Will Nordstrom celebrate or regret its decision to give brands a lot more control?

Discussion
Photo: Nordstrom
Feb 16, 2021
Matthew Stern

Nordstrom is giving more control and responsibility to some of the brands on its shelves through a concessions-based selling model.

The retailer announced plans to expand its partner concession relationships from five percent of its business to 30 percent at the chain’s most recent investor day, Glossy reports.

The concessions model makes brands responsible for designing the section of the store in which their products are laid out as well as defining the pricing, selecting product and, in brick-and-mortar stores, hiring the staff. In e-concessions, which Nordstrom also intends to leverage, brands handle website design as well as shipping costs. The retailer earns a commission on each sale while the brand receives most of each transaction. In neither case does Nordstrom have to concern itself with buying inventory.

Granting brands greater control of their products, pricing and presentation within stores and on e-commerce websites was a model that was gaining popularity in other areas before the novel coronavirus pandemic.

Concessions relationships have been historically more popular in Europe and Asia, only catching on in the U.S. very recently.

The “retail-as-a-service” startup b8ta launched in 2015, allowing online-only gadget brands to pay a subscription fee to have their products appear in the chain’s brick-and-mortar showcases. In 2019, b8ta opened up a store concept called Forum, which made use of the same model for fashion and apparel brands.

Nordstrom stock shares were up and down at the beginning of February as the chain announced its plans to pull itself out of a slump, according to Bloomberg. Plans to improve e-commerce, expand price points at Nordstrom Rack and improve stores and distribution in major markets did not appear to be enough to please investors looking for a comprehensive turnaround plan. Nordstrom expects more than 25 percent revenue growth in the current fiscal year and is targeting $17 billion in revenue compared to 2019’s $15.9 billion.

DISCUSSION QUESTIONS: Do concession relationships make sense for Nordstrom and other retailers in and out of the department store channel? What upsides and downsides do you see to giving brands more control over their placement, pricing, etc., in stores and online?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"The concession model in full bloom in European/Asian department stores makes the shopping experience more disjointed even if each brand has greater control over its destiny."
"Absolutely. Not only will this decrease overall expenses for Nordstrom, but it will also allow brands the control they all want and need today. It’s a win-win!"
"Wow, as a past vendor, employee, and consultant to Nordstrom, this is paradoxical to everything Nordstrom has stood for over time."

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22 Comments on "Will Nordstrom celebrate or regret its decision to give brands a lot more control?"


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Neil Saunders
BrainTrust

If this is done with care and coordination then it could be successful for Nordstrom in that it will reduce costs and help to increase choice. However much depends on the brands selected and how differentiated these are from other retail channels. If the brands are the same-old-same-old then it’s not going to be very compelling. If there’s a mix of traditional and upcoming brands then that’s more interesting.

I also think that chains like Nordstrom and Macy’s need to develop more of their own brand offerings so that they have some exclusivity. That they aren’t doing this as much as they could is unfortunate and a missed opportunity.

Shep Hyken
BrainTrust

This makes great sense for Nordstrom and other retailers. The brand gets to set up and display their merchandise, the way it is intended. Of course, there will be guidelines and standards for the brands to meet. If Nordstrom manages this well, they can have great partnerships with the brands they carry.

Bob Phibbs
BrainTrust

So one-third of Nordstrom’s on-site associates will not be Nordstrom employees but a conglomeration of 30 different approaches to customer service? I can see this model for Best Buy where the differences between Sony and LG are enough to warrant it. Is there really a difference between AG jeans and Paige and does a shopper not want a generalist who can talk to them about an outfit but only about a product line? Time will tell.

Suresh Chaganti
BrainTrust

Bob, Great illustration in comparison with Best Buy. It would be a win if this strategy uncovers independent, upcoming brands faster. It is a balancing act – control too much, there will be sameness across all the concession stores. Control too little and it will be a marketplace – albeit an unintended one.

Jeff Weidauer
BrainTrust

Given the state of brick-and-mortar apparel shopping, it makes sense for Nordstrom to try new ideas. The challenge will be to retain its own unique brand identity and not become just a warehouse for others.

Gene Detroyer
BrainTrust

I agree. For Nordstrom, this should be a significant concern. Do they want to be Nordstrom or do they want to be everybody else?

