Dive Brief:

• Nordstrom shares fell 3% Friday after Evercore analysts reduced their price target from $50 to $40 and downgraded the stock to "sell" from “hold.”

• The Evercore analysts hit Nordstrom for straying too far from signatures like customer service and well-curated upscale merchandise to focus on its off-price and e-commerce operations.

• Nordstrom is battling to rebound from a disappointing Q4. While net sales in flagship Nordstrom stores decreased 2.5% year-over-year, net sales at its off-price Nordstrom Rack locations grew 6.9% and web sales increased 11%.

Dive Insight:

In recent years, as department stores have struggled, Seattle-based Nordstrom seemed to have shrugged off the headwinds, and garnered praise in many quarters for the performance of its e-commerce and off-price Rack stores—the very enterprises that came under fire by Evercore. 

"In our view, Nordstrom is the most guilty of putting itself in a precarious situation by distancing itself from its long-standing, carefully cultivated identity (full-price, customer service, unique fashion curation) to pursue commoditizing e-commerce and off-price strategies,” Evercore said.

Nordstrom saw muted sales and weak store traffic in recent quarters and has taken steps to cut costs by laying off some 120 employees in its tech operations and another 350 to 400 at its headquarters. In announcing the most recent layoffs, co-president Blake Nordstrom took pains in a statement to note that they wouldn’t impact in-store employees, who are essential to its top-notch reputation for customer service. 

The Evercore note presents Nordstrom with something of a 'damned-if-you-do, damned-if-you-don’t' conundrum. The company has been credited for its efforts to stay on top of the tech demands of the e-commerce retail era, and while other retailers have only recently jumped on the off-price wagon, Nordstrom opened its first Nordstrom Rack off-price store in Seattle in 1975. Beyond its early entrance in the space, Nordstrom is “absolutely by far the best at outlet,” according to Shelley E. Kohan, VP of retail consulting at store analytics firm RetailNext.

“I’m not talking about T.J. Maxx—those are two different formats,” she said. “But as far as the outlet ... Nordstrom Rack kills it.”

It’s true that the retailer has accelerated its growth strategy for its Rack stores. And while it has received kudos for its e-commerce and omnichannel efforts, the truth about e-commerce (reflected in the Evercore note) is that it comes with higher costs and slimmer margins, thanks to its complicated logistics and price pressures.

While Nordstrom’s sales have grown some $6 billion since 2007, thanks in part to its e-commerce prowess, for example, operating profits have 21% at the same time, according to the Evercore note.

Nordstrom didn’t respond to calls for comment on the Evercore note, according to CNBC.