Nordstrom is determined to get closer to its customers

Discussion
Nordstrom Downtown Seattle - Photo: Nordstrom
Feb 08, 2021
Tom Ryan

Nordstrom unveiled its “Closer To You” growth strategy at an investor event last week, a plan built on three pillars: expanding its local focus in major markets, making Nordstrom Rack more accessible and increasing “digital velocity.”

Nordstrom will expand its “market strategy” to its 20 top markets that represent 75 percent of sales, up from 10 markets currently, representing half. The strategy leverages physical and digital assets to elevate services, merchandise and delivery. These include smaller Nordstrom Local locations that support pickup and returns. Nordstrom Rack now becomes integrated into the strategy.

Sharing inventory and services, stores in these markets provide on average four times more product available next day and deliver a one-day reduction in shipping speed. Customer counts have increased 20 percent and growth rates are running 200 basis points higher than other markets.

Rack, positioned as a premium off-pricer, in some markets will be introducing “Price Doors,” employing a heavy price-driven merchandising approach. “Hybrid Doors,” featuring a mixed approach, will be used in others. The chain is targeting the high-growth categories of Beauty, Home, Kids and Active in efforts to double their sales.

The company is migrating Nordstromrack.com to Nordstrom’s e-commerce platform “to deliver on our promise of convenience and connection,” and sharing online/offline inventories between the two to increase selection. Online capabilities are seen as a key differential versus other off-pricers. Rack is projected to contribute approximately $2 billion in incremental sales long-term.

Nordstrom sees online assortment potentially expanding to 20 times that offered in stores, up from three times currently, as it leans into drop shipments from vendors, concessions and revenue share deals. Traditional wholesale is expected to provide half of the product over time, down from 85 percent currently. “Extending beyond our traditional wholesale model allows us to increase selection, sharing risk and benefit with our partners,” the company explained in a statement. “It also gives us additional agility and flexibility to adapt to emerging preferences and trends.”

The “Closer To You” theme speaks to creating a unified view of the customer aligned to product and inventory. Nordstrom said, “We need to leverage a broader product assortment and translate it into a curated and personalized shopping experience.”

DISCUSSION QUESTIONS: What do you think of Nordstrom’s “Closer To You” growth agenda? Which initiatives will likely prove successful versus those carrying excessive risks?

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Braintrust
"Many retailers have a similar vision, the success will be determined by building a rapidly executable roadmap."
"“Closer to You” is exactly the kind of philosophy that needs to be adopted by everyone. Retailers who truly internalize that philosophy will thrive. "
"Are we witnessing the re-invention of Nordstrom? Perhaps the idea of department stores? Or is it just a return to a brand standing for many things?"

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15 Comments on "Nordstrom is determined to get closer to its customers"


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Neil Saunders
BrainTrust

There is a lot of good stuff in Nordstrom’s strategy, particularly around focusing on important markets and increasing speed and relevance in those locations. I am also pleased to see Nordstrom make moves in categories, like home, where it has traditionally been underrepresented and has lost out on growth.

That said, I have some concerns. The Rack business needs to be reinvigorated as the merchandise mix remains sub-par in lot of stores. There needs to be more of a plan to address waning footfall (not just because of the pandemic) in department stores. And expanding choice on the website needs to be carefully managed so that it doesn’t just become another massive marketplace-based site.

Nevertheless, as usual Nordstrom is trying, testing, innovating and evolving. Which is more than can be said for a lot of other department stores!

Perry Kramer
BrainTrust

Every item in the agenda is based on flexibility and is foundational to future success. The challenge is going to be in executing this broad and aggressive vision in a way that delivers the greatest success early while minimizing rework (wasted dollars). Their focus on having cross brand visibility to inventory in real time and moving the inventory closer to the consumer is key. Many retailers have a similar vision, the success will be determined by building a rapidly executable roadmap.

