Nordstrom is streamlining some of its fulfillment operations in California as it further pushes to cut costs and delivery speed.
CEO Erik Nordstrom said Thursday during an earnings call that the department store’s full transition of operations from a San Bernardino fulfillment center to its budding West Coast omnichannel center is currently underway. Nordstrom expects the company to complete the transition in the second quarter.
The CEO referred to the 1-million-square-foot West Coast facility in Riverside, Calif. as its “most automated, and lowest cost fulfillment center,” which is designed to serve customers across the Nordstrom and Nordstrom Rack banners. Nordstrom Rack inventory and fulfillment capabilities have yet to be integrated into the warehouse, but the company plans to add them in the future.
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The facility first opened in 2020 to fulfill customer orders and ship merchandise to stores, and was designed to give customers access to a broader selection of products to choose from and expedite delivery speed.
Customers on the West Coast account for nearly two in five Nordstrom and Nordstrom Rack orders, according to the department store, giving the facility a wide reach.
In the call, Erik Nordstrom called operational optimization the second largest priority for the retailer in 2024, hoping that supply chain improvements would be a major catalyst.
“Efforts in this area resulted in an over 5 percent faster click-to-delivery speed and an improvement in variable fulfillment costs in the first quarter,” Nordstrom said. “We continue to see meaningful improvements in the movement of product throughout our network. We are getting merchandise through our network, to our stores and our customers faster, at a lower cost. This helps to drive better outcomes, like higher conversion and lower return rates.”
The fulfillment shakeup comes as the Erik and brother Pete Nordstrom, who serves as the department store’s president and chief brand officer, have formed a special committee to evaluate a move to take the retailer private.
The company officially made the announcement to relocate its San Bernardino operations roughly 20 miles southeast to the Riverside facility during a March 5 fourth-quarter earnings call. In the short term, the move will cost the retailer $32 million in asset impairment and related charges due to this relocation.
As of Friday, Nordstrom has 10 centers in its supply chain network, with that number dwindling to nine when the San Bernardino facility closes this year.
Aside from the Riverside facility, three fulfillment centers primarily process and ship orders to customers, while another six distribution centers mainly process and ship merchandise to stores and other facilities.
Including the Riverside and San Bernardino locations, Nordstrom has four facilities in California totaling nearly 2.6 million square feet. The luxury retailer also has two warehouses in Iowa, and one each in Florida, Maryland, Oregon and Pennsylvania.
Nordstrom’s implementation of automated processes at the West Coast omnichannel center appear to deliver significant incentive for relocation, especially since the company claims the technology has enabled it to double the volume at the facility.
The fulfillment center has a pouch system that stores, transports, sorts and sequences individual items to fill orders of any size and maximizes space within the facility.
Additionally, the Riverside facility incorporates a storage and retrieval system that is designed to store five-to-seven times more products than other sites with the same footprint. So ideally, this offers consumers more selection, while reducing the number of split shipments mailed out to customers.
Finally, the facility gets further connected downstream via an algorithm that supports dynamic routing for all orders that flow through the network. This means the fulfillment center automatically prioritizes orders using factors such as processing time, orders in queue and transit time to calculate estimated arrival.
Nordstrom had a largely ho-hum quarter pulled up heavily by a 13.9 percent sales increase at the off-price Nordstrom Rack business. Net sales at the namesake banner saw a 0.6 percent jump to $2 billion, with the overall company’s total sales increasing 5.1 percent to $3.2 billion.
Net losses in the first quarter totaled $39 million, but it was substantial improvement from the $205 million in losses incurred in the year-ago period.
Nordstrom expects revenue to range between a 2 percent decline and 1 percent growth over the prior year, while earnings per share for the year are expected to be between $1.65 and $2.05.