Carol Spieckerman
BrainTrust

Nordstrom’s decision to lean into concession relationships makes sense on a number of fronts. Retailers that are just places with brands are at risk in today’s environment. Giving more control to brands mitigates the problem by empowering Nordstrom’s brand partners to create compelling brand spaces and make product selections based on direct knowledge of customer preferences. It benefits the brands as Nordstrom becomes a flagship location without requiring a brick-and-mortar build-out. Shifting inventory management and moving to drop shipping for some of these brands is an agile model that frees Nordstrom to do what it does best: create an awesome customer experience and overall environment that beautifully showcases brands. At the end of the day, the model achieves the most important point of differentiation – strengthening Nordstrom’s brand.

Bob Amster
BrainTrust

It is not a clear-cut predictable result. In theory, when the brand itself gets to determine how their products are priced and displayed, the direct result should be that sales increase and Nordstrom will be the beneficiary, because it does not have to be concerned with inventory carrying costs and, possibly, payroll.

Shawn Harris
BrainTrust

One response to disruption is to determine the high-value reason(s) why shoppers choose you. Double down on those high-value components, and begin to decouple lower-value ones. For many legacy brick and mortar retailers, their high-value rests in their real estate and their brand name. This move makes sense.

Jeff Sward
BrainTrust

This model is an evolution from the margin deals of the old days when brands had to write checks for markdown money but didn’t have full control of content or execution. It was a “pay to play” model. This is a much more enlightened model. The brand has full control of content and execution and is highly motivated to maximize both sales and maintained margin. It also provides an excellent showcase and marketing vehicle. It doesn’t get much better than exposure at Nordstrom. A brand would not be invited into this kind of relationship if there were not already a strong working relationship and a high level of trust. Nordstrom can set boundaries, but the brand has an amazing opportunity to make a high profile marketing statement and to learn first hand what a profitable sell through looks like.

Dick Seesel
BrainTrust

To this American shopper’s eyes, the concession model in full bloom in European and Asian department stores makes the shopping experience more disjointed even if each brand has greater control over its destiny. And, in terms of customer service, it’s like the longstanding cosmetics model — where the Lancome “counter manager” has no incentive or interest in helping a customer with a competing brand. This is a particular risk to Nordstrom, whose own brand equity has always been customer-centric as much as product-focused.

Gene Detroyer
BrainTrust

I believe this is a great idea for the department store channel. But I am not sure this is a great idea for Nordstrom. Famous for shoe merchandising, Nordstrom is also famous for merchandising their entire store. They have a legacy that has left the other department stores behind.

Can the brands do a better job of merchandising in the other department stores? No doubt. It seems to me that Nordstrom is surrendering one of their real competitive advantages.

Michelle Collins
Guest

Nordstrom purchased Trunk Club years ago and dismantled their Brand owned spaces which I felt was a mistake as it gutted a core part of what created a unique storytelling and consumer engagement mechanism. Interesting to see this move and to watch if they truly maintain a cohesive experience. Feels a bit more like Nordstrom is turning into a version of a mall.

Gary Sankary
BrainTrust

This isn’t a new strategy in the department store channel by any means. All those branded makeup counters and beauty departments across the segment? In apparel Macy’s and Marshall Fields had vendor managed departments in going back to at least the ’80s. I fondly remember the Polo shop at my store. Nordstrom seems to have had a little different approach over the years based on the Nordstrom’s brand strength and their private label products.

Strategically this can be a win for the department store and the vendor – the vendor gets control over what specific items and looks are going to be featured. This helps with their marketing and provides consistency for their brand. The retailer gets the benefits of support in the store, labor, materials etc. and, where the brands align and are complimentary, it can improve their customers’ perception and shopping experience. I think this will be a nice win for Nordstrom.

David Adelman
BrainTrust

Absolutely. Not only will this decrease overall expenses for Nordstrom, but it will also allow brands the control they all want and need today. It’s a win-win!

Let’s face it; department store investment is enormous. With an increased shift to e-commerce, all retail platforms have no choice but to decrease floor space and cut expenses moving forward. This allows retailers to shift budgets online where it is really needed right now.

Giving brands more control will happen sooner than later; why not give them the ability to sell, market, and merchandise their products how they were intended to now?

