Nordstrom puts $350M into Trunk Club as it pushes online growth
Nordstrom said Thursday it will spend $350 million on its purchase of Trunk Club, underscoring how important online commerce has become for the retailer as shoppers increasingly migrate online and bypass shopping malls and department stores.
Seattle Times business reporter
Nordstrom said Thursday its bill for online men shopping site Trunk Club will amount to $350 million, as it continues to buttress its brick-and-mortar edifice with point-and-click savvy.
The Trunk Club deal also includes a long-term incentive plan of up to $100 million and will allow the Chicago-based startup to keep operating independently, although it will be able to lean on Nordstrom’s big inventory and expertise in alterations, which Trunk Club customers will be able to get done at Nordstrom stores.
Trunk Club pairs a real, live stylist with busy customers and ships them a trunk full of high-end clothing — a business that Nordstrom feels fits with its own. The acquisition was announced last month.
The figure, which is expected to reduce the company’s 2014 earnings by an estimated 3 to 5 percent, shows how important online commerce has become for Nordstrom, as shoppers migrate to computers, mobile phones and tablets and increasingly bypass shopping malls and flagship stores.
Nordstrom hasn’t done too bad: Analysts say the company has been more successful than most of its peers, thanks to being a pioneer in perks such as free shipping and to the wide diversity of items available in its online stores. In 2012 it acquired fashion flash-sales site Haute Look, and in May it launched a website for its discount-outlet chain, the Nordstrom Rack.
In the results for the second quarter, which Nordstrom reported Thursday, sales for its so-called direct business, which represents mostly nordstrom.com and excludes sales made at Haute Look and nordstromrack.com, rose 22 percent while sales at the company’s full-line stores declined 1.2 percent.
In 2013, nordstrom.com sales accounted for 13 percent of the company’s net sales, far surpassing the level seen by many competitors and helping drive record sales, said Dan Geiman, an analyst with research firm McAdams Wright Ragen.
“For a department store, with the breadth of products that they sell, it’s pretty significant,” Geiman said.
The U.S. Commerce Department estimates that electronic commerce amounted to 6.2 percent of total retail sales in the first quarter of 2014.
The other side of this embrace of technology is the realization that full-line stores, while still the core of Nordstrom’s business, are not where the fast growth is. Before the recession, the company expected to have as many as 150 stores by 2015. Now the tally stands at 117, and Nordstrom projects about 125 by 2018.
Spokesman Dan Evans said that after the recession “the world changed a lot.” Many real-estate developers pulled out of projects; at the same time, busy shoppers increasingly went online and helped change Nordstrom’s business.
At the end of 2013, Nordstrom employed about 3,100 in its direct business, up from 2,600 the previous year. In addition, Haute Look employs about 600 employees. There are 200 open positions in the direct and technology departments, Evans said.
For the four-year period starting in 2014, Nordstrom is more than doubling its technology spending to $1.2 billion from the previous four-year period.
Nordstrom is also pinning its hopes on the Rack, which is expected to have 167 stores by the end of the year, up from 151 currently. The company plans to open an additional 16 Rack stores next year.
Over the next several years Nordstrom expects to derive half of its sales from the Rack and from its online units, versus 38 percent today.
Nevertheless, the familiar Nordstrom flagship will remain important despite lagging sales, because “it’s still the face of the company,” says Morningstar analyst Paul Swinand. Moreover, the network of department stores greatly complement online shopping, allowing same-day pickup of items purchased over the Internet.
Swinand, however, expressed concern at the breakneck growth of the Rack, saying he fears it could dilute somewhat Nordstrom’s reputation for a high-end experience.
“I just hope they’ve thought about it carefully enough,” he said.
On Thursday, Nordstrom posted earnings of $183 million, down from $184 million in the same period last year. Sales, however, rose to $3.3 billion from $3.1 billion, not including credit card revenue.
After the earnings report Nordstrom shares were down $2.64, or 3.8 percent, at $66.05 in after-hours trading.