands and in key categories that included women’s apparel and shoes, he said. “While many retailers are dealing with macro-related supply chain disruptions, Rack faces a unique challenge as off-price procurement of the same top brands we carry at Nordstrom is particularly difficult in an environment with production constraints and lower levels of clearance product,” the CEO said. “Rack’s top 50 brands represented approximately 50 percent of sales in 2019. Year to date, these brands represented only 42 percent of sales, highlighting the outsized gap in merchandise availability.” Nordstrom detailed about a multi-layered plan to grow the company’s assortment and source from new vendors, as well as increase opportunistic use of pack-and-hold inventory. “Given that we expect macro-related supply chain disruptions to continue into next year, we’re strategically evaluating our assortment and increasing our use of pack-and-hold inventory by a factor of two to three times,” he said. Another problem he cited was that as the company adjusted its assortment over the last year to add more lower-price points, “we found that we went too far in certain categories.” That drove