- Nordstrom Rack is slowing use of in-store fulfillment to simplify operations and reduce the number of order cancellations, CEO Erik Nordstrom said in an earnings call late last month.
- The retailer will reduce store-based order fulfillment at Rack and raise the minimum order amount to receive free ship-to-store delivery, Nordstrom said. Rack may revisit minimums for free store shipping as economic conditions change.
- Digital sales declined 16% in the third quarter, with the change in Rack’s fulfillment model “accounting for the majority of the impact,” Nordstrom said.
Nordstrom had expanded its use of buy online pick up in store to improve the customer experience, drive more foot traffic and cater to a growing e-commerce market.
At Rack, however, issues with inventory accuracy have made it more difficult for stores to locate customer products, leading to higher order cancellations.
“We had higher cancellation rates there because it's a little more difficult finding the product in a treasure hunt environment in the stores,” said Nordstrom.
Beyond visibility issues, Nordstrom noted the buy online pick up in store model didn’t generate the expected profit growth at the discount-heavy Rack brand.
“The economics get tougher with the lower price points we have in the Rack versus our Nordstrom banner,” he said.
The retailer is working to improve inventory accuracy and reduce the number of order cancellations in a bid to improve customer experience.
The move to slow store fulfillment comes as the company focuses on optimizing its supply chain across both its Nordstrom and Rack banners. Nordstrom has increased overall productivity in distribution and fulfillment centers, increasing fulfillment center flow by 28% compared to the previous year.
Part of Nordstrom’s efforts to add supply chain efficiencies also include closing a small omnichannel fulfillment center in Los Angeles and retire the third-party technology tested in that center. Instead, it will rely on the recently scaled West Coast Omnichannel Center to support the demand.
“Our supply chain optimization work streams drove efficiency and lowered the per unit cost of moving product through our system, while also delivering an improved customer experience and faster order fulfillment,” said Nordstrom.