Nordstrom : Management Fireside Chat Transcript

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Nordstrom Inc Management Fireside Chat with Telsey Advisory Group

EVENT DATE/TIME: JULY 07, 2020 / 5:00PM GMT

CORPORATE PARTICIPANTS

Anne L. BrammanNordstrom, Inc. - CFOKenneth J. WorzelNordstrom, Inc. - COO

Peter E. NordstromNordstrom, Inc. - President, Director & Chief Brand Officer

CONFERENCE CALL PARTICIPANTS

Dana Lauren TelseyTelsey Advisory Group LLC - CEO & Chief Research Officer

PRESENTATION

Dana Lauren TelseyTelsey Advisory Group LLC - CEO & Chief Research Officer

Good afternoon, everyone. Thank you so very much for joining me today. I'm -- it's Dana Telsey of Telsey Advisory Group, and I am very excited to be here with the executive management team of Nordstrom. Joining me for this fireside chat are Pete Nordstrom, President and Chief Brand Officer, with a long history of directing and executing the merchandising strategy of Nordstrom; Ken Worzel, Chief Operating Officer with Nordstrom since 2010, with a focus on strategy and development, and most recently, the Chief Digital Officer before becoming the Chief Operating Officer; and Anne Bramman, the Chief Financial Officer, having been with Nordstrom since 2017.

We're living through unprecedented times today, and the investments that Nordstrom has made in its business model for many years allows them to serve customers across multiple touch points through their 2 brands of Nordstrom and Rack in both stores and online. It's all about creating memorable experiences for the customer through engagement and whether it be through the market strategy, bringing inventory closer to the customer, along with increased selection of getting products to customers faster or leveraging stores to fulfill orders. The customer's at the center of all what Nordstrom does.

Recently, Nordstrom has increased their cash and strengthened their financial position along with announcing the closure of 16 full-line stores, along with 3 Jeffrey stores. The pivot is emerging stronger, and the goal is to be even more relevant to their customer as everyone emerges from the other side of this pandemic.

Before I hand it over to Pete for opening remarks, I'd like to mention that this fireside chat may contain forward-looking statements, and please refer to Nordstrom's safe harbor language in its first quarter earnings release that came out on May 28, 2020.

Pete, thank you so much for joining us today, and I'd like to turn it over to you for some opening remarks.

Peter E. NordstromNordstrom, Inc. - President, Director & Chief Brand Officer

Thanks very much, Dana. You did a great job actually of introducing us. You stole some of my thunder in terms of what our intentions are, but we appreciate the opportunity to get some transparency and context with what we're seeing with our business and how things are going.

So I guess I'll just start by saying that -- and Dana, actually, I heard you mention this on a previous interview I saw, where basically, everything that's happening right now is just stuff that's been accelerated from what we may have thought was going to be happening before, part of our plans. But as the COVID thing came upon us, it accelerated all those themes. And so that is true for us as well.

I think one of the backdrops that's important for people to understand about our business is even going into this, we had a diverse plan that was, we thought and still believe, is really well positioned for the future given how things have evolved. And again, based on the acceleration of what we've seen, we think that's true.

So for some context, one of the things we talked a little bit about is we're actually not literally a department store. I think when you think about a business being described as a department store, you think about something that is in a mall. And it is true, we are in malls, and it's a big part of our business. But if you look at our entire portfolio and the balance that we have in our business, I think it bodes well for how we can evolve to be more relevant really in these times. So as an example, in 2019, we ended the year, we did a little less than 40% of all our business in a mall-based store. And I think that's important context. It obviously speaks to the fact that we've got a very largeRack business. Well, those are in physical buildings. They are in strip centers, and they are not caught up with a lot of the dynamics that have been detrimental, I think, to malls largely, the things that people really understand. That business has been solid and strong, and even during the COVID times, has performed better in terms of being a physical store than a mall store is. Again, that's the strip center versus a mall store. And then it also speaks to the fact that we've got a very capable online business that's synergistic with the physical stores as well. So when we talk about that, a little less than 40% of the business was done in 2019 in a mall. Clearly, it's going to be less than that in 2020 as well. So I think if you look at Nordstrom in totality and the value, I think it's important that -- and we'll be able to get into that with whatever questions you have, but how the different pillars work for us and how it all works together so that it does create the flexibility to be able to evolve.

