2020 has been a brutal year for department stores. We've already seen a number of big names, like J.C. Penney (OTC: JCPN.Q) and Neiman Marcus declare bankruptcy, and while some chains may thrive in the aftermath of a filing, others, like Lord & Taylor, are shutting their doors permanently. That's bad news for malls, which rely on department stores to serve as anchor tenants, drawing in customers and helping to entice new stores to sign on and pay rent.
Of course, it's easy to point a finger at the coronavirus outbreak and attribute department stores' failings to an unprecedented pandemic. But the reality is that many department stores have been struggling for years with sluggish foot traffic and high overhead costs. In fact, the fear among mall operators and mall REIT, or real estate investment trust, investors is that department stores will, in the coming years, start to really die out. But Nordstrom (NYSE: JWN) may be in a strong position to prevail.
Why Nordstrom has an edge
Though Nordstrom may not have as robust a mall presence as other department stores, it's still a mainstay many mall operators rely on. And the good news is that the retailer has several things going for it that should allow it to thrive in the coming years while its competitors struggle.
For one thing, Nordstrom caters to a specific clientele: shoppers with higher-end tastes who are willing to pay a premium for quality goods and have the means to do so. At the same time, its Nordstrom Rack offering caters to budget-conscious consumers, giving it exposure to both ends of the market.
Nordstrom also had a strong online presence even before the pandemic, but during the coronavirus outbreak, it was able to take advantage of its physical stores to make online ordering even more seamless for customers. Not only did it make online purchases available at its regular stores, but it also gave shoppers the flexibility to retrieve purchases from Rack locations.
Meanwhile, Nordstrom's third-quarter earnings were far better than expected. Though Wall Street had anticipated a loss of $0.13 per share for the quarter, Nordstrom instead came in with a profit of $0.34 per share. Digital sales also rose $1.6 billion during the quarter, representing a 37% increase year over year.
Another thing Nordstrom has going for it is that its stores are typically located in higher-end malls, which, generally speaking, are better suited to survive the pandemic. Lower-tier malls, which were sluggish before the coronavirus hit, are at the greatest risk of going under in a post-pandemic world or otherwise being repurposed.
A more positive outlook than the pack?
At a time when things look bleak for department stores, Nordstrom's potential to thrive is a good thing for mall operators. With 100 full-line stores and close to 250 Rack locations throughout the country, it's become a tenant shopping centers rely on.
Investors should hope for a bountiful upcoming quarter for Nordstrom to follow its third-quarter success, as that could secure its presence while other department stores begin to drop like flies.