Nordstrom’s New Game Plan

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I\’m commenting on Nordstrom\’s latest strategic moves: their brick-and-mortar localization and online positioning, the \”Closer to You\” program and their concession strategy. However, before I do, I want to put these strategic moves into the proper context. They all emanate from a philosophy embedded in the Nordstrom\’s DNA from day one. And you know what it is. Nonetheless, I will repeat it just to connect the dots from where they started to the evolution of their current strategies.

What a Quaint Philosophy: The Customer First

How many times have I said that the most important link in the total value chain, from creation to consumption, is the link that connects with the consumer (offline or on) at the point of sale? It is the metaphorical link, AKA, the sales associate, who can make that moment a delightful, beyond-expectations, personal, social experience. At the risk of overstating it, the associate can, if supported to do so, give away their power to the consumer in that moment. Result? The consumer not only feels the empathy radiating from the associate, but also has an empowered, memorable experience. What then? They visit your brand more often. They spend more time browsing. And at the end of the day, they spend more.

[callout]At the risk of overstating it, the associate can, if supported to do so, give away their power to the consumer in that moment. Result? The consumer not only feels the empathy radiating from the associate, but also has an empowered, memorable experience.[/callout]

What is it about this picture that retailers don\’t get? Nothing. They all get it, however there is one unanimously recognized poster child who has been successfully executing this from the get-go. That would be Nordstrom. Most others just talk the talk or are at various stages of walking the walk.

I hesitate to open with what seems so obvious and the great advantage Nordstrom has in systematically executing on it. However, because it is so obvious and there is still such a void of elevated service across the retail industry, I won\’t hesitate hammering it home again.

The Inverted Organizational Pyramid

Here is the common sense, no-brainer genesis of the Nordstrom business philosophy, which you are likely familiar with. It\’s an org chart flipped on its head; the reverse pyramid illustrates that the multitude of the frontline, consumer-facing employees/associates really run the business. They are empowered to do whatever they deem necessary to please the customer (who metaphorically is calling the shots).

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To paraphrase a comment made by one of the Nordstroms about what they are looking for when hiring a new associate, the response was, \”We can teach the business of retailing to anyone, but we can\’t teach them to be personable, empathetic and engaging…just a nice person.\” Think about that. Nice is their primary qualification for employment.

Connecting the Dots

Nordstrom\’s core mission in life is to please consumers beyond expectations, and their frontline associates are at the core of that mission with an ability to activate their customer knowledge into all aspects of the business, including customers\’ desires, product, brands, store location and design, presentation, marketing and in-store experiences. This mission evolved from a vital associate/customer engagement to becoming the building block of the Nordstrom brand DNA.

And now propelled by the turbo fuel of AI, data analytics and all of the other relevant technology solutions, Nordstrom is connecting the dots toward an even greater connection with their consumers.

\”Closer to You\”

Nordstrom has launched a new campaign \”Closer to You,\” which they describe as more than a marketing campaign. In Nordstrom\’s words, \”Closer to You is our brand promise and represents how we bring our market strategy to life, including everything from operations to merchandising. It represents having the right product and selection closer to customers\’ homes and communities by providing order pick-up, returns and services in their neighborhoods. It means bringing style advice closer to customers with access to personal stylists how and when customers want — shopping in store or online.\”

In my opinion, as I review the recent strategic repositioning of their business, Closer to You is a brand promise that literally and symbolically informs and describes a recalibration of Nordstrom\’s operations. This includes store locations, number of stores (both Rack and full-line), a seamlessly integrated omnichannel ecosystem, the Nordstrom Local strategy of synergies with online, full-line and Rack stores and platform sharing through concession agreements with brands, both online and off. And by the way, Nordstrom allows full operational, marketing and management control, including staffing and inventory to their concession partners.

Indeed, Closer to You means getting closer to the consumer, physically and figuratively. It means raising the bar on convenience and speed in the customer\’s neighborhood, increased human touch points for greater personalization, and all kinds of services — from personal styling and alternations a cup of coffee a sip of wine, free tailoring, a shoeshine or a cocktail, among numerous others.

Recalibrating the Focus

Consumers\’ shopping behavior has evolved since the onset of e-commerce and is now accelerated in many ways that will stick post-pandemic. Nordstrom\’s online business comprises about 54 percent of total sales, indicating that their early-on focus in building a powerful omnichannel model is paying off and they are ramping up strategies to prioritize further growth online.

And, while 95 percent of Nordstrom stores are in A malls, which are not under the dire threat of further decline and potential closings as the B, C and D malls, he Nordstrom flagships and full-line stores generated just 38 percent of total revenues in 2019, according to a Fortune article. This would correlate with the projections that the post-pandemic shift in shopping behavior will likely add more pressure on full-line growth, thus signaling a less aggressive full-line real estate strategy going forward. Accordingly, of the 116 full-line stores heading into the last half of 2020, Nordstrom announced they would close 16 of them.