I'll say kind of last before we get into it -- to this, that we took a very conservative approach when this all happened. I give Anne and her team, in particular, a lot of credit for that. We said there's a ton of uncertainty out here. We've got to pivot and manage the business more around a cash perspective, which was relatively new for us. But we did that by reconciling expenses, reconciling inventory levels, getting the sales plans down where we thought they need to be and then positioning the business accordingly. We've had to make a lot of tough decisions to do what's right based on the size of the business as we know it to be today, what we have visibility to. That all starts with the sales. We've made some serious expense cuts, and Anne will be able to talk about that. We were very intentional about our inventory planning. You've probably heard us use the term melting the pile. We had a lot of inventory when it started, and we had to figure out a way to work through that because it just became more and more aged and distressed as time went on. I think we did a really good job of that. We got the inventory levels down. We reconciled the expenses, and then we started opening stores back up. I will tell you, as well as I think we did there, the fact still remains that we're going through a time that has uncertainty and that we've never gone through before.

So we didn't do it perfectly. I think with the benefit of hindsight, we can talk a little bit about that today, some of the consequences that happened. As an example, we got the inventory levels way down. And then we thought we would be in a position to not have that hangover of inventory that's going to create a bunch of markdowns, but to be able to buy into a bunch of new products. That was not --it's not been as easy as we thought it would be to buy into new product in the immediate term. And that's because, as you might imagine, all the suppliers we work with as well, they shut their deal down, too. So it was a little harder to ramp up on that.

And I think the last thing I'll say before we kind of turn it over to others and the questions is that if you walked into, gosh, any number of our stores right now, and I'm talking about full-line stores, you might say, "Gosh, they don't have a lot of inventory in there." And that is true. That's a result of us taking a very conservative approach and also being able to fulfill online demand from our stores. The problem was we weren't able to get into product as quickly as we hope. Now that's being dealt with right now. We are ramping it up. We are building up to anniversary. It's our hope that, certainly, by that time, we will have stores that have the necessary amount of inventory to do the sales that traffic is going to warrant.

So I guess that's the opening position. We feel good about where we are. There's still a lot of uncertainty going forward. But we are positioned well to be more flexible and reactive, certainly more than we were 3, 4 months ago.

QUESTIONS AND ANSWERS

Dana Lauren TelseyTelsey Advisory Group LLC - CEO & Chief Research Officer

And Pete, when you think of the response to COVID, what are the learnings? How has the business model become more synergistic? And is there any update on the reopening and sales recovery?

Peter E. NordstromNordstrom, Inc. - President, Director & Chief Brand Officer

Well, I guess how it became more synergistic was just things that we worked on like fulfilling out of stores inventory, something we've been able to do, but super grateful that we had that ability going into this because it'd be difficult to figure that out on the fly. And then I think customers, them really being at the center of how we do these things, how we serve them. Going into a store for many people and even as it exists today now that they're all open, is not something everyone wants to do. But in many cases, they love the ability to be able to pick something up from a store or return something to a store and using that in combination.

So I guess it's just we've seen the fact that the physical assets do matter. They're helpful in terms of improving the customer experience,and then the ability with the back end around all our systems and processes that links it to the online part of the business. That has all been confirmed in very dramatic ways through the COVID experience. And we'll see how it all evolves from this, but for right now, it's pretty clear that I think there's still a level of reticence and caution by a lot of customers to go into an actual physical store. And we've seen that -- the result of that as we've seen less traffic, and that's been a pretty steady situation now.

Anne L. BrammanNordstrom, Inc. - CFO

So Dana, this is Anne. I'll jump in a little bit later when we have some of the financial questions. But just in general, all -- our fleet is open. And actually, we were able to open a little bit sooner than we thought in some of our key markets. And our -- the sales in those stores are actually exceeding our expectations, and I'll give a little bit more detail later on. But in general, for total JWN, the store sales, as they're opening up, are exceeding -- we're seeing Rack do better as anticipated than our full-line stores, but both full-line and Rack are actually exceeding expectations.

Dana Lauren TelseyTelsey Advisory Group LLC - CEO & Chief Research Officer

Good to hear. And as you think about operating the stores differently, how is the labor model being adapted? How do you have to operate the stores differently now and in the future?

Peter E. NordstromNordstrom, Inc. - President, Director & Chief Brand Officer

Ken?

Anne L. BrammanNordstrom, Inc. - CFO

Ken, do you want to take that?

Peter E. NordstromNordstrom, Inc. - President, Director & Chief Brand Officer

You're on mute.

Kenneth J. WorzelNordstrom, Inc. - COO

Sorry about that. Happy to take that. Thanks, Dana. Yes. I think even going into this, even pre-COVID, you've seen us start to spend quite a bit of time on rethinking how we use labor in our stores and really doing that through the lens that Pete referenced, which is through the lens of the customer. So we'd already shifted quite a bit of our labor, for example, in our full-line stores to be available more from a service and experience perspective beyond just selling. Activities like order pickup and returns, styling and alterations have become a very big part of the service proposition. And we'd already started to shift our labor model to reflect that.

