COVID-19 continues to hammer the retailer landscape. Nordstrom announced in a business update that to meet accelerating changes in customer expectations, the company is taking actions to strengthen its business for the long term. Based on the needs of each market, the company plans to permanently close 16 full-line stores.

“We’ve been investing in our digital and physical capabilities to keep pace with rapidly changing customer expectations. The impact of COVID-19 is only accelerating the importance of these capabilities in serving customers,” said Erik Nordstrom, Chief Executive Officer of Nordstrom, Inc. “More than ever, we need to work with flexibility and speed. Our market strategy helps with both, bringing inventory closer to where customers live and work, allowing us to use our stores as fulfillment centers to get products to customers faster, and connecting digital and physical experiences with services like curbside pickup and returns.”

The Details:

• Nordstrom has 378 locations in total: 116 full-line stores, 247 discount Nordstrom Rack stores, three Jeffrey boutiques, two clearance stores, five Trunk Club clubhouses, and five Nordstrom Local service hubs.
• The retailer is also restructuring its regions, support roles, and corporate organization for greater speed and flexibility. This restructuring is expected to result in expense savings of approximately $150 million, or 30% of the company’s previously announced plans for net cash reductions of more than $500 million in operating expenses, capital expenditures, and working capital. These actions, combined with its initial savings plan of $200 to $250 million, represent a reduction in non-occupancy-related overhead expenses of approximately 20%.
• The company is cutting only one type of store: its full-line locations, which are the multi-floor department stores that carry its entire assortment of products.
• The closures represent about 14% of Nordstrom’s full-line fleet.
• California is Nordstrom’s largest market. The 30-store footprint in California will be reduced to 24 but it will remain the biggest market.

Nordstrom confirmed in a report to Business Insider that the following locations will close:

• Chandler Fashion Center, 3199 W. Chandler Blvd., Chandler, Arizona
• Arden Fair Mall, 1651 Arden Way, Sacramento, California
• Paseo Nuevo, 17 W Canon Perdido St., Santa Barbara, California
• Montclair Place, 5015 N. Montclair Plaza Ln., Montclair, California
• Westfield North County, 270 E Via Rancho Pkwy, Escondido, California
• 3601 The Galleria at Tyler, Riverside, California
• Stoneridge Shopping Center, 1600 Stoneridge Mall Rd., Pleasanton, California
• FlatIron Crossing, 21 W. Flatiron Crossing Dr., Broomfield, Colorado
• Waterside Shops, 5489 Tamiami Trail N., Naples, Florida
• Dadeland Mall, 7239 N. Kendall Dr., Miami, Florida
• 1800 Annapolis Mall, Annapolis, Maryland
• Freehold Raceway Mall, 3710 U.S. Highway 9, Freehold, New Jersey
• Clackamas Town Center, SE 85th Ave., Happy Valley, Oregon
• North East Mall, 1101 Melbourne Rd, Hurst, Texas
• Short Pump Town Center, 11812 W. Broad St., Richmond, Virginia
• 4000 The Mall of San Juan Blvd., San Juan, Puerto Rico

Nordstrom stores continue to be a core part of the business. With stores being temporarily closed since March 17 and the majority of its 68,000-strong workforce furloughed in early April, Nordstrom plans to reopen stores in a phased market-by-market approach allowed by local authorities. Given this phased approach, the company is shifting its Anniversary Sale event from July into August.

As it reopens stores, Nordstrom is making the following updates to help keep customers and employees safe and healthy:

• Conducting health screenings for employees
• Providing face coverings for employees and customers
• Taking steps to allow for social distancing of six feet or more, including limiting the number of customers and employees in the store
• Increasing cleaning and sanitization
• Modifying the fitting room experience
• Continuing to offer contactless curbside services at full-line stores
• Altering hours of operation
• Pausing or adapting high-touch services and customer events
• Keeping tried-on or returned merchandise off the sales floor for a period of time

Throughout the crisis, Nordstrom continues serving customers through its scaled e-commerce business, representing one-third of 2019 sales, including a robust off-price online business that exceeds $1 billion. While stores are temporarily closed, the company is generating solid online traffic and conversion and clearing excess inventory through increased marketing and promotional efforts.

The company’s store fulfillment capabilities are an important way to leverage inventory and bring greater selection to customers in its markets. Beginning in mid-April, the company added these capabilities at Nordstrom Rack stores, which enabled store fulfillment throughout Nordstrom’s entire fleet of stores. More than half of Nordstrom.com orders are currently fulfilled from full-line stores, and 25 percent of Nordstromrack.com and HauteLook.com orders are now fulfilled by Nordstrom Rack stores. Nordstrom recently launched its dedicated e-commerce site to serve customers in Canada, with all online sales fulfilled from the six full-line stores there.

The company is on track to deliver on its savings plans and continues to pursue further efficiencies across the organization while investing in technology and supply chain capabilities. Additional updates will be provided during its first-quarter earnings call.

What the Experts Are Saying:

“This is a sad day both for the mall and for Sacramento,” said mall owner Mark Friedman. “Nordstrom is a store that many people love, and it’s been an important anchor for Arden Fair for almost 30 years.”

Freidman said Nordstrom did not seem interested in negotiating. “The decision was presented to us as a done deal,” he said. “Arden is in the top 5 percent of malls in the country in terms of sales performance. We attempted to persuade them to change their mind, but I think they reached the conclusion that the only way they’re going to survive is by shrinking their format and aiming for higher-end markets.”

“We have long since stated that Nordstrom has too many department stores that are in sub-optimal locations,” Neil Saunders, Managing Director of GlobalData Retail, said to Business Insider.

“Since those shops were originally opened, the demographics in the trade areas and the competitive mix have changed for the worse. The result is that Nordstrom has been left exposed.”

“Many of the closures will be in secondary markets where the loss will be felt by mall operators and other tenants,” Saunders said. “It is a blow for malls already severely bruised by the crisis and slowdown in retail.”

“We believe [Nordstrom’s] local market inventory strategy, Rack concept, human capital and consistency, digital innovation, curbside and local store pickup, and specialized and exclusive product do position the company well for the long-term,” Cowen & Co. analysts led by Oliver Chen wrote in a client note Wednesday.

“Unfortunately, the announcement is likely the first of many as we expect stores may close in 10% or more of shopping centers and the number of malls may eventually decrease to 800 or less from [about] 1,200 at a -5% [compound annual growth rate],” he said.

Chen said retailers overall should expect in-store revenue to drop by 20% to 50% “for the foreseeable future.”

“Unfortunately, Nordstrom’s announcement is likely the first of many as we expect stores may close in 10% or more of shopping centers, and the number of malls may eventually decrease to 800 or less from 1,200,” he said.