Digitalization is impacting every single facet of the retail industry. Incumbent players are struggling, both financially and strategically, to stay relevant in a fast evolving landscape, where disruptive e-commerce-only players are introducing new business and operative models, and competing aggressively by offering lower prices, faster and cheaper delivery, and endless assortments. However, traditional retailers are best positioned to benefit from a multi-channel retail, as research indicates that omnichannel customers spend two to five times more than customers who buy in only one channel[i]. Nordstrom, a leading high-end department stores, has already seized the opportunity by successfully leveraging innovative technological solutions across multiple areas, with the goal of delivering on its original mission of “providing a fabulous customer experience by empowering customers and the employees who serve them[ii]”:
- Customer service:
- Offers since 2010 “pickup in-store” option to online shoppers; in 2016 started offering “curbside pickup” option, allowing consumers to drive by a Nordstrom location, where a salesperson would wait for the shopper at the door, to “grab and go” an order placed online[iii]
- Allow for returns across channels (“buy online, return offline”) and across its many retailers (ie: buy on HauteLook.com or Nordstrom.com and return at Rack physical outlet store).[iv]
- Empower salespeople with a 3-D scanning technology that allows to scan consumers` feet and make more accurate and data-driven shoes recommendations[v]
- Salespeople learn about customers’ preferences by leveraging social media (ie Pinterest), and tag the most popular items in store with a red Pinterest tag, linking their online and offline worlds[vi].
- Enabled in-store mobile checkout by introducing mobile point-of-sale devices[vii]
- Integration of consumer information across channels and creation of a single consumer history database
- Inventory system
- Introduced in 2002 perpetual inventory system[viii], and later enabled “pick-up in store” option for online purchases
- Further integration of Nordstrom.com and app with the inventory management system enables customers to find what they want in one place and have it delivered from somewhere else to a third place[ix]
- Development of B2C fulfillment capabilities through the creation of an e-commerce only distribution center able to fulfill order within 2 days[x], to compete against major online retailers (ie: Amazon Prime 2 days-delivery)
Nordstrom has integrated digital capabilities from newly acquired innovative players: Hautelook (enabling innovative flash sale site), Shoes of Prey (online footwear store that allows women to customize shoes), Trunk Club (cloud-based men’s personalized clothing service), Bonobos[xi] (online player addressing trousers sizing issues via physical “guide shops”). While the digitalization of Nordstrom’s business has allowed the company to grow overall revenues by more than 50% in the last five years[xii], and grow online sales to 21% of total revenues[xiii], it has also impacted negatively its bottom line[xiv], as the cost to service increasingly demanding consumers increased. Going forward, Nordstrom must focus in finding ways of remaining competitive while tackling the main sources of increasing expenses:
- Introduce Cost-effective Express Delivery: Leverage the broad network of physical stores and their inventories to fulfill orders in major metro, thereby cutting delivery time down to 2-hours delivery, and diminishing costs (Exhibit 1[xv]).
- Minimize Product Returns: improve recommendations engines to offer “the right product to the right consumer”’, by leveraging in-house technology shared by Trunk Club; address size and fit challenges by enabling 3-D printing solutions for consumer to be able to try on samples.
- Optimize Performance Marketing: improve ability to accurately attribute return of media spend across channels, thereby better targeting marketing investments; introduce beacon to track customers` cell phones throughout stores and offer instant in-store cross-channel offers.
- Lower Retail Store Rent: deploy Bonobo “guide shops”, by replacing future large and costly store openings with smaller try-on showroom with no inventory, where consumers can try on items in-store and then complete the order online; “magic mirrors” would allow consumer to virtually try-on endless assortment even if limited inventory is available in-store[xvi].
- Fix Inefficient Purchase Experience: younger consumers are no longer willing to spend time looking for merchandise across large stores and queuing for checkout: leverage beacons to record the path to purchase to optimize store layout, and introduce RFID technologies that enable “on the go” payment, as seamlessly as paying for an Uber ride[xvii].
In conclusion, the advent of digitalization has allowed new competitive players to enter the retail market, but it has also brought a wide range of opportunities to companies like Nordstrom, willing to engage with technologies not as an end to themselves, but as enablers to better serve multi-channel customers.[xviii]