Best-In-Class Retailer Nordstrom Inc. Maintains Top Spot As Ecommerce & Consumer Experience Leader
How Nordstrom Inc.’s operational model made it the darling of the retail industry
Nordstrom Inc. is an American retailer that creates value for customers and for its brand partners through streamlined operational strategies that drive best-in-class customer service. The company has won its category through focused alignment between its operational and business models. Nordstrom Inc.’s business model delivers value to its customers by stocking high quality on-trend styles across price points from contemporary to luxury at their namesake stores and off-price styles at their Nordstrom Rack stores. In all 4-wall interactions, Nordstrom strives to create the best shopping experience for its customers through thoughtful layout design, human capital and organization culture that places the customer first. As the future of retail inches slowly towards digital, the retailer leads the charge, striving to create an entirely seamless customer interaction from physical store to online platforms through investments in ecommerce and tech. As for their suppliers, all we must ask is: Where do the brands want to be? Brands want to be where the customers are and that is at Nordstrom Inc. stores.
Brand Sustained by Controlled Growth
Nordstrom Inc.’s scope and geographic growth can only be described as progressive and controlled. Through acquisitions such as Trunk Club (2014) and Shoes of Prey (2015)2, Nordstrom Inc. is diversifying their portfolio and capturing further value from on-trend, tech-saavy customers. Conservatively, Nordstrom Inc. will only open a four Nordstrom namesake stores (Toronto and NYC)1, a strategy I believe ensures the customer experience transfers fully and expensive capital investments are not later regretted.
User 4-Wall Experience Fueled by Formal Processes
Nordstrom Inc.’s culture is centered on its most important guiding principle for employees: “Use good judgment in all situations3.” This translates to exceptional customer service with Nordstrom employees “rarely point[ing]4”, opting to accompany customers to their desired destination within the store. Comparably, employees never usher customers out of the store at close4. This culture is sustained by Nordstrom’s requirement for employees – everyone, including HQ, must work the floor5. This drives bottom up understanding of the customer and lays the bedrock of service across the organization.
At Nordstrom Inc., every detail of a consumer’s shopping experience counts. The stores famously accept returns whenever, wherever – driving fierce brand loyalty. Rather than funneling customers through a centralized checkout, registers are situated in every department4 in order to simplify checkout for customers and reduce purchasing cycle time for the store. Even the communication between employees is refined to minimize ambiance disruption. Specific codes are used on the intercom4 to drive behavior without distracting the customer.
Future Secured by Investments in Ecommerce & Tech
Nordstrom Inc. has set strategic goals in order to lead the future of retail to shift focus from brick and mortar to omnichannel. In 2015 alone, Nordstrom Inc. launched mobile Point-Of-Sale, a personalized home screen, Text-to-Buy app, and curb-side pickup1. These investments have already paid off; an impressive 18% of Nordstrom INC.’s sales (excluding Trunk Club) are online today1. The company has its sights set on 25% of sales from ecommerce in 20201, majority from nordstrom.com sales. Online purchases have significantly higher margins, capturing greater value for the company. Additionally, omnichannel customers are exponentially more valuable, spending triple what single channel customers spend1. Hopefully, Nordstrom can take advantage of synergies and key learnings from recent ecommerce acquisitions to continue to improve digital interaction and customer retention in the future.
Recent Slump Not Indicative of Future Potential
Although Nordstrom Inc. has not avoided recent poor performance in the retail industry due to unseasonable warm weather6, the retailer will recover. In recent years, the spend on capital expenditures have risen (4% in 2011 to 8% in 2015)1 as the organization invests to support its future retail operating strategy, diversification investments (including Trunk Club) and Canadian expansion which may have caused concern for short-term investors. However, these steps in innovating and expanding the operating model are absolutely critical if Nordstrom Inc. wants to win in 2020 and beyond. This investor has no concerns.
- http://investor.nordstrom.com/phoenix.zhtml?c=93295&p=irol-irhome
- http://fortune.com/2015/12/07/nordstrom-shoes-of-prey-tech-investment/?xid=yahoo_fortune
- https://www.shopify.com/blog/15517012-how-nordstrom-made-its-brand-synonymous-with-customer-service-and-how-you-can-too
- https://www.quora.com/Why-is-Nordstrom-known-for-their-good-customer-service
- http://blog.medallia.com/customer-experience/ceo-top-pyramid/
- http://www.bloomberg.com/news/articles/2015-11-17/shoppers-choose-salons-over-sweaters-pressuring-u-s-retailers
- http://www.aboundlessworld.com/wp-content/uploads/sites/4/2015/11/plant_growth.jpg
- http://www.luxurydaily.com/nordstrom-simplifies-mobile-commerce-with-text-message-buying/
Great post! I totally agree that Nordstrom does a great job in creating great customer experience, I believe that its approach to innovation plays a fundamental role in creating this. In fact, they have their own innovation department that act as a start-up within the company: Nordstrom Innovation Labs, that continuously work in bringing the latest technology into the table and create the best overall experience for its consumers. Early this year employees in this department had been assign specially to the consumer experience center, again recognizing the importance of innovation to deliver the best value proposition to its customers.
Moreover, the approach that they take inside the innovation lab is very interesting as they work in 1-week project where in only 7 days they find a way to prove the idea and see if it makes sense to pursue it or not. They use this approach in order to get direct customer feedback and create a product that only adds value to its consumer.
https://www.youtube.com/watch?v=szr0ezLyQHY
Very interesting post, Grace! I think that the fact that Nordstrom is growing in the digital world provides a great opportunity but also a great challenge in terms of both the business and the operational model. As you mention in the post, Nordstrom has created an operating model that supports its key value proposition: unrivaled service for customers. Now that they are investing in online sales, they are going to have to find a way to deliver this characteristic exceptional service with no physical interaction with the customer. Its operational model will also have to adapt in order to fulfill customer expectations (such as range availability, speed of delivery or online returns policies) while maintaining high profitability.