The Rack off-price chain of about 248 stores grew faster than the full-line brick-and-mortar sector. Covid-19 has put an accelerant on growth in this sector combined with consumers cross shopping all channels and the emergence of GenZ shoppers favoring the off-pricers. As a result, the Rack has become a more integral asset in Nordstrom\’s strategic plans going forward.

The Local Glue

As stated, Closer to You is not just a marketing campaign. It\’s based on a consumer-driven philosophy that has led to a strategic positioning of the entire Nordstrom enterprise as a seamlessly integrated ecosystem online and offline. This includes a complete interchangeability of online, full-line stores and a more closely integrated Rack. All of those assets have been connected in a synergistic way, allowing the consumer total flexibility and convenience for shopping, buying, pick-up and return capability.

And they\’ve gone beyond the typical integrated omnichannel model with the addition of Nordstrom Local, which I describe as the local or neighborhood glue, another \”closer-to-you\” initiative.

Successfully tested in the LA area (Nordstrom\’s largest market) and now in New York with plans to expand to other markets, Nordstrom Local is boldly innovative and counterintuitive. There is no merchandise in store. It is a small (3000 square-feet), personalized experience as a quick-and-easy neighborhood destination.

While picking up or returning an online order, customers can enjoy a beverage, lounge comfortably in a meeting space where they can chat with their Personal Stylist experts (equipped with digital \”Style Boards\”) who can create personalized fashion recommendations, which shoppers can view on their phones and purchase directly through Nordstrom.com. Alternatively, the Stylist can find the items in any other local Nordstrom store and have them delivered to the customer\’s home on the same day – if ordered before 2:00 PM. The Personal Stylists can also interact with the customer, wherever they may be, and provide fashion advice through a Nordstrom Local app.

The Local is designed to be a fast, fun, zero-pressure and frictionless experience. If the customer pre-orders online, they can either pick-up curbside or come into the store and try on the items. If in need of alterations, a tailor is on hand. On average, customers who visit a Nordstrom Local store, spend 2.5 times as much as the average Nordstrom customer.

Closer to You indeed. Essentially, a taste of the entire Nordstrom ecosystem is brought into the consumer\’s neighborhood, all glued together and interchangeable.

Concessions as a Consumer Benefit

During Nordstrom\’s most recent investor day, President Pete Nordstrom announced plans to grow its partner and shared revenue stream from five percent of the business to 30 percent. Concessions, including e-concessions, will be the primary driver of this growth.

You might ask, \”what do concessions have to do with benefitting the consumer?\” The short answer is that qualifying major brands know their consumers better than any retailer offering the concession model. Therefore, the brands are better able to fulfill the desires of their consumers. The concession also controls the brand imaging, presentation and shop design within the store or online as well as operations including the sales staff, pricing, ownership and control of the inventory and its flow. For ecommerce, the brand is also responsible for shipping. And various other formats are negotiated for e-concessions, including being able to design a designated space online, responsibility for photography, pricing, and so forth. Typically, the brand keeps most of the sale while the host takes an agreed upon commission.

Again, Nordstrom putting its consumers first and the concession model also benefits Nordstrom in two ways. First, since the brand is essentially operating their own shop-in-shop, Nordstrom relinquishes ownership of the inventory and the risk of buying the wrong merchandise — and therefore avoids the mark-down cycle. Second, because the brands are better able to serve and satisfy their own customers, the retail host\’s revenues experience a bump up.

Pete Nordstrom said on the call, \”Extending beyond our traditional wholesale model allows us to increase selection, sharing the benefit and risk with our partners.\” He also acknowledged that the concession model provides the brands with more inventory flexibility in moving new trends in, replacing slow-movers and agility in pricing decisions, as opposed to Nordstrom holding inventory bought six to nine months out and potentially stuck with losers. As has been said, inventory is not like a fine red wine, getting better over time.

On the same call, Nordstrom said, \”It gives brands direct control of merchandising while gaining access to our customers. We see significant opportunity for revenue share that\’s less transactional.\” For more on the concession model in general, listen to our podcast.

An Endnote

Maybe Nordstrom\’s story about how they empower their front-line employees and ultimately the consumer, is overdone. Maybe it\’s so baked into the cake that eyes roll upon hearing it once again.

Maybe that\’s true. However, if it is, then my beating on it yet again is necessary because Nordstrom doggedly continues to operate with that philosophy, while most other retailers need to be reminded that the consumer, more than ever, runs their businesses.

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