Online sales accounted for nearly a quarter of Nordstrom Inc.’s sales in the second quarter, and the company says it will ramp up its investments to continue better serving online shoppers. However, those online sales gains are coming to come at the expense company’s profits.
Nordstrom, No. 18 in the Internet Retailer 2016 Top 500 Guide, reported online sales across Nordstrom.com, NordstromRack.com and HauteLook of $840 million in the second quarter of 2016, up 13.2% from $742 million last year. That double-digit online sales growth helped salvage an otherwise flat quarter for Nordstrom, with overall sales declining 0.2% year over year.
Online sales accounted for 23.4% of Nordstrom’s total revenue of $3.592 billion during the quarter, compared to 20.6% last year.
Through the first six months of the year, Nordstrom has generated $1.501 billion in online sales, up 12.1% from $1.339 billion in the same period last year. Online sales account for 22.1% of Nordstrom’s total sales in 2016 so far, compared with 19.9% last year.
While online sales continue to grow, profits are shrinking. During Q2, Nordstrom reported net earnings of $117 million, down 44.5% from $211 million last year. It’s a similar story through the first half of 2016, with Nordstrom’s net earnings at $162 million, down 52.2% from $339 million last year.
“We recognize that the shift toward e-commerce is having an impact to our financial model,” chief financial officer Michael Koppel told analysts on Nordstrom’s Q2 2016 earnings call Thursday, according to a transcript from Seeking Alpha. “As we accelerate investments to support changes in customer expectations, our expenses, particularly in technology, supply chain and marketing, grew faster than sales.”
Co-president Blake Nordstrom told analysts that as more shoppers prefer to shop on their mobile devices, the company continues to try to make mobile shopping more convenient.
“We have several initiatives underway that include new mobile features, improvements to our website and enhanced selling tools,” he said. “In the second quarter, we’ve made ongoing improvements to our mobile app, including features that enable customers to shop their store of choice and shop for items based on a visual search. This fall, we are piloting a mobile feature that gives customers the ability to reserve merchandise online and try [it] on in our stores.”
According to data from web analytics company SimilarWeb, Nordstrom’s app ranks No. 95 in Apple’s App Store and 113 on Google Play overall. Over the past 12 months, 49.11% of traffic to Nordstrom.com has come from a mobile device, compared with 47.15% of visitors to NordstromRack.com and 53.68% of visitors its brand to HauteLook.com.
“On the split between mobile and desktop for our e-commerce business, certainly mobile is outpacing desktop and it has been for some time,” co-president Erik Nordstrom told analysts.
Executives pointed to the company’s Nordstrom Rewards loyalty program as a key to Nordstrom’s success. Blake Nordstrom said the program has 6.0 million active shoppers, up 27.7% from 4.7 million last year.
For the second quarter ended July 30, Nordstrom reported:
- Net sales of $3.592 billion, down 0.2% from $3.598 billion last year.
- Sales through its full-price flagship site, Nordstrom.com, of $683 million, up 9.3% from $625 million.
- Sales through its off-price sites NordstromRack.com and HauteLook.com of $157 million, up 34.2% from $117 million.
- A comparable-store sales decline of 1.2%.
For the first six months of 2016, Nordstrom reported:
- Net sales of $6.784 billion, up 1.0% from $6.714 billion last year.
- Sales through Nordstrom.com of $1.178 billion, up 6.6% from $1.105 billion.
- Sales through NordstromRack.com and HauteLook of $323 million, up 38.0% from $234 million.