Nordstrom Rack overshadows flagship again

Dive Brief:

Nordstrom on Thursday reported that fourth quarter net sales fell 4.7% to $4.5 billion from $4.7 billion in the year-ago quarter, or rose 0.1% excluding a 53rd week in 2017 of about $220 million.
Store comps, which were not impacted by the 53rd week, rose 0.1%, according to a company press release. Net income in the quarter rose to $248 million from $151 million in the year-ago quarter, primarily thanks to lower income taxes associated with corporate tax reform, the company said.
For the full year, net sales rose to $15.9 billion from $15.5 billion (including credit card revenue) and net earnings rose to $564 million from $437 million for fiscal 2017. Full-year comparable sales rose 0.9%, with off-price Rack comps rising 3.5%.

Dive Insight:

Nordstrom faces a somewhat worrisome reality: Its off-price operations continue to outperform its full-price flagship, with a year-over-year increase in net sales compared to a decrease for the full-price business.

But the department store is notching gains at a time when its model is under siege, thanks to its retail concept innovation and its dedication to loyalty.

UBS analysts called the company's "weak full-price comp ... concerning," and flagged it as further evidence "that department stores, including [Nordstrom], are structurally challenged." But UBS also expressed confidence in the company's work to upgrade the model, saying its "technology investments [are] starting to pay off in a bigger way than we anticipated."

The retailer is also succeeding in locking in its fan base with its revamped loyalty program, Nordy Club, according to Tom Caporaso, CEO of loyalty platform Clarus Commerce. "Today it's no secret that department stores are facing increasing pressure from Amazon, but Nordstrom's best weapon in the battle may be its 'Nordy Club' program," he told Retail Dive in an email, adding that there's room for further leverage if the retailer adds a paid tier. "By targeting Nordy Club's best customers with even more exclusive offerings, this tier would help Nordstrom turn its most loyal, frequent shoppers into true advocates — the most valuable asset Nordstrom could ask for."