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[5 comments]

An evolutionary tale from Nordstrom

May 8, 2014

With permission, presented here is a recent article from the official blog of Planet Retail, a provider of global retail intelligence.

With the launch of a dedicated e-commerce site for Nordstrom's fast-growing Rack banner, Nordstrom furthers the evolution of its business model from an upscale department store to a multi-format, multi-channel retailer. It mimics an evolution that largely has taken place in grocery and mass retailing but has lagged among many dinosaurs in the department store sector.

Nordstrom has always been among the pioneers in multi-channel retailing, simply because the premise of serving its customers whenever, wherever and however they want naturally aligns with the company's laser-like focus on customer service. While other retailers are now focusing on inventory transparency and seamless fulfillment across channels, Nordstrom laid the groundwork in those areas many years ago.

With the infrastructure set, the new decade brought Nordstrom the opportunity to look for completely new avenues of growth.

Initiative 1: Roll out Rack. The company began aggressively expanding the off-price Rack concept, with a total of 230 stores — more than twice the number of full-line department stores — planned by 2016. (It has 140 locations today and will open an additional 27 stores in fiscal 2014.)

Initiative 2: Enter the flash sale business. After the company acquired HauteLook in 2011, it introduced Nordstrom branding on the site and promoted HauteLook to its core department store customers via e-mail marketing campaigns. That was just the beginning of the integration. Last year, Nordstrom began accepting HauteLook returns at Rack locations, which the company has said is driving weekly traffic in the thousands to Rack outlets, including many who leave having made a Rack purchase. HauteLook even began including a limited assortment of Rack merchandise accessible from a link on the homepage. At the time, I viewed the decision to bolster Rack's e-commerce presence via HauteLook as a precursor to a dedicated Rack site, where the company could gauge consumer response, generate incremental sales and build awareness.

Initiative 3: Launch e-commerce for Rack. For its final act, Nordstrom solidified the integration between Rack and HauteLook online. The company built the Nordstrom Rack e-commerce site and new mobile app on a shared platform with HauteLook, enabling shoppers not only to shop Rack 24/7 but also access HauteLook's limited-time flash sales events through a single log-in, place items in a single basket and check out via a single transaction.

FINANCIALS:     [NYSE:JWN] [ ]

Discussion Questions:

What steps taken by Nordstrom in recent years do you think are most important to its future success? What do you think are the most likely next steps in Nordstrom's evolution?

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:

How likely is Nordstrom Rack to succeed as an online business?

Comments:

Nordstrom is aggressively riding the growth potential of Rack stores and its e-commerce business. (E-commerce grew at a 30% rate last year and accounts for over 10% of company sales in 2013.) And the company has been a leader in leveraging its brick-and-mortar inventory to fulfill web orders. It helps to have the service levels and "process" in place to make this happen.

It's just as noteworthy that JWN continues to grow its full-line department stores at a very deliberate pace, especially given slow comp sales. It would be tempting to step up the rate of store openings, given the lack of saturation in many areas of the U.S., but this kind of caution will keep Nordstrom from asking five years from now, "Why do we have all this excess square footage?"

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Dick Seesel, Principal, Retailing In Focus LLC

I find that a very large majority of high-end retailers are spending time and money creating an e-commerce venue for the budget conscious consumer. This is not working and companies like Nordstrom are finding it hard to believe.

The simple truth is there are no cheap high-end products. Just a lot of made to look like knock-offs. Nobody is more aware of this than an educated e-commerce consumer. There are two schools for consumers to learn with. One is the experience of having a long history of buying quality and the other is learning from the mistake of buying sizzle but getting a bad steak. Both lead to consumer letdown and slowing sales.

The lesson to learn is that even within the e-commerce market the need for differentiation in style and marketing is great and must be addressed for success. The key differentiating factor in a prestige sale is exclusivity. The site, as well as well as the content, must be reserved and built for the high-end consumer. Allowing for non clientele and or prospectus is a waste of time and followup resources. This very approach seems a little foreboding to companies being battered by the world-wide depression, but it nevertheless is a must for higher-end success in business.

Sites with high-end clientele will always have password entry and immediate high quality attendance, available on demand. This service is not practical when open to the general population that can not partake in a purchase for financial reasons.

So if you are going into e-commerce, sell where you belong and screen for those who have a need for the products and services you bring to the table on a world-wide scope, and plan to allow participation from ALL of the market potential.

'gjarnoldjr'

Nordstrom has never stopped trying to understand their consumers as the business evolves in response to a changing marketplace. They experiment and execute well. Th Rack was a huge risk, but their shoppers understood the concept, while maintaining the department stores. The company understands that their shoppers are looking for smart fashion, good value, and a little luxury. Expect that they will continue to innovate within ecommerce platforms, and additional services.

Anne Bieler, Sr. Associate, Packaging and Technology Integrated Solutions

Never underestimate Nordstrom. They're exceptionally focused and smart, not to mention aggressive. Mobile checkout makes it easy for time-strapped customers to get in and get out. Expect great things!

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Cathy Hotka, Principal, Cathy Hotka & Associates

Nordstrom has been and continues to lead in developing its online business as it expands its offering beyond its full line stores. Unlike most retailers, it's customer centric rather than channel-oriented.

There is a great quote from Nordstrom's Shareholders Meeting, spoken by their Chairman Enrique Hernandez, Jr., that sums it up perfectly:

"We don't even like to use the word 'channel' to describe the way we serve customers because customers don't say, 'I like this channel' or 'I like that channel.' They say, 'I like Nordstrom.' They just like shopping on their terms," Hernandez said. "It's simply the way you have to do business today in retail, combining the accessibility of the pure online experience with the high touch and inclusivity of the stores."

They are, simply, the best.

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Phil Rubin, CEO, rDialogue

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