Nordstrom (JWN) , famous for its high-end apparel and accessories, is pointing fingers at an incentive it offers to its loyal customers for draining its pockets. After reporting a net loss of $39 million in its first-quarter earnings report for 2024, the company claims that its loyalty rewards program is partially to blame for the loss.
Nordstrom’s loyalty rewards program, which is called The Nordy Club, rewards customers for shopping at its stores and allows customers to earn points towards Nordstrom Notes when they make purchases. When customers rack up enough Nordstrom Notes, they can spend them on anything they want at the company’s stores. For example, if customers earn 1,000 points they receive $10 in Nordstrom Notes.
Related: Decline in luxury spending has hit a major brand where it hurts
On top of earning rewards, customers who participate in The Nordy Club also gain access to exclusive discounts.
During an earnings call on May 31 that discussed the company’s first-quarter earnings, Nordstrom CEO Erik Nordstrom said that purchases made by members of the program contributed to 70% of the company’s total sales, which increased by 5.1% during the quarter compared to the same time period last year.
Nordstrom Chief Financial Officer Cathy Smith claimed during the call that even though the program led to “better-than-expected growth,” it did contribute to “deferred revenue” during the quarter, but the company has hope that it will eventually grow sales and profit in the future as customers cash in their notes overtime.
“Strength in our loyalty or Nordy Club sales is a good thing,” said Smith during the call. “It's just real – a little bit of a reserve this quarter, but we'll see that strength continue to come back.”
The company also revealed that “external theft” in its transportation network and high inventory in its supply chain also contributed to the $39 million loss it faced during the first-quarter. Its gross profit, which is how much a company makes after costs, also shrunk by 2.25% as a result of the losses.
This is not the first time a company has blamed a generous deal that it offered to customers for contributing to financial losses.
More Retail:
- Walgreens limits purchases of a viral candy product
- Target faces disturbing lawsuit for allegedly putting shoppers at risk
- Amazon is giving up on allowing customers this one privilege
When restaurant chain Red Lobster filed for Chapter 11 bankruptcy last month, it revealed in the bankruptcy filing that shortly after it made its $20 endless shrimp deal (customers can eat all the shrimp they want for $20) a permanent menu item in May 2023, it resulted in the company losing $11 million.
“The excessive merchandising decision led to supply issues resulting in major shortages of shrimp with restaurants often going days or weeks without certain types of shrimp,” said Red Lobster in the bankruptcy filing.
Related: Veteran fund manager picks favorite stocks for 2024