Steve Dennis
BrainTrust

I’ve been a big fan of Nordstrom’s channel-agnostic approach to retail since I was at Neiman Marcus and this pushes it to the next level by even further embracing the blur that is shopping today. Nordstrom Local, in particular, is a great concept that allows Nordstrom to literally get closer to the customer while creating an omnichannel (or “harmonized” as I like to say) service hub. More retailers would benefit from developing trade area and major metro strategies that are about local market share and share of wallet growth irrespective of how and where clients decide to shop. The customer is the channel. It’s all just commerce!

Gene Detroyer
BrainTrust

I like it all. Thoughtful. Strategic. Good execution will project a better bottom line.

However it doesn’t solve the basic challenge. The likelihood of Nordstrom or any other department store turning around the department store category’s continued contraction is slim.

Jeff Weidauer
BrainTrust

Nordstrom is making the right moves and while these are all necessary for survival, that’s all they are – survival tactics. There’s no big idea here to drive growth or provide differentiation from every other online seller.

Ryan Mathews
BrainTrust

It’s hard to argue with any of the elements of the “Closer To You” agenda. But I worry about two things. First, Nordstrom’s brand promise has always been around service, not discounting. There are boutique apparel companies out there now that via FaceTime, Zoom, or whatever actually “tour” a customer’s closet and drawers, ask questions about why certain items were selected, fabric preferences, social and work life and then curate your closet. This is what digital service looks like to me as opposed to supply chain reform — as badly needed as it clearly is. Also I think we have to ask ourselves if the whole department store format – as currently conceived – has past its “sell by” date and if what is really needed is a radically reimagined Nordstrom that redefines how certain categories are sold in the 21st century rather than patching holes in the 20th century model.

Brandon Rael
BrainTrust

Relentless innovation and determination are critical for any department store company to return to relevancy and profitability. While the chances of long term success and sustainability are getting slimmer and slimmer for the department store segment, Nordstrom’s strategies give the company a fighting chance.

Nordstrom’s mix of engaging digital content, on-point merchandising strategies, Nordstrom Local, and enhancing their Rack presence are an intriguing mix to acquire and retain new customers. As always, it will come down to execution. Speed and efficiency resonate in non-department store segments. However the challenge will be how Nordstrom will make up for their 40 percent to 50 percent traffic shortfall due to the pandemic.

Nordstrom will make things very interesting by investing in their digital capabilities, focusing on their growth markets, and diversifying their product and store portfolios.

Suresh Chaganti
BrainTrust

“Closer to You” is exactly the kind of philosophy that needs to be adopted by everyone. Retailers who truly internalize that philosophy will thrive. It requires an understanding of both the customer journey of every purchase attempt and the lifecycle across the purchases. Retailers deal in customer segments and personas. But often they do not track at an individual customer level to understand how their preferences graduated over time. Someone who is buying maternity dresses would not need them in 6 to 9 months’ time. Are the algorithms smart enough to understand this simple, commonsense element? There are many examples of these, where a thoughtful application of common sense and data science would result in better outcomes.

If “Closer to You” means an understanding of customers at such a deeper level, and the promotion, pricing, and inventory strategy are supportive, it will lead to better performance.

Xavier Lederer
BrainTrust

You are making a great point. I have always been amazed by Nordstrom’s obsession with adjusting their service and product offering to their customer needs — and their readiness to experiment and gradually get better based on their learnings.

Doug Garnett
BrainTrust

I am concerned that Nordstrom is losing its focus. As I helped some students of mine work on Nordstrom for a term paper, we all came to realize what Nordstrom hasn’t done: Communicate effectively about their exceptional offerings.

The plan to leverage online seems to be driven by pandemic accident rather than clear strategy. But hidden beneath, online is only driven by communication. So maybe the lesson Nordstrom needs to hear isn’t that online is their future — but that when they tell potential customers about the good things they deliver, people buy.

In that case, doubling down on physical stores as the pandemic eases would seem to be a far smarter strategy. Retailers need take serious care in committing to online efforts — and always remember that Trader Joe’s is surviving the pandemic without online.

