Nordstrom is canceling plans to build out an omnichannel fulfillment center in the Pacific Northwest as the department store reins in spending and bestows its 1-million-square-foot Riverside, Calif. facility with the heavy lifting.
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“We found that we can serve West Coast customers more efficiently from our existing supply chain network while avoiding additional costs to build out the facility,” said CEO Erik Nordstrom in a Tuesday earnings call.
The CEO did not confirm the location of the facility in the call, but said the building was leased, and was intended for future use in the Pacific Northwest region.
In July 2021, Nordstrom leased 500,000 square feet of warehouse space at the 2.7-million-square-foot SeaPort Logistics Center in Sumner, Wash. Nordstrom had expected to be operational in the industrial park by 2023, but the space has yet to open.
The company currently operates nine centers in its supply chain network. Nordstrom did not list the Washington facility on its annual report filed in March.
Sourcing Journal reached out to Nordstrom.
Exiting the initial plan appears to be an extension of Nordstrom’s move to consolidate its supply chain operations on the West Coast. The company already shuttered a fulfillment center in San Bernardino, Calif. on July 1, relocating their operations to the Riverside facility. In 2022, Nordstrom also closed another omnichannel fulfillment hub in Torrance, Calif. that locally served the Los Angeles market, just three years after it opened.
Both closures occurred as the Riverside side has scaled to support demand, according to Nordstrom.
The Riverside site first opened in 2020 to both fulfill online customer orders and ship merchandise to stores, and was designed to give shoppers access to a broader selection of products to choose from and expedite delivery speed. It has since taken the role as the leading distribution center to West Coast, although the company also has centers in Ontario and Newark, Calif., as well as Portland, Ore.
That facility includes an automated storage and retrieval system that can store five-to-seven times more products than other sites with the same footprint, Nordstrom says. So ideally, this helps the department store achieve its goal of offering consumers more selection, while cutting the number of split shipments mailed out to customers.
“Logistics networks have recovered from the supply chain challenges that began during the pandemic, and we’ve improved our supply chain operations over the last few years,” Erik Nordstrom said in the call.
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The consolidation is part of the company’s wider “operational optimization” priority for 2024 to serve customers with increased speed and reliability, all while cutting costs. In the first quarter, the company revealed it improved click-to-delivery speed 5 percent in the wake of the initiative.
In this quarter’s call chief financial officer Cathy Smith noted that the optimization has made “really good progress,” with one of the benefits being a consistent flow of merchandise “to continue that thread of newness for our customers” across both Nordstrom and off-price retail banner Nordstrom Rack.
“It helps to drive those regular price sales, and we saw the increase in regular price sales again this quarter, which is great,” Smith said. “But underneath that, we’re seeing us process inbound merchandise faster, which gets us to handle returns faster, which enables the freshness, and again, a better customer experience.”
The department store is taking a $54 million asset impairment charge on the cancellation of the Pacific Northwest project, which made a 32 cents per share impact on the company’s bottom line. Nordstrom ended its second quarter with net income of $122 million, with net sales increasing 3.4 percent to $3.8 billion.
Nordstrom wasn’t the only department store to give some updates on its logistics operations.
Macy’s said in its Aug. 21 earnings call that it is experiencing problems at sea amid the Red Sea attacks and wider port congestion, both of which are lengthening routes of container ships.
Although the company is seeing “healthy inventory flows,” it is deploying “ongoing mitigation strategies in place to offset elevated ocean transit times and constrained container capacity,” Macy’s chief financial officer Adrian Mitchell said in the call.
The retailer, which saw sales dip 3.8 percent to $4.9 billion but generated a net income of $150 million, also continues to lower delivery costs as it works with more carriers.
“We continue to diversify our carriers who have lower rates without actually compromising service levels,” Mitchell said. “We also recognize that it’s important to have the right balance of upstream versus downstream fulfillment, which has enabled us to minimize split shipments, which can be quite costly for us.”
Delivery costs benefited from fewer split shipments, Mitchell said.
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