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Nordstrom pushes boldly into the digital future

February 28, 2014

If you go with Geekwire columnist John Cook's take on Nordstrom's fourth quarter performance, the department store chain "is in a bit of a pickle." Sales through the company's 117 department stores during that period reportedly slipped 3.3 percent. Sales per square foot fell 2.4 percent, and the total of $3.6 billion in sales from all channels was pretty much flat vs. the year-ago quarter.

Of course, the holiday quarter was tough on a lot of big chains due to severe weather, economic uncertainty and ... well, Amazon. (Curious how Amazon's name comes up these days in reference to nearly every quarterly report.)

Also curious was how Kyle Stock of Bloomberg Businessweek saw the same story through different eyes. While acknowledging Nordstrom's difficulty in getting foot traffic during the holidays, this columnist paints a picture of a progressive, tech-savvy retailer pushing boldly into a certain omnichannel future. While many chains still seem to be treating their web and mobile businesses as a necessary evil, Nordstrom's aggressive investments in digital landed them a 30 percent boost in online business from a year earlier. It was the online channel, in fact, that probably saved the chain from having a disastrous year.

Nordstrom's total sales growth over the last two years has seesawed from roughly the negative 20 to positive 30 percent ranges. Meanwhile, its online business has consistently grown 20 percent or more, quarter after quarter.

And management is far from resting on its laurels, digital-wise. The company announced plans to spend 30 percent of cap expenditures on technology, up from its historic 20 percent. Mr. Stock of Bloomberg Businessweek estimates that internet sales now account for about a third of company revenue, this compared to Macy's — a competitor that's no slouch at e-commerce — doing about 11 percent of its sales online.

Further, Nordstrom is heavily committed to its mobile efforts, both on the consumer and in-store customer service sides. According to RIS News, Nordstrom is working hard to integrate tablet devices into store operations, largely to improve POS efficiency. The company also points to learning quite a bit about mobile shopper behavior from its Nordstrom Rack customers and is rolling out some "pretty big improvements" to its mobile site in the spring.

Perhaps most important to Nordstrom's success is the thread of humility that seems to run through management. "There's a lot of newness that keeps coming out and our line of sight in that world is really only roughly a two to three year period," Nordstrom EVP and CFO Michael Koppel told RIS. "To say that we're going to reach a peak and then it's going to stop, I think, would be misleading on our part."


Discussion Questions:

In Nordstrom's push on the digital front, both online and in-store, do you see hints at a futuristic model for department stores? If so, what does that model look like? What percent of sales do you expect Nordstrom will see from digital channels in, say, five years time?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

By 2019, what percentage of overall sales do you predict Nordstrom will see from online and mobile sales?


Many stores are defining "omnichannel" as a way to link stores and e-commerce more effectively, especially in terms of fulfillment of web orders. (Kohl's announced yesterday that it is speeding up its efforts to fill orders from its physical locations...where Macy's and Nordstrom have a head start in this area.) Nordstrom has a particular challenge using "omnichannel" for more than just better logistics management, as a company known for "high-touch" customer service and location-based merchandising. These kinds of mobile tools can only go so far with a brand that depends heavily on individual engagement.

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Dick Seesel, Principal, Retailing In Focus LLC

I was in the flagship store a couple weeks ago. Two employees busy talking to each other, one on their smartphone as I was looking around a designer collection. I found one employee who was best of class and purchased several items. If I hadn't, I wouldn't have.

Going full out on technology to me, in that store, meant throwing in the white flag on managing employees.

Yes, many Nordie's customers shop digital because there are fewer physical stores near where we may have moved. But I would suggest what made Nordstrom great is in danger - clearly evident on the sales floor one day.

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Bob Phibbs, President/CEO, The Retail Doctor

Nordstrom is embracing the digital shopper and reality. Unlike some of the retailers that have been discussed in these pages over this topic, Nordstrom's is systematically and iteratively experimenting and developing their approach to a balanced retailing experience for their customers - whether online or in-store. Given their typical shopper, I suspect we'll see a continual growth in Nordstrom's e-commerce/online business. Same-day delivery, and overall ease of shopping will cater to their shopper profile. It would be prudent for other retailers to monitor Nordstrom's digital evolution.

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Adrian Weidmann, Principal, StoreStream Metrics, LLC

I think what's most interesting about the two perspectives shared in the article is that one insisted on looking at stores as a stand-alone channel and the other instead focused on online and its positives. And I think both are wrong. Online influences what happens in stores and stores influence online behavior too. Retailers recognize this - and would dearly love to measure it - but the financial analyst world appears bent on measuring retail the old way, channel by channel.

But that said, the question asked for discussion is much more difficult to answer. What is the future of the department store? Nordstrom sits between the foundering JCP, which tried to reinvent the store at a time when the store's future has never been more uncertain, and the effort failed. Whatever your argument as to the source of the failure, we will now never know whether the store part of that experiment stood a chance, and love him or hate him, Ron Johnson's store design was at least the most innovative thing to happen to department stores since the escalator.

