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3 Brick-and-Mortar Retailers with Strong E-Commerce Businesses

By Jeremy Bowman - May 23, 2017 at 7:42AM

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Traditional retailers may be suffering, but some have stronger online sales than you might think.

When investors talk about e-commerce, is often the first company that comes to mind. But plenty of brick-and-mortar retailers have built solid online businesses as well.

Omnichannel has become a buzzword in retail, the notion that retailers must be proficient in both the traditional retail channel as well as the digital one. The benefits are clear, as physical stores can serve as fulfillment centers for online orders as well as sites for order pick-up and return. Even Amazon seems to be developing an interest in bricks and mortar, as the company has opened a handful of bookstores around the country and is also testing physical locations for grocery retail.

As e-commerce continues to take share from physical retail, it seems that brick-and-mortar chains with strong e-commerce operations will be the best-positioned for the future.

Below are three traditional retailers that derive a significant portion of their sales online.

A Nordstrom Rack store

Image source: Nordstrom.

1. Nordstrom 

Shares of the upscale department store chain have gotten battered lately as department store stocks have reported sliding sales and profits, but Nordstrom (JWN 1.65%) is better positioned than its rivals to continue to grow in the future. While its full-line department stores continue to be a point of weakness, with comparable sales falling 6.4% last year, less than half of its sales come from those stores. Nordstrom also has a successful off-price brand in Nordstrom Rack, and an e-commerce business that contributed 21.8% of sales last year. Last year, revenue at grew 9.5% to $2.52 billion and online sales at its off-price brand jumped 31.7% to $700 million.

While the 9.5% clip is slower than overall online sales growth around 15%, Nordstrom has a head start over its department store competitors and growth on its namesake site, and that growth will become more important as consumers continue to shift to e-commerce.

2. L Brands

L Brands (BBWI -0.55%), the Victoria's Secret-parent company, has also built a strong e-commerce business as its catalog business and well known brand have primed customers for online sales.

E-commerce sales made up $1.58 billion in sales last year at the Victoria's Secret brand, the equivalent of 20.3% of total domestic sales from the brand. Online sales for Victoria's Secret grew just 1.5% last year, a sign that the brand itself may be experiencing weakness beyond the standard problems with mall-based retailers.

In the first quarter of this year, online sales at Victoria's Secret actually fell disproportionately as the company exited the swim and apparel business.

However, online growth has been stronger at L Brands' secondary business, Bath & Body Works. Though online sales at that chain make up just 11.3% of total sales with $452 million last year, that figure grew 25% from the year before. In the first quarter, it jumped another 22%. 

Still, Victoria's Secret makes up the bulk of the company's business. Keep your eye on its direct sales to see if the brand can make a comeback, as the stock is off sharply this year even after a burst of its first-quarter earnings report.

3. Williams-Sonoma

Like Victoria's Secret, Williams-Sonoma (WSM -2.99%) had a solid catalog business before it transitioned into e-commerce. The high-end home-furnishing specialist derives a greater percentage of its sales from the online channel than even the two companies above. 

In fact, a majority of Williams-Sonoma now comes from the online channel, as e-commerce sales made up 51.8% of total revenue last year. Online sales grew just 4.4% last year at the company, which also owns Pottery Barn and West Elm. Brick-and-mortar sales, meanwhile, were virtually flat.

Williams-Sonoma is adjusting its marketing strategy to support e-commerce as it cuts back on catalog circulation and makes digital its largest investment channel. Williams-Sonoma will report first-quarter earnings next week, and online sales growth should continue to guide the company's fortunes.

All three of these companies cater to a higher-end customer, which may explain why they have better-than-average e-commerce divisions -- wealthier Americans tend to shop online more.

Those e-commerce businesses have not yet helped these stocks, as all three are down over the last three years, while the S&P 500 is up 25%. Brick-and-mortar operations continue to weigh on overall operations.

Though strong online sales offer an advantage over other retailers, these companies still must demonstrate growth. If e-commerce continues to stagnate, expects the stocks to flounder as well.

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Stocks Mentioned

Nordstrom, Inc. Stock Quote
Nordstrom, Inc.
$24.69 (1.65%) $0.40
Bath & Body Works, Inc. Stock Quote
Bath & Body Works, Inc.
$30.78 (-0.55%) $0.17
Williams-Sonoma, Inc. Stock Quote
Williams-Sonoma, Inc.
$122.32 (-2.99%) $-3.77, Inc. Stock Quote, Inc.
$113.22 (-2.78%) $-3.24

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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