Cramer: Nordstrom's Unsettling Call

 | Aug 18, 2014 | 6:54 AM EDT
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Of all the truly disturbing retail conference calls we heard last week, it wasn't the disappointing Macy's (M) call that got to me, nor the ho-hum, Mike Ullman-less J.C. Penney (JCP) call. It was the Nordstrom (JWN) run-through.

The call itself, on the surface, seemed like a good one. There was a new acquisition that seems to be panning out, an expansion of Rack that everyone loves and a careful invasion of Canada -- unlike Target's (TGT) disastrous foray. Comparable-store sales are growing in the high 3% area, which seemed encouraging, and you could see how the stock might continue to rally as it did into the quarter.

But then you heard about "the spend." You heard that Nordstrom is going to invest $3.9 billion in capital in order to stay competitive, including $1.2 billion in technology -- and you reeled. You just reeled. That's even more than you thought last time, when the company talked about spending for what now seems like a run-in-place. The spending is causing a gross-margin guide-down, which is not what you want to hear with 3%-plus comparable-store-sales growth.

Nordstrom is shelling out these billions in order to accelerate the deployment of the same omnichannel strategy that every retailer is doing, this time with an emphasis on, which is a brand-new service. We always seem to forget that great technology doesn't come cheap -- and this sure isn't coming cheap for the crosstown "retail" rival of Amazon (AMZN).

But here's what's so painful about "the spend" this time: You realize that, the better Nordstrom makes its websites, the less you have to go to Nordstrom the store. Yet the store itself is a paradise of enticement, getting you to buy other goods that go with what you are buying, or even better. You just browse there to buy things that you hadn't thought about buying when you went in: shoes, perfume, some jewelry. These are the untargeted equivalents of the Amazon prompt, "Other customers who bought these purchased --" and fill in the blank.  

Not only that, but the Web neutralizes what I like best about Nordstrom: the smart, helpful salespeople who get you to buy other things you hadn't thought about buying.

These people so rapidly ingratiate themselves that I have come home with whole boatloads of private-label shirts and ties that I love that I had had no intention buying when I had come in for a pair of cufflinks.

All of this reminds me of when the Web first came on the scene and began to upend journalism. The old broadsheets at first didn't think much about the Web, and then they saw the valuations and realized they had to get involved, with the possibility of spinning off their websites as separate, extremely valuable businesses. So they spent and spent, but the stock market collapsed before they could bring the initial public offerings.

So they weren't able to recoup the cost in the public market. Meanwhile, as the public got more sophisticated -- and as the phones and the phones systems improved, including video capabilities -- the newspaper became an expensive, money-losing vestige. Worse, the website was far less lucrative and far more easily read and enjoyed, accelerating viewers from the actual hard copies every time there was an improvement.

I fear that's where Nordstrom is now. The more it spends -- in large part in order to keep up with Amazon, which doesn't cannibalize its nonexistent brick-and-mortar operations -- the better it makes its website and the less we need the stores. That takes Nordstrom's best attributes, its beautiful edifices and its smart, caring salespeople, and renders them increasingly irrelevant. Their chief benefit now is the "try-on" and the easy return from the Web, but that's not the big edge it used to be. We've all learned how to send back Web-bought merchandise by now.

That's why, increasingly, when I hear another retailer refreshing its omnichannel, I no longer applaud. I think, "Competitive pressure to the offline from the online, plus increased spending, means lower gross margin and sinking stock prices."

That's exactly what happened with this great American retailer's stock price last week. As far as I can tell, given the increased spending, it is only going to get worse over time.

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