Nordstrom's massive new flagship is a gamble in an age of retail doom and gloom

Nordstrom156Bethany Biron/Business Insider

Nordstrom's new seven-floor New York City flagship store may appear glamorous and cutting-edge, but it's also a major business gamble.

Analysts and customers alike expressed a mix of cautious optimism and hesitation regarding Nordstrom's extravagant physical retail space in a period when luxury department store peers continue to flounder. That hasn't stopped Nordstrom from pouring funds into the store, which is its largest single-project investment to date, CNBC previously reported.

However, this year alone Lord & Taylor shuttered its iconic flagship store in Manhattan and Barneys filed for bankruptcy in a move that could effectively close its remaining brick-and-mortar locations. Both struggled from exorbitant Manhattan rent prices, dwindling foot traffic, and shifting consumer demand for e-commerce.

So how does that bode for Nordstrom? Here's what others had to say in the wake of Nordstrom NYC's grand opening.

Wall Street remains uncertain

While Nordstrom is faring better than some of its luxury department store peers, that doesn't mean it's doing exceptionally well, either. In its most recent earnings call, the company delivered mixed results with a decline of 5.1% in net sales, while making improvements in other areas like inventory assortment and off-price ventures like Nordstrom Rack.

Also giving analysts pause is the fact that the store's opening didn't do much to move the market, as shares dropped by 2.24% on the day of its opening. While market experts say having a strong New York presence is ultimately good for the company, they remain uncertain about what this means for the future of the business, according to Markets Insider's Carmen Reinicke.

"Nordstrom's entry into the New York market should help drive a multiyear sales lift in the region, which the company has previously identified as a $700 million-plus full-price opportunity," Dana Telsey of Telsey Advisory Group wrote in an analyst note this week. "However, for the company overall, we continue to look for indications that marketing efforts and improvement in product assortments are helping to drive traffic/conversion following weak sales performance over the past three quarters."

For Nordstrom, 'stores matter'

Still, the company is optimistic it will be able to stay afloat as the retail apocalypse rages on, by focusing on areas like experiential retail and customer loyalty programs, all of which is evident in the New York flagship.

Nordstrom44Bethany Biron/Business Insider

Shea Jensen, Nordstrom's senior vice president of service and experience, said the store reflects the power of physical retail, even when consumers are increasingly turning to desktop and mobile to make purchases.

"The role of the store is changing, but stores matter a lot," Shea told Business Insider at the grand opening. "They're a place to discover, to become inspired by fashion or new brands. They're also a place to access great help through fit or styling expertise. They're a place to see, touch, feel, and try on the product."

Jensen said that despite the store's massive size, it's intended to show how both physical and digital retail can be customized and work together in tandem. She pointed to the recent openings of the merchandise-less Nordstrom Local stores in New York, where visitors can pick up online orders and get styling advice, as another example.

"Customers have told us that time is an extremely valuable commodity," she said. "So we're focused on providing convenient access to our people, our product, our fashion, and also to our physical assets of which this is the latest."

An uncertain future for the luxury retail flagship

Meanwhile, shoppers at the store on opening day were visibly impressed but had their reservations. Karen Flanagan, a Staten Island resident dining at one of the flagship's seven restaurants on Thursday, said she fears Nordstorm NYC has the potential to follow in Barneys' ill-fated footsteps.

"I don't know if it's sustainable to be honest with you," she said. "Look at Barneys. That concerns me. If Barneys found themselves in a very dark hole, what does that say for this? I don't know."

However, her friend Jessica Paragine said she believes Nordstrom has the power of influencer marketing on its side, in a way that perhaps surpasses competitors. She noted the retailer is frequently featured on the popular app LIKEtoKnow.it and further surmised that the grand opening itself was likely filled with influencers looking to create content.

"I feel like [the influencers] kind of support Nordstrom and Nordstrom kind of supports them," she said. "That's just a tiny piece of it, I'm not saying that's going to keep this store open forever."

For now, Nordstrom employees are celebrating the long-awaited store, which has been several years in the making. Whether it will withstand the changing tides of the retail landscape is hard to say, but in the meantime, Nordstrom employees like Kaylin Allen are riding the high.

Allen - a Gucci specialist who works at a store in Portland and attended the opening with colleagues - said she first heard murmurings of a possible New York flagship when she started working for the retailer a decade ago and was glad to see it finally come to fruition.

"It's incredible," Allen told Business Insider while browsing the Burberry pop-up store. "It's been 10 years in the making, but it has by far exceeded my expectations."

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