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Nordstrom's impressive online sales (JWN)
BI Intelligence
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Despite declining in-store sales, Nordstrom’s total revenue increased 2.9% year-over-year (YoY) in Q4 2016 on the strength of rapid growth in online purchases.
Nordstrom.com accounted for approximately 25% of the company's full-priced sales, topping $844 million for the quarter, an 8% YoY increase. Meanwhile, the company’s discount online stores saw even greater growth, with sales for Nordstrom Rack and HauteLook growing 29% YoY.
The company highlighted improvements in its mobile app and logistics network as factors driving its online sales growth:
The emphasis on Nordstrom's app and mobile browser has propelled m-commerce to outpace desktop sales for some time now, according to co-president and director Erik B. Nordstrom.
Last year, the company added a visual search function to its mobile app that allows customers to look up a product by scanning a barcode or snapping a picture of a catalog image.
It also launched a new mobile feature allowing customers to reserve items through the app to later try on in-store.
Nordstrom cut supply chain costs by reducing split shipments and opening a new East Coast fulfillment center that helped reduce delivery times and costs.
Nordstrom has previously expressed concerns about growing logistics costs around online and omnichannel orders, however. This is a concern for the vast majority of retailers, as 75% of respondents to a recent PwC and JDA Software survey said their online operating costs are increasing. Controlling logistics costs will be critical for Nordstrom going forward as its online sales continue to rise.
Digital is dismantling the retail industry brick by brick. The most successful retailers are the ones with thriving digital businesses, while physical stores are becoming more liabilities than assets.
However, e-commerce isn't without its challenges. In contrast to waning demand for in-store retail, rising demand for online retail has created a bottleneck at the fulfillment stage, whereby carriers and retailers are struggling to manage the increasing volume of online orders. This is presenting an opportunity for legacy retailers to leverage their gluttony of physical retail space to help fulfill these sales.
Ship-from-store — a fulfillment process where retailers use stock from their store's estate to fulfill orders — can help brick-and-mortars evolve and avoid stagnation. This method is an essential strategy for legacy retailers because it can help them survive digital disruption and remain competitive with e-commerce giants like Amazon.
BI Intelligence, Business Insider's premium research service, has compiled a detailed Ship From Store report that explains how retail stores have become a liability and assesses the opportunity to use stores as distribution points for online orders. It also breaks down how the ship-from-store method works, and examines its benefits, the steps needed to implement it, the retailers best positioned to use it, and the implications it presents for the industry at large.
Here are some key takeaways from the report:
E-commerce is cruising with no indication of slowing down. BI Intelligence forecasts that digital retail sales will reach $632 billion by 2020. This means online sales will continue to eat into in-store purchasing, placing pressure on brick-and-mortars to remain profitable.
Digital is moving to the core of retailers' strategies, and existing real estate can be leveraged to support a digital business. Large retailers' stores are densely distributed, providing an opportunity for them to serve multiple purposes.
Ship-from-store has proven to be beneficial for retailers that have tested it. The results retailers have seen include higher sales, faster delivery times, easier inventory forecasting, improved margins, and lower costs.
Large retailers with densely distributed stores and low-turnover inventory are in the best position to test the ship-from-store model. Retailers need ample square footage to turn existing aisles or backrooms into storage for online orders, and slower turnover in order to convert excess inventory to online orders.
In full, the report:
Explains how legacy retailers can leverage their physical space to support distribution for e-commerce channels.
Details the steps that retailers have to take in order to implement a successful ship-from-store model.
Discusses the characteristics that make a retailer well positioned to benefit from turning its stores into distribution centers.
Provides insight on how the ship-from-store model can augment the retail industry at large.
Interested in getting the full report? Here are two ways to access it:
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