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Here's Why Nordstrom Is More Likely to Succeed Than Macy's After Coronavirus

By Parkev Tatevosian, CFA – Jul 16, 2020 at 10:17AM

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Nordstrom is smaller and more in line with current consumer tastes.

Macy's (M -0.54%) and Nordstrom (JWN -0.99%) were both significantly impacted by the COVID-19 pandemic. To help reduce the spread of the virus, both companies closed the doors to all brick-and-mortar stores. As stay-at-home orders are being lifted and stores are beginning to reopen, consumers are starting to return to shopping at retail stores.

This was a significant change from just a couple of months ago when the two companies were forced to offer products through digital channels exclusively. Still, the pandemic is not over, and in some states, such as Florida, Texas, Arizona, and California, coronavirus cases are increasing. Some of the increase is due to a rise in testing, but the percentage of people testing positive is also growing.

There is hope that with a combination of a vaccine, treatment, and other measures, we will eventually return to a semblance of normalcy. Let's take a closer look at why Nordstrom is more likely to succeed after the pandemic has run its course.

A woman shopping for a jacket.

Nordstrom customers tend to be more affluent than the average retail shopper. Image source: Getty images.

Macy's and Nordstrom are caught in the middle of two storms

The U.S. has more retail square feet per person than any other country in the world. There is 23.5 square feet of shopping space per person in the U.S. compared to 4.6 square feet per person in the U.K. and 16.5 square feet in Canada. Add to that the long-running trend of people preferring to shop online versus in-store, and you have a problem if you are a retailer. Since Macy's has a larger footprint, it has a correspondingly larger problem than Nordstrom has. To give you a glimpse of the magnitude of difference, Macy's announced at its investor day that it will be permanently closing an additional 125 stores, while Nordstrom will only be closing 16.

Additionally, people prefer to shop at discount retail stores instead of at full-price stores. As of Feb. 1, Nordstrom had 244 off-price stores out of a total of 380 locations compared to Macy's, which has 218 discount stores out of a total of 775 locations. The higher discount-to-total ratio puts Nordstrom in a better position.

Moreover, Macy's strategy has shifted to opening its discount stores inside of its full-price stores. The company was planning on opening 50 such stores inside full-price locations in 2020 before the pandemic altered those plans. The approach will make it more challenging to improve on the discount-to-full-price ratio. Admittedly, opening a new store inside of an existing location does reduce the cost of opening. However, it will prolong the time it takes to achieve a comparable discount-to-full-price ratio.

Finally, even before the onset of the coronavirus pandemic, Macy's was losing ground to Nordstrom. Between 2014 and 2019 Macy's revenue decreased from $27.9 billion to $25.7 billion. Meanwhile, Nordstrom's revenue in that same time expanded from $12.5 billion to $15.9 billion.

A woman buying a skirt at Macy's

Macy's is opening discount stores inside its full-price locations. Image source: Getty images.

What this means for investors

The brick-and-mortar industry was hit hard by the coronavirus pandemic. The outbreak is happening in the middle of a retail apocalypse in which more shoppers are taking their business to e-commerce sites, such as Amazon

The challenges are substantial. So much so that many retailers will not survive the pandemic. Those that do will be transformed: more off-price, more digital-centric, and with a smaller footprint. Nordstrom is already further along that path than Macy's and thus more likely to succeed in the post-pandemic retail industry.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Parkev Tatevosian owns shares of Macy's. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Nordstrom and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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