Nordstrom (JWN -0.34%) doesn't offer sales in its full-line stores very often. When it does, it usually discounts stale merchandise that needs to get cleared out before the next season. That stands in sharp contrast to department stores like Macy's (M 0.53%) that are constantly offering sales, coupons, and other promotions to drive store traffic.
However, Nordstrom does the unthinkable once a year, offering big markdowns on fresh merchandise just as it hits the shelves. Nordstrom's Anniversary Sale begins soon, and it comes at a pivotal time for the upscale retailer.
The sale is on
The Anniversary Sale is a long-running tradition at Nordstrom. The sale was first introduced by predecessor company Best Apparel in the 1940s and was taken over by Nordstrom in the 1960s. Discounts in the 33%-40% range are fairly typical for the Anniversary Sale.
Nordstrom's biggest sale of the year starts soon. Image source: Nordstrom.
This year, the Anniversary Sale runs from July 22 through August 7, after which prices go back up. As always, Nordstrom credit card holders get early access to the sale, starting July 14. That's in addition to getting rewards points that can be redeemed for free Nordstrom merchandise in the future.
Nordstrom needs a strong performance
The Anniversary Sale is a huge revenue driver for Nordstrom. In fact, the event generates higher average weekly sales than the December holiday shopping season, according to analysts at Piper Jaffray.
It's particularly important for Nordstrom to have a good Anniversary Sale performance this year, because its full-line business has been mired in a deep sales slump lately. Last quarter, the company reported a 5.4% comp sales decline in its full-line business, including a 7.7% drop in Nordstrom stores.
Interestingly enough, Nordstrom has continued to see strong demand for full-price items during its recent slump. Customers are still willing to pay up for Nordstrom's exclusive and limited-distribution merchandise, such as Beyonce's hot-selling Ivy Park athleisure brand.
Instead, most of the sales weakness has come from discounted and clearance items. According to Nordstrom's management, rampant discounting of certain fashion brands by competitors like Macy's hasn't just forced Nordstrom to lower its prices -- it has caused those brands to lose their cachet and fall out of favor altogether.
For example, Nordstrom is cutting back on its selection of Michael Kors handbags, according to analysts at Wedbush. Nordstrom has had to match Macy's sale prices on those items in order to keep customers loyal. Moreover, the constant discounting at Macy's (and to a lesser extent, at outlet stores) has tarnished the Kors brand among Nordstrom's clientele.
For the Anniversary Sale, Nordstrom will offer deals on its more exclusive merchandise. Thus, it combines the thrill of a sale with the thrill of trendy new items from hot brands. This should drive a lot more customer interest than markdowns on commoditized brands.
We'll find out soon
Nordstrom is set to release its Q2 earnings report during the second week of August, shortly after the Anniversary Sale wraps up. By this time next month, investors will know whether or not Nordstrom's biggest sale event of the year had a meaningful impact on its sales trajectory.
