The abundance of caution driving most of American business right now has hit the retail sector too. Yesterday, we had a look at the impact coronavirus was likely to have on this already-struggling market sector, and now, we've got one more concrete example to bring up. Nordstrom (NYSE: JWN) recently announced that it was shuttering all its stores in Canada, Puerto Rico, and the US, a combined total of over 360 outlets, for the next two weeks.
The Abundance of Caution Strikes Again
Nordstrom's official reason for closing down the stores is pretty much the same as you hear all over: it's a bid to help stop the spread of the COVID-19 coronavirus. This is said to not only include Nordstrom outlets, but also Nordstrom Rack, Trunk Club, and Nordstrom Local shops that generally work returns.
Such a move is likely the right thing to do, but it's still going to inject a whole lot of uncertainty into the proceedings. With such uncertainty hanging heavily over Nordstrom's collective head, the company has also pulled its earnings outlook for 2020.
This is not only a reasonable response given the current state of coronavirus, but also likely proves welcome for Nordstrom's top brass, who noted that the company had already seen a pronounced slowdown in consumer demand. This slowdown was mainly seen, reports noted, in areas already impacted by the spread of COVID-19. The company is also halting plans to buy back stock and is also planning to further cut expenses, both capital and operational.
Nordstrom Is Better Prepared Than You Might Think
Such a move could be disastrous for some businesses, but Nordstrom is actually better prepared for an event like this than some might expect.
First, Nordstrom is operating from a position of strength. It closed out 2019 with good sales and what the CEO, Erik Nordstrom, considered a good outlook in both balance sheet and overall financial position. It's not coming off a down quarter or two before launching into this closure.
Second, Nordstrom isn't completely shut down, either. Like many other retailers, Nordstrom has an online component that has already been doing wonders for the company. Reports noted that Nordstrom's online operations represented nearly a third of the company's sales for 2019, so keeping that open and running should keep the company afloat for a comparatively short shutdown period.
The Competition Isn't Doing Much Better
The move will of course reduce Nordstrom's ability to compete—an open store is likely to beat a closed one—but this impact is actually limited. Many states are already shutting down what they deem “nonessential retail”, and clothiers pretty much qualify here. Some retailers that can still operate, like JCPenney (NYSE: JCP) and Kohl's (NYSE: KSS),are running, but on reduced hours.
So while these two weeks will see Nordstrom's physical stores go dark, most of its competition is either in the same boat thanks to government mandate, or not too far behind with reduced hours.
Bolstering Online Now More Critical Than Ever, If That's Possible
We've been seeing the value that online operations have posed for quite some time now, and especially so in the last few months. Online operations are giving stores like Target (NYSE: TGT) and Walmart (NYSE: WMT) a critical edge over other retailers, and allowing them to take the fight directly to the Amazon (NASDAQ: AMZN) juggernaut. The online concept is allowing Target to pursue smaller stores, and potentially more of them, which is a wildly useful advantage.
Now, online operations are showing another point of value: the ability to stay open and running even when a physical storefront is closed. We'd known about this on a limited scale before—someone wants a sweater at midnight, they can get it—but now, with stores closing for days or weeks at a clip, the value of that extra online presence is clear as day. In fact, that extra online retail presence may well be what gets these stores through the worst of this mess. Sure, people aren't exactly in the mood to clothes shop right now, but for those engaging in retail therapy, the storefronts will still be there.
The value of online—whether for shopping or telecommuting—is about to make itself known fully through this coronavirus event. Let's hope the lessons stay learned after the virus finally fades away.