January 20, 2022

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Coronavirus’ Disruption to Our Business ‘May Not Be Recoverable’

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As the coronavirus crisis continues to batter retail, Nordstrom, Inc. is preparing for a rocky road ahead.

In a filing with the Securities and Exchange Commission today, the Seattle-based retailer said it expects its revenue for the quarter ending May 2 to be “adversely impacted in a significant manner” due to the virus. The company broke down the multifaceted ways that its business may be hurt, adding that if store closures continue for an “extended period of time,” its financial situation could “become distressed.”

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“The disruption to the global economy and to our business, along with a sustained decline in our stock price, may lead to triggering events that may indicate that the carrying value of certain assets … may not be recoverable,” Nordstrom said in the filing.

The majority of Nordstrom’s workforce, including a portion of its corporate staff, has either been furloughed or assigned zero hours of work. Erik and Pete Nordstrom have decided to forfeit their own salaries from April to September, and other members of the executive leadership group will forgo a part of their salaries as well. In addition, all members of the company’s board will not take cash compensation during this period. While Nordstrom’s online operations and distribution warehouses remain open, all of its outposts are currently dark across the Nordstrom, Nordstrom Rack, Trunk Club, Jeffrey, Nordstrom Local and Last Chance banners, with no end date announced.

The company said the investment for its existing and planned locations “may not achieve expected returns,” citing changing trends between digital and brick-and-mortar shopping channels and the “rapidly evolving” retail climate as potential hiccups. Consumer preferences, Nordstrom noted, have been shifting to create a “challenging” environment — with traffic in malls slowing, digital sales rising and rental and re-commerce companies emerging.

To “encourage more visits and more spend” in this evolving climate, the company has implemented its “One Nordstrom” strategy — whereby it brings together full-price, off-price, stores and digital channels to “encourage more visits and more spend.” If this strategy doesn’t pay off, Nordstrom says, it could “fall short” of expectations. Further, Nordstrom expects that “the deterioration in the economic conditions in North America” could dent discretionary spending, thus leading to fewer sales.

Like other multibrand retailers, Nordstrom’s success is greatly dependent upon its ability to “to predict or respond to constantly changing fashion trends, consumer preferences and spending patterns.” The company says if it fails to identify these trends fast enough, it could be overstocked and be forced to sell items at a lower price point, or instead, could end up with too little product to meet demand, which could “potentially harm” relationships with customers.

With store closures and discretionary spending set to potentially negatively impact revenues, Nordstrom is also bracing for possible issues related to cash flow and its “high level of indebtedness.”

The department store chain had already announced on March 23 that it would draw down $800 million on its revolving credit facility, as well as suspend its cash dividend and share repurchases. The retailer also said it was cutting more than $500 million in operating expenses, capital expenditures and working capital, in addition to its “ongoing efforts to realign inventory to sales trends.” (Nordstrom had previously disclosed plans to trim $200–$250 million in costs during the 2020 fiscal year.)

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