Last week, Nordstrom (JWN) laid off 120 members of its tech team, a move that comes as it reins in pressure on its profits from massive e-commerce investments.
The luxury department store chain, seen as a best-in-class brick-and-mortar retailer when it comes to digital sales, got 21% of its revenue from its online operations last year, compared to 8% only five years earlier. And Nordstrom is gunning to get that figure up to 33% by the end of the decade.
But a lot of the heavy lifting has been done, and with its department store business stagnating and its Canadian expansion weighing on its bottom line, Nordstrom is easing off the pace of investment; hence the layoffs, which were first reported by the Seattle Times.
The paper said that a Nordstrom spokesperson didn’t anticipate further cuts for now and noted that the recent layoffs, including some managers, represented 7% of Nordstrom’s tech personnel. Nordstrom did not immediately respond to a request for comment from Coins2Day.
Last month, the Seattle-based company said online sales at its main site rose 15% and increased 47% on its discount sites in 2015. (By contrast, same-store sales at its full-service department stores fell 1.1% last year.)
Those online numbers would normally be the envy of its peers. But Nordstrom has spent a fortune in the last few years to get that advantage. Such spending has come at a cost to the bottom line. The company forecast its earnings per share would fall 30% in the first half of the year. And Nordstrom plans to spend $300 million on tech and e-commerce this year.
“We’ve invested a lot of capital over the last several years,” Nordstrom Chief Financial Officer Michael Koppel told investors last week at the UBS Global Consumer Conference. “We’ve added over $5 billion to our top line, but we haven’t added a lot of incremental earnings. And that’s been the challenge.”
In the last few years, Nordstrom has spent billions on its digital operations. It has built a new app, launched new websites for its Rack chain of discount stores, and it acquired the online retailer Trunk Club. All that has eaten away at its profitability.
The company has said that 2015 would be a peak year for investment, so cutting back on tech spending is not a surprise.
Still, this doesn’t mean Nordstrom is turning away from its tech push. For one thing, Nordstrom is gunning for $20 billion in revenue by 2020 (up from $14.4 billion for 2015), and its digital business is the only fast-growing part of the company. (Nordstrom is aggressively expanding its Rack chain but same-store sales, or sales at existing Rack stores, have been falling.)
What’s more, Nordstrom’s cross-town rival Amazon.com (AMZN) is making a big move into fashion and apparel. Koppel himself acknowledged the threat, estimating that Amazon had annual clothing sales of $10 billion.
“Amazon has created the standard for distribution, quickness of delivery, mass assortments, etc, etc, etc,” Koppel said.
Nonetheless, Nordstrom will be more cautious in what it does to build up its online sales.
“We’ve really gone through that period of aggressive investment,” he said. “Now we need to go through a period of figuring out what really matters.”
