How Nordstrom Outsmarts Rivals in Both E-Commerce and Luxury

NEW YORK (TheStreet) -- When you think of an e-commerce powerhouse, you probably wouldn't guess a 113-year old retailer is at the forefront. But that's exactly where luxury retail chain Nordstrom (JWN) is. Founded in 1901 as a simple shoe store, Nordstrom is transforming itself once again to expand beyond its brick-and-mortar origins. The company is embracing e-commerce and the strategy is paying off.

Investors are taking notice. The stock has soared nearly 20% in the past year, outperforming the S&P 500 (SPY) and its retail peers.

JWN Chart

JWN data by YCharts

E-commerce is now the fastest growing part of Nordstrom's business. E-commerce sales jumped 22% in the second quarter and the company expects 50% of total sales will come from e-commerce and its discount Rack unit with the next five years.

"Nordstrom's strength in sales is coming from e-commerce and that's helping to camouflage the slowdown in sales from its full-line retail stores," said Britt Beemer, retail analyst at America's Research Group.

Nordstrom's strategy is a simple one: to use new technology to create a seamless shopping experience whether online, in stores or on mobile devices.

Among the most recent initiatives, Nordstrom partnered with Like2Buy to allow shoppers to buy products through its Instagram page. (Instagram is owned by Facebook (FB) .) Nordstrom also teamed up with Twilio to launch a service that allows salespeople to text customers about merchandise. And Nordstrom has expanded its online footprint with the purchase of flash-sales site Haute Look and online clothing service Trunk Club.

"Nordstrom is outperforming its department store competitors. In a ranking of online websites most visited by shoppers, they are now at number 7. Three years ago, they ranked at 19," Beemer said.

Analysts say Nordstrom's e-commerce efforts come just at the right time. As Nordstrom's customer base gets older and spends less, the luxury chain's e-commerce strategy is helping to attract younger customers. Winning over millennials -- those age 14 to 34 -- could be a huge windfall. Analysts estimate their buying power may top $1.4 trillion annually by 2020.

Rivals are now rushing to follow Nordstrom's lead. J.C. Penney (JCP) is in the process of launching a new mobile site. Macy's (M) is testing a same-day delivery program for online and mobile purchases in certain cities. And Kohl's (KSS) is working to enable customers to buy products online and pick them up at its stores, something Nordstrom already does.

Playing catch-up to Nordstrom may prove difficult. The retailer shows no signs of slowing down when it comes to its e-commerce strategy. The company plans to spend more than $1.2 billion in new technology investments over the next five years.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


TheStreet Ratings team rates NORDSTROM INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate NORDSTROM INC (JWN) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, expanding profit margins, growth in earnings per share and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

You can view the full analysis from the report here: JWN Ratings Report

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