On the other side is Macy's, which is taking the turtle's slow and steady pace against Johnson's now-expired hare. The focus is all on omni-channel, but more about integrating the store into the supply chain and beefing up the online presence than in really integrating digital and store per se.

And I don't think either one actually is posing a real answer to the question "What is the future of the department store?" That question is much more complicated than digital vs. physical. Where department stores used to be the place to go to acquire brands, that's no longer true, even in the digital space. Why should I go to Macy's or Nordstrom if I can get the brands I love direct from the manufacturer? And manufacturers, upset by the arms-length transactional relationships involved with "I'll display and sell your stuff however I like" have responded by trying to clamp down on how their brand is displayed and priced. The end result, to me, is a sea of sameness. Will a Nordstrom look any different than a Macy's if the brands ultimately get their way? No.

So yeah, digital is important, and financial analysts need to get with the program on measuring retail success. The store is not the be-all end-all of the chain, and neither is online alone its savior. But the future of the department store - answering that question is going to be ugly, messy, and I think it's going to take awhile. And we may lose a chain or two in the process.

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Nikki Baird, Managing Partner, RSR Research

Digital is Nordstrom's growth path. It empowers the company to reach customers in rural states where there are few or no Nordstrom stores. If the store can maintain its reputation for fantastic in-store customer service (and Bob Phibbs raises a flag on this one) they'll be well-poised for future success.

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Cathy Hotka, Principal, Cathy Hotka & Associates

Technology-wise, Nordstrom was late to the game, but has leapfrogged the competition. The only thing I worry about, with regard to the company is over-expansion of stores.

It used to be an exciting rarity to have a Nordstrom nearby (sort of like Trader Joe's, but for clothes). Now, at least in Miami, the chain has 3 stores within about 20 miles of each other, 2 within about 5 miles of each other.

This certainly creates some comparable store issues (does Dadeland Mall cannibalize Merrick Park? It has to). It also loses a bit of cachet.

I think a lot of Nordstrom's online growth comes from parts of the country/world, where a store is not available. Is it a good thing when a store opens there too?

I'm sure the folks at Nordstrom are smart enough to analyze this geographic conundrum. And I'm also sure they're smart enough to pull back on store growth when they sense they've lost their edge. That's just good retailing.

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Paula Rosenblum, Managing Partner, RSR Research

I thought the humility of management comment was interesting, and is maybe a major driver for their digital efforts. Digital success now and into the future is probably predicated on breaking free of long-standing norms of how to run a successful retail business. Management culture may be a huge factor in what retailers succeed over the next few years with respect to digital. There's simply little choice but to weave other channels into the business across sales and service - you have to follow shoppers wherever they may wish to buy, in the store, online, on the go, or at home and make that experience as seamless as possible.

When you think about Nordstrom's reputation for high touch, quality in-store service, their efforts online seem to mirror that mantra but in a virtual way. The challenge for them over time may not be so much digital execution as ensuring the Nordstrom brand continues to stand for quality service across channels.

In five years, the distinction between digital and in-store sales will probably disappear as all transactions happen digitally, but fulfillment happens based on shopper preference (browse/try in store, pick-up in person or delivery). The "store" will become a place with multiple entry points (physical, mobile, web, social) but the shopper will be recognized equally across those channels, that each enhance the shopping experience in different ways.

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Gib Bassett, Retail and Consumer Goods Industry Principal, Oracle

They seem to be doing off-the-radar, interesting stuff in their skunk works, Nordstrom Data Lab - code on Github? Wow! PhD in bioinformatics, those are little crumbs that suggest that there might be the beginnings of a there, there. Oh and then we have the local talent. I'd say they have the potential to do some breakthrough work because they get the importance of building an innovation culture - that is what I found reading between the lines. Google is so great! Good luck Erin and Dave.

Vahe Katros, Consultant, Plan B

You can either invest in the future, and grow like Amazon is, downplaying immediate profits, or you can hang onto outmoded ways and thinking and either disappear from the scene, and cripple along as "once giants" like A&P and Sears have done.

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Herb Sorensen, Ph.D., Scientific Advisor Kantar Retail; Adjunct Ehrenberg-Bass, Shopper Scientist LLC

I think because of management's low-key nature, Nordstrom hasn't received the accolades it deserves with respect to creating an experience that fulfills it mission regardless of channels. (The comparison I'm thinking of here is Macy's, which gets tons of press around "omnichannel.")

As far back as 2003, Nordstrom had Web-enabled POS. In 2008, it introduced buy online, pick up in store. Having developed a multi-channel infrastructure during the past 10 years, Nordstrom is now focused on fine-tuning the customer experience across channels.

It's become an incubator for innovative channel blurring retail concepts - think Bonobos, Etsy, Sole Society, Blue Nile.