I think post-COVID, if you've been in any of our stores, you'll appreciate that we've also had to shift and invest labor differently to provide the comfort that both our employees and our customers expect from us to have a safe customer experience and journey in our stores. So you'll see that we've invested in more labor to make sure that we have folks available to clean, whether that's dressing rooms or at point of sales, but also even at the greeting doors. And that's true across both Rack and full-line.

So I think the nice thing about our model is we've got a lot of adaptability in that labor model. We've got a lot of experience in continuing to evolve that. And we've continued to evolve it again, I think, to support a lot of the seamless journeys that we've created for customers, where they start a lot of their experience digitally and they finish a lot of it in stores or vice versa.

So I think in general, we continue to flex on those things. And the other thing about our labor model in stores is it does flex with sales.

And so just from a financial perspective that Anne can speak to, we're able to make sure that the investment we're making is commensurate with the volume we're seeing through the channel.

Dana Lauren TelseyTelsey Advisory Group LLC - CEO & Chief Research Officer

Talk about promotional planning. What are you seeing in terms of planning promotions? How are you thinking about the timing of new inventory coming in, Pete?

Peter E. NordstromNordstrom, Inc. - President, Director & Chief Brand Officer

Well, our promotional cadence really hasn't changed. And we do have a reactive thing that we've always done, responding to promotions out there and marking down the same merchandise. And it's pretty clear, I think, in this moment, when you think about stores reopening and people having excess inventory, not so much us, but that there's some reactive stuff we're having to do to promote. And typically, July is kind of a promotional time anyway. So we're going through that.

But our big thing on the calendar is anniversary sale, and that's full steam ahead. We planned that, obviously, quite a ways out. We've been able to make some changes, and most of that has to do which is the relevance of specific categories and merchandise in this moment. As you might imagine, Dana, our ability to sell things that are traditionally about wear to work in an office or about some kind of occasion is just not nearly what it was. So when this all started, we took a look at our anniversary sale content and tried to pivot as much as we could to more relevant categories and classifications on the theme of casualization of America, and in particular, like active in a lot of those categories. So we're going to be locked and loaded for a good anniversary sale starting the beginning of August.

In terms of the rest of promotional cadence, we've not introduced anything new there. Any promotional activity we've been engaged in up until this time has been about marking down destressed and old inventory and/or responding to competitive markdowns from other stores.

Dana Lauren TelseyTelsey Advisory Group LLC - CEO & Chief Research Officer

On the customer learnings, what are you seeing in capturing wallet share from existing customers, gaining new customers? Anything from your loyalty members, learning about them and servicing them.

Peter E. NordstromNordstrom, Inc. - President, Director & Chief Brand Officer

Ken, you want to take that?

Kenneth J. WorzelNordstrom, Inc. - COO

Yes. I can start on that, and you guys can weigh in. Say, like a lot of other retailers, one of the interesting things for us during our store closure period is we attracted a lot of new customers, both in Full-Price and in Off-Price, both through our Nordstrom.com offer and our Nordstromrack.com and HauteLook digital offers.

So one of the things that we're trying to do right now is make sure that we're doing a good job of engaging with those new customers, customers who came to us. We saw quite a big jump in new customer acquisition online for us during that period. And I think part of that's just a reflection of the fact that a lot of folks sitting at home are looking for something to do, and in that process, discovered us and discovered our brands.

And so on that -- on the new customer side, I think obviously, when stores are closed, one of our big channels for acquiring new customers will shut off. But on the digital side, we have a lot of success in activating and acquiring a new set of customers.

On the loyalty side, I mean, it continues to -- our loyalty base and our program there with Nordy Club continues to be a big part of our business. And we saw that during store closures. We saw a lot of our business -- still a lot of loyalty and a lot of transactions coming from our existing customers, particularly our loyalty customers. And I think now that we have newness coming back in, back to the inventory point, we're starting to see a lot of new receipts flow in, both in stores and online. That's -- we're already seeing the reactivation of folks who had shopped for us during the first period when stores were closed and then were looking for something new, and that's particularly true of our loyalty customers. We're seeing them come back now in a fairly significant way, shopping new receipts.

And then anniversary, for us, as you know, Dana, that's one of our biggest events of the year, but that's really an event really targeted at our best customers, really targeted at our loyalty customers. And so part of the reason we shifted that event out this year by roughly a month was to give ourselves the opportunity to make sure that we were through this period of clearing through old merchandise and