Among department stores operating in modern times, Nordstrom continues to stand out. While Macy’s, JCPenney and others suffer from having too many stores, too much merchandise, and overly-promotional shoppers, Nordstrom has held its position as a premium multi-brand destination. The retailer has expanded its store count, opened new formats like the inventory-free Nordstrom Local, invested in multi-channel initiatives like click-and-collect, and partnered with younger brands like Glossier and Makeup Museum to create newness. 

But everything Nordstrom is doing right is not financially making a difference. Nordstrom full-price sales declined 3.5% in fiscal 2019 and off-price sales increased only .02%. Digital sales grew 7% and now represent 33% of the company’s sales, which is not the fastest growth rate for a physical retailer moving online. Meanwhile, net earnings decreased by 12% as the company continued to invest in new initiatives and stores like it’s new Manhattan flagship.

These results represent a new normal for legacy retailers who have no choice to keep investing in newness with no guarantee that these investments will lead to positive long-term results. This is even more problematic because Nordstorm is doing a lot right, clearly leading the way among its peers. Sure, there have been flops like its loyalty program, which was too confusing and disadvantaged shoppers during its flagship anniversary sale. Staff cuts and an aging workforce also are not helping. But many of Nordstrom’s experiments were worth doing and worth continuing. 

But Nordstrom’s modernization efforts have not been enough. The company will have no choice but to continue investing in newness, which will likely lead to a further decline in earnings, and—it can only hope—an increase in sales. Amazon has significantly benefited from retraining investors to care about growth over profit. Few other companies have the same leeway, but those that do are able to keep investor confidence high because of rapid growth. If Nordstrom continues to show declining full-price sales, which are more important than its off-price sales given the power of non-promotional customers, the company will be in big trouble. At a certain point, it will have less and less money to invest in overhauling the business. It does not have time to get this wrong.        

While the company is expanding into new markets, most notably with its Manhattan flagship, it would be wise to slow down growing its footprint (which is likely too big already) and focus on driving sales and profitability in its existing stores through new initiatives. There is still a role for department stores in today’s retail landscape, but that means better stores, not more of them.