Through these partnerships, Nordstrom gains not only access to narrowly distributed brands but also insight into online branding, e-mail marketing, customer acquisition/retention and other intelligence that it can incorporate into its own banners AS WELL AS unique concepts that it can bring into its stores to drive traffic. Even the decision to accept HauteLook returns at Rack is all about driving cross-channel traffic.

Because Nordstrom tends to be an early adopter rather than a fast follower, it has been willing to test - and sometimes fail - which is a trait that Wall Street doesn't often reward.

That being said, I do think Nordstrom will reach its goal of achieving 50% of sales online in the next 5 to 7 years.

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Kelly Tackett, Retail Analyst, Independent

Nordstrom's is definitely on to something big here! With their limited number of stores, super brand recognition and inventory restrictions to stock a broad/deep assortment in all locations, utilizing the online store is the way to leverage all of the above!

My best guess is they could gain 50%+ on their current digital channels over the next 5 years.


Nordstrom is a very innovative and forward-looking retailer. They have hired a LOT of Amazon folks over the last few years and are taking advantage of that mindset to continue to push (and test) boundaries.

Thinking of "digital" as a distinct "channel" is deceiving and confuses the role of digital in the path to purchase. It is no longer go online or go to a physical store. And it's not just about buying online and picking up in-store - or the reverse. Shoppers today have many different touchpoints (both digital and physical) on their way to a purchase. And while it's difficult to measure each component's contribution to the sale, that doesn't mean it's not happening. The appeal of a simplified last-touch attribution model needs to be weighed against its misleading conclusions on where to invest the next dollar.

Todd Sherman, Managing Partner, T3C Partners

"...Sales from all channels was pretty much flat vs. the year-ago quarter." To me, this pretty much says it all, and laudatory remarks seem out of place...at the very least.

And I'm sick of hearing about how it's all Amazon. The big A has less than 1% of the nation's retail sales (though if you added up every decline they get blamed for it would seem more like 101%).

So what's Nordstrom's problem? I think it has three of them:

1) the company is, of course, known for its service, and - as Dick notes - this is a tough thing to translate into online. Though it seems to be doing well there so far, I'm wondering how far it can go with things like tailored apparel.

2) much of its sales volume is - for want of better term - "business attire" and I wonder how much of a future that model has in a nation of flip-flop wearers.

3) It has the Walmart problem: it has saturated the market - or nearly so - though in this case the higher-end market...not very hard to have double digit growth when you have only one store in a five state area, but much more so when you have ten or twenty there.


Nordstrom used to have me as a loyal customer, because they were the only place that carried narrow shoes. At one point I was told to go to Nordstrom online because they decided to no longer carry all the narrow styles at the store. I did go online, but I went to Zappos because they had an even larger selection.

The problem with not capturing sales in the store with the selection and personal customer service customers have grown to expect is that the convenience of searching out alternatives online will too easily take one to their competitor. Amazon understands and takes advantage of this.


Nordstrom's digital push, and their continuing investments, are like other areas of their business (e.g., loyalty marketing): best-in-class. Their key is pursuit of viewing online directly in tandem rather than in opposition to the store. We work with a lot of retailers and it is still the status quo that stores and direct/digital are more often siloed than not. Customers don't view it that way and unless merchants fully embrace that the way Nordstrom has, they will lose.

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Phil Rubin, CEO, rDialogue

The next five years should bring significant changes in Information Technology (IT) capabilities and range. Animation and multilingual translators will allow the stores and e-commerce to bring real time customer associate assistance to consumers on demand. While this will greatly expand the retailers ability to address the customers specific areas of concern plus technical and practical inquires, there will not be a solid IT ability for expanding solutions to include add-on sales and impulse sales. This is no small issue to the gross sales and profit lines especially for the brick and mortar retailers which know well their loses with every e-sale. Attempts to fortify these needs create screen clutter or annoying chatter that cause irritation and confusion and lead to many abandoned carts or site abandonment.

As time goes by and these advertising needs are placed in the content of an order confirmation with the ability to create and bill, order amendment increases. The next 30 to 50 years of IT development is where we will see enormous changes in buying habits and abilities. Nordstrom may or may not be here to enjoy the near or long therm IT enhancements for B&M and/or e-commerce retail. Looking at e-commerce as a way to stabilize and grow the whole corporation is a technical abandonment of where lost sales issues are in the company. This is not to say e-commerce isn't important but to reinforce the importance of store sales which is were the real loses are happening and need to be stopped.


The issues raised here do point to a model for the luxury department store channel. By focusing on effective integration of digital tools, Nordstrom is able to invest in business growth without necessarily building more and more locations. A Nordstrom in a small community makes no sense, but enabling all small communities to "shop" Nordstrom virtually connects millions of small town dwellers to an ever-improving luxury shopping experience online. The caveat is ensuring the historic investment levels in in-store experience, especially professional service excellence.

As long as the investment is balanced, Nordstrom will thrive in the long term.
The danger is for the moderate department stores. Content and experience differentiators are very difficult to come by in their space.

Mike Osorio, Senior VP Organizational Change Management, DFS Group

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