Nordstrom: Balancing Bricks with Clicks
An overview of how Nordstrom is responding to the digitization of retail.
Since its inauspicious beginning as a Seattle-based shoe shop at the turn of the 20th century, Nordstrom has grown into one of the leading specialty retailers in North America (~350 stores in the U.S. and Canada). The Company seeks to become the preeminent specialty retailer by “offering customers the most compelling shopping experience possible…[by] offering customers the best possible service, selection, quality, and value.”[1] As a retailer, Nordstrom has invested hundreds of millions of dollars in the procurement, development, and operations of brick-and-mortar stores that collectively total 29 million square feet [2]. With the digitization of retail, most notably seen through the launch of e-commerce in the 1990’s and the more recent proliferation of mobile devices and social media, Nordstrom has to be nimble as it reevaluates the role its historical operating model (great customer service at brick-and-mortar stores) will play during its next chapter in order to continue to provide the “most compelling shopping experience”.
E-Commerce
Once viewed as separate channels with their own unique strategies, brick-and-mortar retail and e-commerce are increasingly interconnected. Successful retailers have developed an omnichannel strategy that integrates brick-and-mortar retail and e-commerce, leveraging their respective strengths to provide greater value to customers. As Nordstrom customers increasingly shop the retailer through Nordstrom.com, the Company is faced with two primary challenges: (i) replicating the “discovery/serendipity” of its stores in a medium that has historically been a “search bar” experience and (ii) repurposes its 29 million retail square feet as its customers complete their transactions in an increasingly digital way.
Through its +100-year history, Nordstrom has developed a reputation as providing one of the industry’s best retail shopping experiences. While e-commerce still lacks many of the sensory benefits of the in-store experience, Nordstrom has invested tens of millions of dollars in the development and improvement of its online platform. Strong financial results have followed this investment. Since 2006, Nordstrom’s e-commerce sales have grown at a 20% CAGR (vs. 4% for retail sales) and now account for 20% of total sales, up from 6% only ten years ago [3]. As e-commerce becomes increasingly important to the Company’s financial results, Nordstrom has been tasked with rethinking how it uses its stores to provide its customers with “the most compelling shopping experience” possible. To adapt to the change in its customers’ shopping behavior, Nordstrom has begun using its stores as fulfilment centers for online orders, while also providing customers with the option of same day, in-store pick up of orders placed online.
Social Media
With more than 75% of adults and 90% of young adults (18 to 29) active on social media [4], this new medium represents an important touchpoint for Nordstrom to stay connected with its customers. While the Company has a strong Facebook (4.2 million followers) and Twitter presence (720K followers), its use of Instagram and Pinterest have proven particularly novel in the retail industry [5]. Through Instagram, a Nordstrom customer can purchase apparel items posted to the Company’s Instagram account in just 1-2 clicks, converting Instagram “Likes” to revenue and satisfied customers. Nordstrom’s mining of Pinterest is also an example of how the Company has adapted to the wave of digitization to provide a more “compelling shopping experience”. Beginning in 2013, the Company began making in-store merchandising decisions based on the apparel items with the highest number of “pins” (equivalent to “Likes”) on Pinterest. Bryan Galipeau, social media manager at Nordstrom explained the Company’s Pinterest strategy by noting that “the customer is voting with their pins to tell us what they think is hot – and we’re listening closely.” [6]
Going Forward
In addition to strong e-commerce and social media strategies, Nordstrom has explored text-to-buy programs, mobile points of sale, and digital payment (e.g. Apple Pay) as a means of staying ahead of the digital curve to serve its customers. While all three represent interesting opportunities, the true long-term competitive advantage will come from the Company’s ability to leverage the digital world by capturing and mining detailed data sets on its customers’ purchase behavior and product preferences in order to exceed expectations in new ways. Because of the foresight of Nordstrom’s management team, the Company is well equipped to continue to lead the industry, a favorable position that will depend on its ability to leverage the digitization of retail to its advantage.
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Sources:
[1] Nordstrom. 2016. About Nordstrom. [ONLINE] Available at: http://shop.nordstrom.com/c/about-us?origin=footer. [Accessed 18 November 2016].
[2] 2016 Annual Report Nordstrom Inc. (NYSE: JWN).
[3] 2016 Annual Report Nordstrom Inc. (NYSE: JWN).
[4] Pew Research Center: Internet, Science & Tech. 2016. Social Media Usage: 2005-2015 | Pew Research Center. [ONLINE] Available at: http://www.pewinternet.org/2015/10/08/social-networking-usage-2005-2015/. [Accessed 18 November 2016].
[5] Nordstrom Facebook and Twitter account detail as of 11/17/2016.
