retail

Ready To Get Dressed? Kohl's And Nordstrom See Brighter Skies Ahead


America seems to be easing out of its sweat pants, at least a little. Both Nordstrom and Kohl's report a pickup in sales as they step up their recovery efforts.

At a virtual event for its investors, Nordstrom introduced a "Closer to You" transformation, moving to a digital-first approach for both its flagship and Nordstrom rack brands.

Among the changes? "Increasing the digital velocity of our business as we grow the assortment, deliver personalization at scale, and increase the linkages between the digital and physical," it says in its announcement.

The retailer says it has already rolled out the new strategy in its top 10 markets, resulting in better sales, customer engagement and overall customer spending. It intends to extend that to its top 20 markets by year's end, an area that comprises 75% of current sales, including 76 Nordstrom stores and 167 Rack stores.

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By combining the ecommerce sites for Nordstrom and Nordstrom Rack, the company hopes to create a more seamless experience, eventually increasing digital penetration to 45% of sales.

The retailer says it is more upbeat about post-COVID recovery as vaccine rollouts continue. It expects between $3 and 4 billion in incremental revenue from 2020 levels, with two-thirds in 2021, assuming stores stay open. "Building off of this base," it sees "sustainable low-single-digit percentage growth as we leverage and scale our platform."

Some experts say the plan shows the Seattle-based retailer is well-positioned for a COVID comeback. Its longer-term outlook implies it will take a few years to recapture lost sales, writes Mark R. Altschwager, an analyst who follows the company for Baird, "but with permanent cost savings and a leaner mindset."

He continues to give the company a neutral rating. "Nordstrom is effectively evolving to meet the needs of today's consumers." Altschwager says that pent-up demand will help, "but it will take time (and good, consistent execution)."

Kohl's expects fourth-quarter results to exceed expectations, falling about 11%. That represents the third consecutive quarter of sequential improvement.

The Menomonee Falls, Wisconsin-based retailer says its digital sales climbed 20% and now account for 40% of net sales.

That news caused Paul Trussell, who follows Deutsche Bank's company, to reiterate his "Buy" recommendation.

"The company experienced a notable change from the November/December time period to January, which benefited in part from stimulus payments and Amazon Returns," he writes in his comment. "Home, active, beauty, and kids' were the best performing categories during the quarter, and women's had the best sequential improvement."

Baird's Altschwager, who rates Kohl's as an "Outperform," is also encouraged by "the meaningful improvement in the women's business. While still challenged, we view this as incrementally positive given new merchant leadership, and perhaps an early sign of what's to come, although acknowledging it is still early days."<

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