Nordstrom has Rich-People Problems

Nordstrom’s surprising weakness in its full-price stores over the holidays may point to a wider issue affecting businesses catering to the affluent

By guest author Elizabeth Winkler from Wall Street Journal

Nordstrom has what might be called a high-class problem.

Caption courtesy by Wall Street Journal

The retailer, which had been a bright spot in the retail sector, with customers flocking to both its luxury and discount divisions, unveiled disappointing holiday sales late on Tuesday. The company said it now projects diluted earnings per share for fiscal 2018 to fall at the lower end of its previously forecast range of USD 3.27 to USD 3.37.

Nordstrom saw weakness specifically in its full-price stores, where same-store sales rose by 0.3%. It will resort to promotions to unload the excess inventory.

Investors sent Nordstrom’s shares down by nearly 5 % on Wednesday, January 16, 2019.

A 3.9 % rise in same-store sales in Nordstrom’s off-price stores, on par with performance earlier in the year, did not provide much post-holiday cheer. There are good reasons for this: Last year, retailers were able to hide excess inventory in their off-price divisions, says Simeon Siegel, a retail analyst at Nomura Securities. Now all that inventory that was diverted to off-price channel is catching up with them.

More worrying, the wealth effect seems to have turned from friend to foe for Nordstrom and other companies. Wealthy people who own stocks spend more when shares are rising and exercise caution during tumbles. As the stock market turned rocky toward the end of 2018, these consumers—the sort of affluent Americans who shop at Nordstrom’s luxury division—might have decided to forgo extra purchases. The same could be seen with other companies catering to the same economic strata, such as Vail Resorts.

If the trend is seen more widely then this should be a warning for investors in other luxury retailers, too. Holiday sales at companies like Tiffany & Co. and Tapestry may not be everything investors hoped they would be.