[6] Business Insider. 2016. Nordstrom’s Pinterest In Stores Plan – Business Insider. [ONLINE] Available at: http://www.businessinsider.com/nordstroms-pinterest-in-stores-plan-2013-11. [Accessed 18 November 2016].
Interesting how Nordstrom is reimagining the customer experience. Nordstrom’s greatest competitive advantage is its impeccable and very personalized customer service – it will be interesting to see how they can maintain this level of service with less face-to-face customer interaction.
Very interesting post! I wrote about Nordstrom too, but did not focus on their social media presence. They have definitely been a market leader for department stores in their use of social media – no one else has rolled out buyable pins or had such a thorough snap chat campaign. One question my previous company struggled with is how to measure the value social media provides. Given that commerce through these mediums is still in its infancy, it is hard to justify budgeting significant dollars for “likes” and “impressions.” How do you think these channels will evolve in the future? Do you think snap chat and instagram are here to stay, or will it only be a matter of time until consumers move onto the next digital platform?
Thanks for the great article! I agree that replicating its customer service experience on an online platform may be a real challenge. While Nordstrom has certainly used technology in a way that improves the customer experience- there is significant potential for them to innovate here. An interesting collaboration for Nordstrom could be with online personal shopper services like Stitch Fix which sends you a personalized outfit based on your size and requirements. This could be a great way for Nordstrom to leverage its competitive advantage in the e-commerce space.
Another interesting way that Nordstrom is leveraging the advent of e-commerce is by becoming the partner of choice for a number of online-first retailers. Nordstrom can use its existing retail footprint to supplement such businesses.
Thanks for your post! Nordstrom’s e-Commerce CAGR seems quite impressive, but how does that compare to the industry average? Do you think that this growth is more reflective of Nordstrom’s approach, or of the general shift to online purchasing? I also wonder in the long-run what this shift means for Nordstrom and its famous customer service. I love that they are using Pinterest to influence their purchasing decisions–does the company also use data analytics to determine what types of social media posts it pushes to specific users? Like Shreya, I’m excited to see how they might use this information to influence customers’ in-store experience as well–could Nordstrom start to track customer traffic patterns through their stores through mobile phones logged in to their internet? Are there other ways that digital tech might change our brick-and-mortar shopping experience?
Great post, thanks for sharing your insights! I do not have many doubts about Nordstrom’s ability to adopt an effective bricks-to-clicks retail strategy. That said, I do believe that Nordstrom has made some questionable investment decisions, most notably its $350M purchase of Trunk Club in 2014. It appears that this deal was part of a broader plan to fend off e-commerce powerhouses like Amazon. As we have studied, Nordstrom’s competitive advantage has historically been its best-in-class customer service. I’m curious to hear your thoughts on the viability of a bespoke customer service / personal stylist business model through an e-commerce channel like Trunk Club.
There are not many companies that jump to mind who have successfully transitioned their brick and mortar business to online or vice versa. What will make Nordstrom’s different? It still seems like they have a tremendous physical footprint of stores that could become a cost burden as their percent of revenue shifts more and more towards their online channel. I agree with your post that Nordstrom’s has done a good job using social media to better suit new consumer behaviors, but will it be enough? Can they remain cost competitive when they are known for exceptional customer service when that is mostly a moot point online?
The correct retail strategy needs to combine online and offline presence. As I have seen with the case of Bonobos and Warby Parker, a retail / consumer business will always struggle with a pure online presence. But I agree that online will be the main mode of distribution go forward.
Interesting post. I did not know that Nordstrom was closely monitoring Pinterest and Instagram, but that seems like the way of the future in how to track customers and determine what to stock in inventory. I am pessimistic about the massive brick-and-mortar presence of legacy Nordstrom stores. Recently, the IRS shut down one of the most popular methods of disposing of real estate — spinning off the real estate assets in to a Real Estate Investment Trust a.k.a. a REIT (see http://www.wsj.com/articles/irs-shuts-down-remaining-channels-for-reit-spinoffs-1465325526). I would think that this recent ruling will force Nordstrom to double-down its focus on the digitization efforts and look at ways to continue to monetize “likes” and “pins”.
Great post. I am interested to see how Norstrom can leverage its reputation for top customer service through its digital platform. Perhaps it could equip its in-store sales personnel with profiles and purchase history of customers that they can use to make recommendations to customers (although this could seem a little creepy). I certainly do not think that they should abandon their brick and mortar model, but can use their digital platform to make it better.
Incredible to learn that they’re using social media for real time feedback from customers. I wonder how much this feedback has changed their buyers’ previous approaches, which as we’ve discussed in other classes, is driven by intuition historically. Has Nordstroms quantified this and found that it led to measurable savings in leftover inventory?