NEW YORK (Real Money) -- Of all the truly disturbing retail conference calls we heard last week, it wasn't the disappointing Macy's (M) call that got to me, or the ho-hum, Mike Ullman-less J.C. Penney (JCP) call. It was the Nordstrom (JWN - Get Report) run-through.
The call itself, on the surface, seemed like a good one. There was a new acquisition that seems to be panning out, an expansion of Rack that everyone loves and a careful invasion of Canada -- unlike Target's (TGT) disastrous foray. Comparable-store sales are growing in the high 3% area, which seemed encouraging, and you could see how the stock might continue to rally as it did into the quarter.
But then you heard about "the spend." You heard that Nordstrom is going to invest $3.9 billion in capital in order to stay competitive, including $1.2 billion in technology -- and you reeled. You just reeled. That's even more than you thought last time, when the company talked about spending for what now seems like a run-in-place. The spending is causing a gross-margin guide-down, which is not what you want to hear with 3%-plus comparable-store-sales growth.
Nordstrom is shelling out these billions in order to accelerate the deployment of the same omnichannel strategy that every retailer is doing, this time with an emphasis on Nordstromrack.com, which is a brand-new service. We always seem to forget that great technology doesn't come cheap -- and this sure isn't coming cheap for the crosstown "retail" rival of Amazon (AMZN) .
But here's what's so painful about "the spend" this time: You realize that, the better Nordstrom makes its Web sites, the less you have to go to Nordstrom the store. Yet the store itself is a paradise of enticement, getting you to buy other goods that go with what you are buying, or even better. You just browse there to buy things that you hadn't thought about buying when you went in: shoes, perfume, some jewelry. These are the untargeted equivalents of the Amazon prompt, "Other customers who bought these purchased --" and fill in the blank.
Not only that, but the Web neutralizes what I like best about Nordstrom: the smart, helpful salespeople who get you to buy other things you hadn't thought about buying.
These people so rapidly ingratiate themselves that I have come home with whole boatloads of private-label shirts and ties that I love that I had had no intention buying when I had come in for a pair of cufflinks.