2020 was a pretty bad year for department stores. A number of popular chains, like Neiman Marcus and J.C. Penney (OTC: JCPN.Q) wound up filing for bankruptcy. Lord & Taylor went a similar route, and it wound up shuttering all of its stores as a result.
While any retail closure is bad news for shopping malls, department store closures are particularly brutal. The reason? Department stores commonly serve as anchor tenants, taking up multiple floors of space. Anchor stores don't just pay rent -- they draw in customers as well as other paying tenants. And losing them is a serious blow.
Thankfully, one retailer malls haven't had to worry about losing thus far is Nordstrom (NYSE: JWN). While other retailers reported abysmal third-quarter numbers last year, Nordstrom managed to turn a profit. And the company's more recent fourth-quarter earnings were strong as well.
Still, Nordstrom is now grappling with a new challenge: inventory issues. And that could impact its bottom line.
Shipping delays wreak havoc
Thanks to a surge in online orders during the holiday season, many retailers fell victim to shipping delays. And Nordstrom was no exception. Because so much holiday merchandise didn't hit shelves and stockrooms on time, Nordstrom is now sitting on an inventory backlog -- products it needs to sell off.
The good news is that Nordstrom expects inventory levels to be back to normal by this year's second quarter. The bad news is that if Nordstrom doesn't move its excess inventory, it could result in a poor upcoming quarter -- and that alone could send share prices on a steep decline.
But it's not just stockholders who could lose out if inventory issues truly wind up hurting Nordstrom. Mall REITs (real estate investment trusts) could also take a hit if Nordstrom's finances take a turn for the shaky.
Right now, many shopping malls are counting on Nordstrom to stick around as a mainstay, especially given the number of department stores that are increasingly opening locations outside of malls. As such, real estate investors should hope that Nordstrom is able to work through its inventory-related challenges -- and come out ahead.
Not all bad news
The good news is that Nordstrom put out some pretty strong numbers for the most recent quarter ended Jan. 30. Revenue came in at $3.65 billion, a notch above the $3.6 billion Wall Street expected. And earnings per share came in at 21 cents versus an anticipated 14 cents.
Still, a lot of Nordstrom's recent success came from digital sales, which rose 24% from a year prior and made up 54% of total sales for the fourth quarter. If online sales continue to take off for Nordstrom, that, too, could give real estate investors (especially those invested in malls) something to worry about.
Nordstrom has not announced major store closure plans, but it does expect its boom in online sales to constitute a permanent shift. That's something mall REIT investors should keep on their radar, with or without a modest inventory crisis thrown into the mix.