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Nordstrom is closing more stores in 2019

The Motley Fool logo The Motley Fool 1/29/2019 Adam Levine-Weinberg

Over the past few years, as mall traffic has declined and consumers have become more comfortable with e-commerce, department store operators have closed hundreds of stores.

Nordstrom has been less aggressive in this respect than most of its larger, lower-end rivals. It is even opening two new full-line stores later this year: a flagship women's store in Manhattan and its first location in wealthy Fairfield County, Connecticut.

That said, Nordstrom is shrinking its store fleet, too -- albeit slowly. After closing one full-line store at the beginning of 2019, the upscale retailer announced last week that it will shutter two more locations in early April.

Nordstrom continues to pare its store base

Nordstrom has been closing about two stores per year recently. While all of its stores produce positive cash flow, it has been exiting locations in underperforming malls, especially if they would need major investments to meet Nordstrom's lofty brand standards. Additionally, in some cases, the company's store closing decisions have been shaped by particular locations' proximity to higher-performing Nordstrom stores.

For example, in early 2015, Nordstrom closed two of its five stores in the Portland, Oregon, metro area. Two locations in Southern California -- where Nordstrom has numerous stores -- followed in mid-2016 and early 2017. Nordstrom also closed a store in the Washington, D.C., suburbs in mid-2017 and one in Salem, Oregon, in early 2018.

Several months ago, Nordstrom announced that it would close its store at Providence Place in early January. While this was the company's only location in Rhode Island, the Providence Place mall has been struggling for years. Furthermore, one of Nordstrom's Boston-area stores is just a 45-minute drive away. Between that location and its popular e-commerce site, Nordstrom hopes to keep serving many of the customers who previously frequented the Providence store.

Last Wednesday, Nordstrom publicized two more upcoming store closures. The stores at MacArthur Center in Norfolk, Virginia, and the Mall at Wellington Green in Wellington, Florida, will be shuttered in early April.

The Florida store is between two other Nordstrom locations that are 20 miles north and 25 miles south, respectively. Meanwhile, Nordstrom's store in Norfolk has been struggling for years. Sales at that location plunged from an all-time high of $32.9 million in 2007 -- which was still below average for the Nordstrom chain -- to just $11.2 million in 2017.

Related video: Could Nordstrom's weak holiday sales mean retail is in trouble? (provided by CNBC)

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More stores could be on the chopping block

Nordstrom's store closures of the past several years have removed some of its underperforming locations from the store base. That said, in-store sales have fallen steadily for the company's full-line business in recent years. (Excluding e-commerce, Nordstrom posted full-line comp sales declines of 6.4% and 4.2% in fiscal 2016 and fiscal 2017, respectively.) Obviously, some stores are performing even worse than the chainwide average.

Thus, Nordstrom is likely to keep downsizing in the coming years. For instance, Nordstrom is considering closing its location at Stonestown Galleria in San Francisco, according to a 2018 news report. A store at Northgate Mall in Seattle could also be in danger, as that mall is set to lose its other two anchor tenants in the next 15 months, ahead of a major redevelopment project.

Nordstrom operates much larger and more successful flagship locations in downtown Seattle and San Francisco. The combination of having more engaging flagship stores nearby and the option of buying online may be making the satellite mall-based locations in those cities obsolete.

Adapting to a new reality

Nordstrom hasn't given up on physical stores. The company has high hopes for the Manhattan flagship -- its first full-line store in New York City proper. The recent closure of Lord & Taylor's Manhattan flagship has left some shoppers looking for affordable luxury goods in need of a new favorite store. The new Nordstrom flagship will tap into tourist demand as well, while also supporting the company's e-commerce business in New York City.

The new store in Norwalk, Connecticut, also addresses a unique opportunity, giving Nordstrom its first presence in one of the wealthiest counties in the United States.

However, in many other parts of the country, Nordstrom either has too many locations or has stores in underperforming malls. As one of the top e-commerce retailers in the U.S., Nordstrom doesn't need to rely on having a ubiquitous store base to succeed. As a result, store closures will likely outnumber new full-line store openings for the foreseeable future.

Adam Levine-Weinberg owns shares of Nordstrom. 

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