Nordstrom Doubles Down on Rack Business Following 8.3% Revenue Drop

Although Nordstrom’s net sales decreased 8.3% year over year in Q2 2023, the retailer points to operational efficiency and savings as a bright spot.

Nordstrom’s net sales decreased 8.3% year over year in Q2 2023, which ended on July 29. The company pointed to the wind-down of Canadian operations and the shift in timing for its Anniversary Sale as two of the key reasons why the YOY revenue fall was so significant.

Q2 2023 results included no sales from Canadian operations, compared with a full quarter of sales from Canadian operations in Q2 2022. Last year, Q2 results also included results from the entire Anniversary Sale, while this year’s results only included sales from one week.

During the quarter, year-over-year Nordstrom banner net sales decreased 10.1%, while net sales for Nordstrom Rack decreased 4.1%, improving from an 11.9% loss in Q1 2023. The retailer noted that eliminating store fulfillment for Nordstrom Rack digital orders was a big reason why banner sales suffered. This change, coupled with the sunsetting of Trunk Club, also was a primary reason why digital sales took such a hit: these sales tumbled 12.9% YOY but still represented 36% of total sales for the quarter.

Nordstrom still has strong faith in the Rack business model; as it has shuttered all Nordstrom and Rack locations in Canada, it has opened or relocated nine Nordstrom Rack locations across the U.S. and plans to open 23 additional Rack stores through 2025.

Despite the bleak undertones, executives noted that the quarterly results are a significant improvement over Q1, when the entire enterprise saw an 11.6% YOY revenue drop. Executives also focused on Nordstrom’s marked improvements in operational efficiency: ending inventory decreased 17.5% over the same period in 2022 and SG&A expenses as a percentage of net sales were flat compared with Q2 2022, partly due to improvements in supply chain efficiency and operational costs.

“We’ve worked hard to improve our operating model, and our solid results reflect the continued progress we made against our top priorities to improve Nordstrom Rack performance, increase inventory productivity and deliver efficiencies through supply chain optimization,” said Erik Nordstrom, CEO of Nordstrom, Inc. in a statement. “These 2023 priorities improve the way we operate and drive profitability in the near term, and better position us to succeed and deliver value to our shareholders in the long-term. Looking ahead, we remain confident in our ability to deliver on these priorities, all while keeping the customer at the center of everything we do.”