Nordstrom Getting More from Less
By George Anderson
Nordstrom company officials, reports Women’s Wear Daily (WWD), are “getting more sales out of less inventory’ in large part because the company has invested in technology systems designed to help it do just that.
Pete Nordstrom, president for merchandising at the retailer, said, “We turn a lot faster now and we keep improving, though we have a long way to go.”
According to the WWD article, productivity at $369 a square foot last year was up from $347 in 2004. Those numbers place Nordstrom second in the department store segment only behind Neiman Marcus.
Arnold Aronson, managing director of retail strategies for Kurt Salmon Associates said, “Nordstrom is on a very good trajectory because it has combined traditional strengths — service and dominant assortments — with all of the necessities of 21st-century retailing爿etter technology; sophisticated logistics; centralized operations to economies of scale; moving into different channels of distribution, meaning Internet and specialty businesses, and greater participation in a market that’s really become the most profitable — luxury and aspiring luxury.”
Jennifer Black, president of Jennifer Black Associates, wrote in a research report earlier this month that Nordstrom is in demand as a mall anchor and that means “more attractive real estate offers” from mall developers and operators.
Nordstrom has already announced plans to aggressively pursue growth through new store expansion. The chain plans to add 15 new full-line stores while relocating four others by 2010.
Even more opportunities for expansion may be opened up depending on what Federated does with a number of its properties and its Lord & Taylor business.
“There is not a never-ending list of places we could go, but opportunities keep presenting themselves,” said Mr. Nordstrom “There will be a point where we have to look at a new
way to expand. We could decide to have a store in Canada. We could do a new format, but this is not an immediate issue.”
Moderator’s Comment: Will the luxury end of the retail market served by Nordstrom continue to remain strong in the face of economic uncertainties such
as high energy prices, rising interest rates and other factors? In what areas do you see room for Nordstrom to make its business even more productive? –
George Anderson – Moderator
Nordstrom’s success, in my eyes, can be traced back to a few major issues:
1. Store experience
2. Merchandise selection/quality/style
3. Location, Location, Location
The store experience at Nordstrom is beyond any that can be found at Macy’s, Dillard’s or Parisian. This aire of class keeps customers fiercely loyal.
The merchandise found at Nordstrom is of good quality, definite style and the selection is usually very good, especially at a flagship location.
Nordstrom is doing a wonderful job of placing regional flagships across the country so that consumers will always be somewhat close to a bigger store. The fact that Nordstrom has not opened in every major city is good too. While Macy’s appears to want to be on every corner (except in downtown areas) Nordstrom has been MUCH more conservative about expansion – a move that will likely keep them solvent for years to come.
A purchase from Nordstrom gives you peace of mind. You can’t second-guess Nordstrom.
Nordstrom will continue to stand out from most retailers in spite of rising energy prices, interest rates, because of what it offers consumers. People will still go to great lengths to shop at Nordstrom or take the convenience of going online because of the overall ” value” it offers consumers.
Nordstom distinguishes itself in its breadth of services, convenience focus and overall shopping atmosphere. Their investment in technology should be good for the bottom line and seamless to the customer.
Last week I took my son to a Nordstrom in our area and we had such an outstanding salesman. He found the perfect suit with an accompanying shirt, tie and belt and everything was altered and ready in a few days. He gave us several choices, made our shopping easier, and educated my son as to what “customer service” can really mean. At the end of the transaction, he shook our hand and thanked us by name, as we heard the Nordstrom piano playing in the background.
As for any future thoughts — I can’t help but wonder if increasing private label in their store or possibly having more frequent sales would add to their value for a broader group of customers. As far as expanding services and technology, perhaps more personalized shopping and home delivery could be explored.
As customers well know, you get what you pay for and at Nordstrom, it is their consistency in providing customer service that makes them attractive to so many.
It’s really another story where it’s all about the experience. It really has little to do with the products (although they do have them – including at their ‘Rack’ stores). In fact, I am wearing one of their sweaters today. It’s nothing more than what could have been bought anywhere – L.L.Bean, Jos. A. Bank, Marshall Fields/Macy, or others. It’s simply their ‘private label’ vest. What was so special about it then? It was the experience had by me during the purchase.
Many seem to search for other lofty explanations about the products, the luxury shopper, the aspiring luxury shopper, etc. What’s really going on there is the ‘experience.’ There can be no other explanation. While others flounder and struggle, Nordstrom maintains their sure and steady success. They are probably thrilled that others keep overlooking their secret. Ever wonder why there is no real competitor to Starbucks? How about Trader Joe’s? It’s not about being middle of the road, luxury, lower demographics, etc. It’s all about the experience the shopper gets each and every time they enter their doors. Now, if they would just build one a little more locally!
Having a lot of inventory, i.e., more copies of the same thing, is a disadvantage in luxury items. Yes, in terms of women’s clothes they would like to find the item they see and like in their size. However, seeing the item on the rack in the same color in different sizes is a negative for purchasing nice clothes. The women buying expensive clothes do not want to walk around and see other people wearing them! Being able to have less inventory but having the items women want to buy leading to increased sales makes sense given this scenario. It may not work for all products but would definitely work here.
Given that Nordstrom does such a great job of tailoring each store to the local population, and that much of their merchandise is seasonal, high-risk fashion, opportunities to leverage new technologies to manage inventory with the goal of increasing sales and limiting markdowns would seemingly be abundant.
This ability to customize individual stores, combined with the surplus of anchor space and the associated low rent would make expansion into new markets attractive for them.
If they can expand and continue to increase $/SQFT, that would be truly remarkable.
Nordstrom does so many things right that they are presently in a great position. There still seems to be a great deal of money available to high-end consumers. Without making a political statement, there is a wider disparity between haves and the have-nots. The Nordstrom customer, while not liking the increased prices at the pump, shrugs it off and doesn’t let it have any impact on their shopping behaviors. So unless we have a bigger crash than we had in 2001 coupled with a severe housing decline, Nordstrom should not feel any negative impact from economic uncertainties.
Traditionally, the luxury market segment, or rather the super-luxury market segment is less elastic to shifts in economic conditions. Major trends (depressions!) impact all segments. However, in slow growth environments or even recessionary ones, performance should always be relative.
Is Nordstrom positioned to continue to outperform their sector? Yes, for many of the reasons cited. At the core, the culture remains integrated and vibrant, despite significant upheavals, investments in technology and restructuring of merchandising functions. This is and was a customer-centric company. The only difference is that it’s starting to use technology to get there. The key difference between BBY and Nordstrom on customer-centricity is that Nordstrom’s executives see the customer as an individual; as a person. BBY tends to see customers as data. Both are successful. However, I think Nordstrom represents a path toward true best in class behavior…the combination of humanistic customer centricity and technology support to enable that approach.
Unless the culture changes, I see no reason to see why Nordstrom will not continue along its path. A caveat: despite the mind boggling sums already invested in technology, Nordstrom must continue to invest to provide its merchants with the very best tools available to drive that culture.
The more locations Federated controls, the stronger Nordstrom will become. The service culture comparison between the two companies cannot be more different. As long as Nordstrom resists quick expansion, it will keep its culture strong. As long as the culture is kept strong, the financial results will be OK. There’s no doubt they’ll suffer if the economy gets weak, but they won’t suffer as much as other retailers with no service culture and high debt.