Suresh Chaganti
BrainTrust

It is similar to a store-within-a-store concept. Nordstrom becomes a mini-mall of sorts. Benefits are obvious – more utilization of real estate, more foot traffic that could increase the overall basket value. But the risks are high – strategic fit, assortment, positioning and service in these concession stores should align with Nordstrom. The day-to-day control, escalations, and customer service are all to be factored in. It certainly introduces an additional overhead. Good for Nordstrom to push in this direction. Certainly an interesting trend to watch.

Yogesh Kulkarni
BrainTrust
Yogesh Kulkarni
Chief Operating Officer, Antuit.ai
7 days 19 hours ago

Every apparel retailer’s performance is judged by how much aged inventory they carry on their books and how saleable it is. Instead of retailers making all the inventory bets, it makes sense to put the burden on its suppliers. If you look at the same model for consumables with DSD, some of the retailers and manufacturers have done really well – think of Frito Lays in a Target store. The Foot Locker-Nike partnership is one that comes to mind and that has resonated well. It allows Nike to design the customer experience, put out fresh assortment and ensure availability that has led to benefits for both the retailer and the supplier. The only downside is that if not executed properly, the concession model creates a very fractured customer experience and may reduce long term loyalty to the retailer.

Cynthia Holcomb
BrainTrust

“Sorry I can’t help you, I don’t work for Nordstrom, I can only help you with brand X.” Wow, as a past vendor, employee, and consultant to Nordstrom, this is paradoxical to everything Nordstrom has stood for over time. It is counterintuitive to what made Nordstrom stand out from the crowd; what made Nordstrom, Nordstrom. I could see this working in Collectors or Via C but not in Nordstrom’s “mainstream” apparel brands. Yes, cosmetic companies have long deployed this model at Nordstrom, but they are behind a counter. With brands running 30 percent of a Nordstrom store floor, staffed by the brand’s employees, how will the bedrock of Nordstrom customer service and product selection continue to make Nordstrom one of the top retailer brands, as it has for decades? Nordstrom with all of its news of late is betting on digital, not in-store. One thing though for sure, Nordstrom always has an eye for innovation. So we on the outside will watch and see what happens.

Bob Phibbs
BrainTrust

Yes thank you Cynthia. That’s what I saw as well. And yes to wait and see.

Ricardo Belmar
BrainTrust
This branded space and retail-as-a-service model can work well for department stores that realize they can’t keep doing what they’ve been doing for the past decade into the next decade. Other than having exclusive products, department stores need to create a reason for customers to shop with them vs the specialty stores in the mall with the same brands. Nordstrom realizes this and is trying new things. However, why do customers shop at Nordstrom? Is it because of the way each department is merchandized the customer can shop across brands and pull together a great outfit with the help of a knowledgeable store associate? If so, encountering brand islands may not be the best approach. This says that Nordstrom must carefully curate which brands they engage in this way and ensure they’re delivering something unique that works with the surrounding merchandising in the store layout. If Nordstrom can do that, they will create something unique for their customers. One area I see that may be challenging is how associates will be trained. If the brand… Read more »
Craig Sundstrom
Guest

This is, I believe, fairly common with “couture” brands — the designer “boutiques” in any number of high-end stores are familiar — and ultimately it’s not much a matter of choice (if you want to do business). It’s a sign that the brand in question is stronger than the Nordstrom brand itself … humbling perhaps, but probably not too surprising.

Chuck Palmer
BrainTrust

Nordstrom giving over control to brands? YIKES. At first glance, this makes my heart ache. The merchant in me is saying they are giving up on the art of the assortment that they have built their brand on.

On a deeper level, the concession model has been 5% of their revenue (test and learn) and the plan is to drive that up to 30%. So, they’re not giving away the store; only part of it.

I hope the strategists and merchants at Nordstrom approach this the way they have traditionally met disruption and change — by doing it the Nordstrom way. I can see them working with the brands to keep with elevated service, assortment and visual standards. This could be very powerful if the brands tailor assortment, presentation and staff to the local market.

Could be interesting.

wpDiscuz
Braintrust
"The concession model in full bloom in European/Asian department stores makes the shopping experience more disjointed even if each brand has greater control over its destiny."
"Absolutely. Not only will this decrease overall expenses for Nordstrom, but it will also allow brands the control they all want and need today. It’s a win-win!"
"Wow, as a past vendor, employee, and consultant to Nordstrom, this is paradoxical to everything Nordstrom has stood for over time."

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