Digital spin-offs are suddenly all the rage

ByRichard C. Sloan

Dec 22, 2021

Forget about faux fur, puffy vests or warm woolen knits; the hottest trend in department stores this holiday season has nothing to do with clothing, but everything to do with beauty. It comes as the big department store digital spinoff trend looks like the answer to just about any trendy new look – everyone is rushing in and dying to get the look.

The look, in this case, has now been replicated three times in a month, by Macy’s, then Kohl’s and more recently Nordstrom. All of these stores are reported to be reflecting on the same thing rival Saks Fifth Avenue did earlier this spring, when it announced plans to separate its faster-growing digital assets from its core physical store portfolio.

While Nordstrom’s reported foray into this value research patch has yet to be confirmed by the company, Bloomberg reports that the Seattle-based luxury retailer secured the services of Alix Partners to study the feasibility – and financial rewards – of turning its Nordstrom Rack unit into a brand new business.

This is the same consultancy that started a fire under Kohl’s a week ago, with an open letter, a 1% stake, and a list of wealth promises awaiting them on the other side if they choose to go ahead as two companies.

In Nordstrom’s case, the alleged split of its non-priced Nordstrom Rack unit follows a one-month 35% drop in its share price, triggered by low stock in the third quarter of this year.

Nordstrom also suffered from factors such as high freight and labor costs and supply chain issues which proved difficult to overcome.

See also: Today in Retail: Warby Parker files for IPO; Nordstrom sales remain below 2019 levels

Additionally, Nordstrom said its average price fell 4%, meaning consumers looking to buy luxury brands were disappointed with the store’s current offerings. To make matters worse, Nordstrom Rack has been deprived of merchandise.

Is this a turning point for luxury department stores?

As PYMNTS reported, experts speculated for some time that Nordstrom was interested in pursuing a merger and acquisition. In 2018, the special committee of the board of directors of Nordstrom discussed the privatization of Nordstrom.

Nordstrom also continued to build relationships and join forces with companies like Fanatics and ASOS.

Interestingly, the Nordstrom news above follows Macy’s announcement last month it was also working with Alix Partners to review its business operations.

See also: Nordstrom plans to turn the rack into a new business

Other Nordstrom competitors, like Saks Fifth Avenue and Kohl’s, have seriously considered doing the same.

Earlier this month, activists urged Kohl’s to sell or shut down its online business. Neiman Marcus has found himself in the same boat and is also considering splitting into different companies.

A closer look at Nordstrom’s efforts

Last month, PYMNTS reported that following news that its average price had fallen 4%, Nordstrom said this was the result of Nordstrom Rack’s underperformance.

Read more: Does “order” in Nordstrom now mean ordinary?

“When we look across the landscape, we have to offer more,” Nordstrom said at the time. “We need to increase our market share and increase our profitability, and we act with a sense of urgency to do so. “

In the last quarter, Nordstrom sales performed better than the previous year, but digital sales took a hit.

As PYMNTS noted last month, “Nordstrom’s net sales increased 18% in the third quarter of 2021 compared to the same period a year earlier. Digital sales fell 12% in the third quarter compared to the same period of fiscal 2020 and increased 20% compared to fiscal 2019. ”

See also: Nordstrom still looking to regain its pre-pandemic glory

Last August, PYMNTS also reported that Nordstrom’s sales in Q2 2021 were a bit more stable, driven by consumers looking to update their wardrobes with activewear and loungewear. At the time, Nordstrom said he was confident the second half of the year would bring opportunities amid the uncertainty.

At the time, Nordstrom’s revenue in 2021 is expected to grow 35% from 2020, citing pent-up purchase requests from consumers. Nordstrom previously estimated this revenue growth to be over 25%.

Related: Nordstrom prepared for a ‘range of scenarios’ amid continuing uncertainty

Sadly, expectations have fallen short of reality. Nordstrom said its biggest annual fashion event, the Nordstrom Anniversary Sale in July, saw sales increase 1% from 2019. Due to the pandemic, the sale event has been moved to the third trimester.

The company said it is looking to change that and remains focused on learning digital consumer interaction and data-driven sales tactics.

Key to take away

Amid the continued disruption of the pandemic, some retailers are innovating quickly and thriving, while others are struggling to digitize and bring their business models into a new, rapidly evolving era.

Nordstrom has launched many unique projects recently, such as adding Cuvée Beauty low-effort hair products to its websites and opening an immersive Dr. Martens pop-up in New York City last fall.

Perhaps if that same kind of imaginative and creative energy can be quickly fed back into Nordstrom’s business model, the company and the consumers it serves will be happy with whatever comes next.

Read more: Nordstrom adds Cuvée Beauty hair care products



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