Cynthia Holcomb
BrainTrust
For decades Nordstrom merchandised stores to reflect local markets. From the 2000s on, Nordstrom made the decision to move away from local/regional buys to corporate buys, which led to an in-store uniformity of product selection, watering down the creativity of what made Nordstrom special in dozens of local markets. For the last decade or so, Nordstrom has transitioned itself to the “middle” in product selection. While Designer has always been a focus for Nordstrom, in the other Nordstrom world, the day-to-day Nordstrom customer was left with rounders of middle-market Nordstrom private brands interjected here and there with corporate buys from “leading” brands which have had the net effect of Nordstrom stores’ product offerings seeming more like commoditized Macy’s store product offerings, rather than the local/regional fashion specialty retailer Nordstrom once was. The Rack is one of the most difficult stores to shop on or offline. Adding 20x to the inventory to Nordstrom.com seems like an Amazon equivalency attempt. Shopping Amazon for apparel for a dress, for example, offers up to 40,000 dress choices for a… Read more »
Yogesh Kulkarni
BrainTrust
Yogesh Kulkarni
Chief Operating Officer, Antuit.ai
2 months 3 days ago
Nordstrom’s “Closer to you” is a great way of pooling physical and digital resources to enhance a specific market opportunity. A lot of retailers have already started to take a market view of placing the inventory closer to the customer so the customer has the flexibility to find all the products they need, do a curbside pickup or get the item delivered next day to them. In fact, stores being used as micro-fulfillment are a retailer’s best opportunity to elevate their customer experience quite like Amazon does with its tremendous distribution network. Reducing the wholesale inventory to where Nordstrom engages with the vendors directly based on local market preferences also makes sense. This is very similar to the “marketplace” concept that Hudson’s Bay is debuting in Canada. However what is different is bringing off-price construct more mainstream into its store and online presence, which is where Nordstrom differs from others. As an example, Neiman exited the Last Call business to stay true to their core customer. Nordstrom runs the risk of diluting its brand if… Read more »
storewanderer
Guest
2 months 3 days ago

They are probably trying to follow off the success of Target and its small format stores. Also it is much cheaper to operate and develop these small stores and potentially expand their customer reach.

At least they are doing … something … here. More than other department store competitors are doing at this point which is treading water at the very best (or in most cases, sinking).

In my market, Nordstrom Rack is seriously underperforming. It is under merchandised, does not have many customers, understaffed (what little staff they have is very good), and is just generally unappealing. TJ Maxx/Marshalls is packed with customers, well stocked, well staffed, and running on all cylinders. Nordstrom needs to re-think how these not great Rack Stores in secondary markets like mine are or aren’t upholding the company’s image.

Chuck Palmer
BrainTrust

Are we witnessing the re-invention of Nordstrom? Perhaps the idea of department stores? Or is it just a return to a brand standing for many things? With the consolidation of ecommerce operations (remember bargain basements?) and projecting a reduction of traditional wholesale as a percent to total sales (marketplaces?) the Nordstrom folks seem to be looking at the new retail landscape very differently than most. I think Nordstrom Local is just the earliest indication of a distributed model that puts the customer at the center and caters to her changing desires over time.

Michelle Collins
Guest

I think the agenda is spot on, but it really depends on how it supports its vendors through a true partner approach that highlights profitability. The DTC market is not going to disappear and brands, designers are now keenly aware of what they are not making in profitability at the sacrifice of what was once the big promise of being carried by a department store.

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Braintrust
"Many retailers have a similar vision, the success will be determined by building a rapidly executable roadmap."
"“Closer to You” is exactly the kind of philosophy that needs to be adopted by everyone. Retailers who truly internalize that philosophy will thrive. "
"Are we witnessing the re-invention of Nordstrom? Perhaps the idea of department stores? Or is it just a return to a brand standing for many things?"

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