Nordstrom makes big e-commerce decision
Nordstrom Inc. has re-evaluated its near-term needs for e-commerce infrastructure.
The luxury retailer has decided to postpone the planned opening of a West Coast fulfillment center dedicated to fulfilling digital orders until 2020 or later.
For the past year, the cities of Visalia and Fresno, California, had both been in discussions with Nordstrom about serving as the site of the proposed center. However, the retailer sent the governments of both cities an identically worded letter signed by co-president Erik Nordstrom dated June 15, explaining why it has decided to put off opening the center for at least four years.
“Since our teams first met a year ago, the pace of change in retail has continued to increase,” states the letter. “What’s most important is to evolve our business to best serve our customers. We will continue to invest across our business to competitively position us for long-term success and to deliver the products and experiences customers want.”
The letter goes on to say that although Nordstrom is confident a “west coast fulfillment center will continue to be part of our longer-term plan,” it has re-evaluated the timing based on the “broader needs of our business in the current environment.” The retailer now does not think opening such a center would occur before 2020.
Two copies of the letter were sent – one addressed to Fresno Mayor Ashley Swearengin and director of economic development Larry Westerlund and one to Visalia Mayor Steven Nelsen and City Manager Mike Olmos.
E-commerce accounted for 20% of Nordstrom’s sales in its most recent fiscal quarter, and the company has said it expects online sales to represent 30% of its business by 2020. The company also recently moved to make its loyalty program omnichannel.
However, Nordstrom also admitted to analysts in March 2016 that the costs of fulfilling online orders was cutting into profits. Presumably the retailer wants to wait until online sales pick up more before committing millions of dollars toward a new dedicated west coast fulfillment center.
This may be a wise move, but Amazon is rapidly opening e-commerce fulfillment centers across the country, including in Eastvale and Tracy, California. While Nordstrom waits for the e-commerce landscape to shift, Amazon is busy trying to steer its course.
It sounds to me like AMZN will be gobbling market share with its online platform while NORD tries to figure out how to make online sales less unprofitable. By 2020, NORD's west coast fulfillment centers won't be required. Instead, they may be looking at shutting down the fulfillment centers they currently run, citing 'a further erosion in profit margin from our online channel.' Stay tuned.