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Members of Nordstrom\u2019s popular Nordy Club<\/a> have accumulated so many loyalty points and redeemed so many rewards that it\u2019s impacting the clothing retailer\u2019s bottom line.<\/p>\n The Seattle-based merchant reported on May 30 a worse-than-expected loss in part because Nordstrom credit card-holders cashed in on more reward perks<\/a> than the company anticipated. Nordstrom posted a $39 million first-quarter net loss<\/a> and a 2.25% dip in gross profit to 31.6% in part because of the points-redemption boom. Supply chain theft and increased inventory ahead of the company\u2019s July anniversary sale also contributed to the loss.<\/p>\n But Nordstrom executives were not concerned with the loyalty program issue, with CFO Cathy Smith saying the timing of the loyalty engagement will eventually even out with \u201cdeferred revenue that will drive sales and profit in future periods.\u201d Per the company\u2019s earnings, purchases made by loyal customers were nearly 70% of the company\u2019s total sales.<\/p>\n \u201cStrength in our loyalty or Nordy Club sales is a good thing. It just will be a little bit of a reserve this quarter, but we\u2019ll see that strength continue to come back,\u201d Smith said. \u201cSo that\u2019s a positive, kind of in disguise. It will impact us this quarter, but it will come back [in] the remainder of the year.\u201d<\/p>\n Nordstrom did not disclose to Fortune<\/em> how many members Nordy Club has, but the program has been an important part of the company\u2019s ethos of strong customer service<\/a> and a key engagement tool. Launched in 2018, Nordy Club was a way for customers to earn points which convert to Notes to redeem for discounts. Before the launch of the program, Nordstrom had more than\u00a010 million active members of its previous rewards model who spent four times more<\/a> than non-members. Last August, Nordstrom reported 90% of its top-tier Nordy Club members<\/a> shopped at its anniversary sale.<\/p>\n But beyond Nordstrom expecting loyalty program losses to self-correct by next quarter, the Nordy Club itself is unlikely to be the defining factor in the retailer\u2019s financial health for better or worse, Caryn Pang, professor of marketing at the Hult International Business school, tells Fortune<\/em>. When customers shop\u2014though they may acquire and cash in points\u2014 they\u2019re already purchasing more than the point rewards are worth, Pang says. Moreover, Nordy Club\u2019s currency of points and notes expire after a year<\/a>, with many customers simply forgetting they exist.<\/p>\n \u201cIt\u2019s probably going to wash out,\u201d Pang says.<\/p>\n The impact of loyalty programs more broadly has weakened in the clothing retail industry, she argued. Brand loyalty decreased 14% last year, according to SAP Emarsys\u2019s Customer Loyalty Index<\/a>, with 59% of consumers saying they\u2019d switch over to products if they were cheaper, and 18% saying being loyal is something they can\u2019t afford to do.\u00a0<\/p>\n Indeed, numerous retailers, including Nordy Club<\/a>, have overhauled or relaunched their loyalty programs to incorporate greater perks, like holiday gifts and even more points, to reverse this trend. JCPenney launched a loyalty program in April, announcing $500 million in incentives<\/a> to rival its competitor Kohl\u2019s Cash. But rather than being an enticing factor for shoppers, these loyalty programs are instead being canceled out by competitors that have essentially introduced the same programs.<\/p>\n \u201cEverybody has an incentive program now, and the incentive programs seem to be very similar,\u201d Pang said. \u201cThe market is diluted, and there\u2019s no differentiating factor in the market.\u201d<\/p>\n There is still a way for loyalty programs to be an effective tool in customer engagement and retention, Subramanian \u201cBala\u201d Balachander, professor of marketing at the University of California at Riverside School of Business Administration, tells Fortune<\/em>. While loyalty programs can generate behavioral loyalty, consumers will continue to purchase items from the retailer of which they are a member out of convenience\u2014they don\u2019t generate deeper emotional connections to a brand, he says.<\/p>\n \u201cPeople are just being motivated to accumulate points in order to get free stuff which impacts profit, rather than being willing to pay the price because they really value the brand or the merchandise,\u201d he says.\u00a0<\/p>\n Loyalty programs are therefore in precarious spots, Balachandar says. Should a consumer\u2019s circumstances change and it\u2019s no longer practical to shop at a store, their loyalty program is essentially useless.<\/p>\n \u201cIf the incentive was gone, you would switch,\u201d he says.<\/p>\n In recent years, some retailers including streetwear apparel darling Kith<\/a> and tween fashion chain Claire\u2019s have worked to combat this effect. They\u2019ve pivoted to loyalty program models with tiers of exclusivity, giving members access to customized products or new items before the general public. Ian Baer, founder of marketing strategy platform Sooth, told Modern Retail<\/em><\/a> this strategy better appeals to consumers\u2019 psyche.<\/p>\n \u201c[Putting] something really uniquely beneficial and memorable in front of a customer builds the sort of emotional bond that a [purely] transactional relationship never can,\u201d he said.<\/p>\n<\/div>\n\n\u2018It\u2019s probably going to wash out\u2019<\/strong><\/h2>\n
\u2018If the incentive was gone, you would switch\u2019<\/strong><\/h2>\n