Nordstrom puts its money where its e-commerce is

Discussion
Feb 26, 2015

Nordstrom already generates roughly $2.5 billion in annual sales through its namesake website along with those it operates for Nordstrom Rack, Trunk Club and HauteLook. But the company sees more opportunities ahead for its digital efforts and is making big capital investments to help increase that number by another billion dollars or so over the next few years.

Last week, Nordstrom announced plans to allocate five percent of its sales to capital improvements over the next five years.





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"Technology is 35 percent of the plan, reflecting an increased shift towards foundational investments. This includes a merchandising solution that enables our growth and a seamless integration across our multiple channels," said CFO Michael Koppel on Nordstrom’s recent earnings call with analysts. "It also includes the expansion of our fulfillment network. This not only supports a $2.5 billion online business today that is anticipated to grow by over $1 billion in the next several years but also enables an integrated customer experience across stores and online."

A new distribution center in Pennsylvania is under construction. The facility, which will be dedicated to online orders, is the third of its type for Nordstrom. The DC is being constructed to help expedite shipments to the company’s customers, almost half of which are within a two-day shipping distance of the new center. Blake Nordstrom, president of Nordstrom, told analysts that the company’s goal is to get 90 percent of its customers in the U.S. within two-day ground shipment range of its fulfillment network.

Other steps Nordstrom is taking to improve its digital performance include expanded selection of products on its sites, facilitating product returns from online orders in the company’s stores, and making upgrades in stores that integrate online and offline operations.

Online currently generates roughly 18 percent of Nordstrom’s total sales.

What is your evaluation of Nordstrom’s current digital efforts and its plans for the future? Do you expect other retailers to make capital investments of this magnitude to increase online sales and omni-channel effectiveness?

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11 Comments on "Nordstrom puts its money where its e-commerce is"

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Debbie Hauss
Guest
2 years 9 months ago

Nordstrom has made smart technology investments that have delivered results over the years and I think the most recent investment plans will pay off for the brand. To keep up, as the Fortune article points out, Macy’s and Neiman Marcus also are planning to up the ante when it comes to improving the e-commerce experience. In order to compete at this level, retailers will need to continue to invest in improving the customer experience at all levels and across all channels.

Ken Lonyai
Guest
2 years 9 months ago

Nordstrom is never going to be an Amazon for a variety of reasons, one of which is the fact that it is more upscale than the vast majority of U.S. consumers can afford. But for its market, increasing efficiency and shortening delivery time fit well with the aura of luxury and specialty.

Certainly other retailers that want to stay relevant will have to up their game to increase efficiency, cut delivery times and improve customer experience, but most retailers are not positioned to make serious infrastructure and technology investments to stay in step with Nordstrom, Amazon, Macy’s and other leading e-tailers.

Zel Bianco
Guest
2 years 9 months ago

I need to go back and see how many of the BrainTrust discussions so far this year have been about retailers’ digital efforts. Of course retailers will need to make capital investments to increase online and omni-channel effectiveness! That’s what the game is about now. The winners will be the retailers who put their money on the right trend, at the right time.

For what it’s worth, I think investing in a new distribution center to speed along online orders is a wise move, I just hope it is completed quickly enough.

Tom Redd
Guest
2 years 9 months ago

Nordstrom is making the right move but like most retailers the key for them is to make sure that their strategy and the platforms they operate on for merchandising and SCM can grow past this initial change or catch-up. Technology is changing fast and some retailers acknowledge this and shift their thinking from getting caught up to being two steps ahead.

On the in-store side the number one issue for them is to get the right solution into the hands of their top sales people. They tried an early iPad effort—no one at the stores I visit uses the things. They said it offers no value.

Trunkclub is doing great from my perspective and The Rack needs the assortment re-work.

Keep cranking, Nordy’s!

Bill Davis
Guest
2 years 9 months ago

Absolutely agree with them, especially this: “Technology is 35 percent of the plan, reflecting an increased shift towards foundational investments.” There’s a good reason why Nordstrom is a leader in e-commerce and, no, I don’t expect most retailers to make investments of this magnitude which I think will cost them.

Nordstrom headquarters is a couple of miles away from Amazon’s so they are reminded of the threat, and the opportunity, every day. They are as well prepared for the future as they can be.

Shep Hyken
Guest
2 years 9 months ago

For just about any type of retailer, it’s not a question of if they should go digital, it’s when. Nordstrom is jumping in and one of the keys to their success will be delivering the Nordstrom experience online.

For other retailers to keep up with the times—not just with their competition—they will have to make a choice of entering into the digital world. Again, I don’t think it is a matter of if—it’s when.

Lee Peterson
Guest
2 years 9 months ago

I wish I knew what “seamless integration across all channels” meant. Isn’t digital jargon great? And I’m pretty sure the millennial customer has no idea what they’re talking about either. But regardless, the shift of capital to buff up e-commerce is a good move. Physical retail footfalls have fallen year over year every month for the past 3 years, and I’m sure Nordies is no different. Why invest in stores when the future looks to be elsewhere?

Mickey Drexler said that on-line sales are his “most profitable store.” I’m sure Nordies is no different on that front either.

Lee Kent
Guest
2 years 9 months ago

I do love Nordstrom and they are certainly ahead of the game compared to many, but I am not sure why they didn’t take any cues from Macy’s and look at fulfillment from stores.

My concern is the time it will take to build a distribution center and of course, the inventory requirements. Stocking up a distribution center with inventory pretty exclusive to it could really impact turn rates.

Also it kind of takes us back to the customer saying “But you have it in the store. Why is it out of stock online?” Yes, I know they likely have a little more of a handle on cross-channel inventory but even with the best, this still happens.

For my 2 cents.

Kenneth Leung
Guest
2 years 9 months ago

For Nordstrom’s luxury client base, they are increasingly more comfortable doing online purchases, especially for replacement purchases where they already know what they want from previous explorations in the store. Putting the investments in now is the right thing to do as luxury no longer means face to face store service, it is about delivering great service anytime, everywhere.

William Passodelis
Guest
2 years 9 months ago

Currently I think Nordstrom is doing a great job digitally and I think they have a good handle on what they can do, and what needs to be done, to enhance and further their digital presence. Their understanding of faster fulfillment is critical, and will benefit them. I think that Nordstom “does” where perhaps some other retailers “talk.”

Kai Clarke
Guest
2 years 9 months ago

Smart, well-positioned and future-minded. This is a great move by a company that has deep retail roots and understands that they must continue to innovate or risk corporate losses.

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