Dive Brief:

• Nordstrom's plans for a new Southern California fulfillment center are going forward as the company experiments with new customer relationships in the Los Angeles area, executives said during an earnings call last week.
• Nordstrom announced the company had found the sites for its "West Coast fulfillment center and local omnichannel hub," scheduled to open in late 2019. "We’re bringing all of our digital and physical assets together in a seamless ecosystem. We’re continuing to invest in supply chain, a critical enabler of the customer experience," said Co-President Blake Nordstrom on a conference call.
• The supply chain is "the last frontier" for the company, said CFO Anne Bramman. Logistics costs increased during Nordstrom's annual anniversary sale, but Bramman said she expects a return to normal going forward.

Dive Insight:

Nordstrom is throwing a lot at the wall to see what sticks with its evolving customers. It opened up a men's-only store in New York City (in advance of a full store). It opened a store in Los Angeles with no inventory, but rather with a tailor, personal stylists and a juice bar. The next experiment, explained company President Blake Nordstrom on the call, is a makeover of distribution and fulfillment in the retailer's most profitable city: Los Angeles.

This means opening a new omnichannel fulfillment center in California to serve customers faster and facilitate a symbiotic relationship between in-store and online sales. 

"When customers engage with us across stores and online, on average they spend 5x more and profitability per customer doubles," said Co-President Blake Nordstrom, according to a transcript on Seeking Alpha. Online sales are rapidly growing in share of the company's total sales, with 34% of net second-quarter sales taking place online, up from 29% in the same quarter last year. 

The store with no inventory where customers can try on clothes and then order them online, called "Nordstrom Local," opened in Los Angeles last year. The concept spooked investors at first, but two more locations in Los Angeles are on the way.

Nordstrom added on the call that shoppers are treating events like the anniversary sale differently in recent years, buying things to wear immediately and not stocking up for the upcoming fall and winter, which has operational and logistical implications. 

But the digital infrastructure could use some work too — the company’s site crashed on the first day of it’s annual anniversary sale. To make it up to customers, the company issued $12 million in loyalty points, reducing gross profit, but Nordstrom said he expects the hit to balance out by the end of the year as shoppers redeem their points.