Nordstrom Has Reinvented Itself

Would you feel comfortable investing in a company that has seen 30% e-commerce growth over the past two years? What if that company has also been outperforming its peers on the top line by a wide margin over the past five years? And what if this same company was recently ranked by Market Force as America's Favorite Fashion Retailer? If you answered yes to these questions, then you might want to consider Nordstrom (NYSE: JWN  ) .

Top-notch customer service
Nordstrom is primarily known as a high-end retailer, but it should be known for its customer service as well. This is somewhat ironic considering many consumers are intimidated by higher-end stores, thinking that their lack of knowledge about popular brands should keep them from visiting certain retail stores. If you happen to fit into that category, then you will be happy to know that you would likely have the opposite experience at Nordstrom. 

Market Force rated Nordstrom as America's Favorite Fashion Retailer for several reasons, but customer service stood out. Nordstrom offers a very lenient return policy as well as salespeople that are friendly, helpful, and knowledgeable. These simple initiatives have led to strong customer loyalty.

Nordstrom offers top-notch customer service when you visit its brick-and-mortar stores, and this has led to success, but how is its online store faring? 

Online performance
As hinted at above, Nordstrom has seen 30% e-commerce growth over the past two years, and this trend is expected to continue. Nordstrom is highly focused on its website because it has found that multichannel shoppers (people who shop at least two of the following "channels": brick-and-mortar, website, mobile) tend to spend four times more than single-channel shoppers.

One example is that Nordstrom offers 50% more product offerings online than it did last year at this time. It's now at the point where Nordstrom has more products online than in its brick-and-mortar stores. Nordstrom has especially seen strong online demand for footwear and women's apparel. Logically, it will aim to build out these product offerings on its site. 

Prior to getting to online comparisons between Nordstrom and two of its peers, Macy's (NYSE: M  ) and Gap (NYSE: GPS  ) , let's first take a look at top-line performance comparisons over the past five years. Despite Gap not being a department store, consumers searching for a broad array of apparel are likely to look to one of Gap's brands, especially in search of apparel at varying price points. Now for that chart: 

JWN Revenue (TTM) Chart

Nordstrom revenue (trailing-12-month) data by YCharts.

Impressive for Nordstrom, but the company's website, Nordstrom.com, hasn't been the top performer in this group when it comes to online trends over the past three months. Consider the numbers in the following table:

Website 

Global Traffic Ranking

Domestic Traffic Ranking

Bounce Rate (visitor only views one page and leaves)

Page views per User

Time on Site

Nordstrom.com

615

161

Up 6% to 32.3%

Down 9.7% to 5.42

Down 18% to 4:54

Macys.com

487

81

Up 6% to 26.8%

Up 9.2% to 6.04

Up 4% to 6:41

Gap.com

597

127

Up 3% to 24.1%

Up 4.4% to 7.86

Down 3% to 6:14

Source: Alexa.com.

Nordstrom might be growing online, but Macys.com stands out over the past three months. Not only does it generate the most traffic of the three internationally and domestically, but its website is good at keeping visitors interested. This, of course, has the potential to lead to increased sales. However, if you take out three-month trends and look at the overall picture, Gap.com offers the lowest bounce rate as well as the highest page views per user.

It should also be noted that Gap has demonstrated the best debt management of this group, sporting a debt-to-equity ratio of 0.4, whereas Nordstrom and Macy's have debt-to-equity ratios of 1.6 and 1.3, respectively. This might not matter now, but if the economy were to sour, Gap would likely hold up best.

For now, fear not for Nordstrom. For this quarter alone, it's investing $6 million in technology, fulfillment, and a Canadian expansion. These initiatives have the potential to accomplish three goals: improve online performance, reduce costs/improve margins, and drive top-line growth.

The bottom line
Nordstrom is on-trend, which has led to 52% stock appreciation over a three-year time frame. And Nordstrom currently yields a 2% dividend. Barring an economic calamity, Nordstrom's top-notch customer service, solid online performance, and strategic investments should lead to continued strong performance for the retailer. 

Top growth potential in retail 
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