Staying Ahead of the Curve: How Nordstrom’s Supply Chain Evolves with Consumer Behavior
Can Nordstrom respond to consumer demand for more options more quickly, while still managing their inventory costs?
The retail shopping experience is evolving at a fast clip. Omni-channel retailing is now a way of life. “Typical apparel consumers shop a brand, not a channel. They want the merchandise where they want it, when they want it, and how they want it,” notes Garter analyst, Jessica O’Brien [1]. Coupled with this is the increasing number of SKUs retailers are pressured to keep due to increasing demand for personalization [11] . Given these factors, it is imperative that high-volume retailers like Nordstrom be ahead of the curve on thinking about how their supply chain will be impacted [2]. Successful retailers are able to combine pleasing consumers and controlling inventory costs in this new environment. This is not an easy feat — it requires a highly advanced supply chain management approach and the ability to test and learn.
How Nordstrom Has Responded
To address this challenge of delighting customers while controlling costs, in the short term, Nordstrom is using and investing in the success of supply chain software companies. In 2016, Nordstrom acquired a minority stake in Dsco, a Utah-based supply chain software firm [3]. Dsco’s flagship product is a software that allows retailers to utilize “drop shipping,” where the product is shipped to the consumer directly from the manufacturer, as opposed to shipping from one of Nordstrom’s distribution centers. Drop shipping delights the customer through facilitating faster delivery and allows Nordstrom to lower inventory carrying costs.
Nordstrom is also investing in experienced senior executive leadership in their supply chain organization, signaling the importance of this function for the company. In March 2017, the company appointed Brent Beabout as the executive vice president of supply chain [4]. Beabout comes from Walmart, who is also known for their excellence in modernizing their supply chain to meet changing consumer demand [5].
Lastly, Nordstrom has pioneered efforts in leveraging sharing economy platforms to better serve consumers and move inventory more quickly. The company was one of the first to sign up as a retailer on UberRUSH, allowing consumers to have their Nordstrom orders delivered by Uber’s service (within hours in a few test markets) [6]. Being at the forefront of trends such as delivery via UberRUSH is a key supply chain strategy. New delivery offerings can take off quickly. If this happens before a retailer has been able to test and iterate on how to make an offering integrate with their operations, they could lose out due to lack of preparation. If it is able to scale, UberRUSH will provide Nordstrom with another channel to move inventory out of their warehouses and into the hands of customers more quickly, using the power of technology they did not even have to develop.
Suggestions
Although Nordstrom is being thoughtful about modernizing their supply chain practices, they will need to remain vigilant about anticipating and testing how they can leverage new retail developments to continue optimizing their supply chain and delighting their customers at the same time.
One store improvement Nordstrom should test is the adoption of of smart shelves. Smart shelves are wireless inventory control systems that control inventory ordering via weight sensors. When a shelf is down to a few items or empty, the weight sensors notify the back-end system with the need to order, completely digitally. [7]. Smart Shelves have been a topic of discussion in the retail space for a few years, but have not gained widespread adoption. [8]. Smart shelves provide another way for Nordstrom to stay ahead of consumer demand and purchase what they know is selling in the appropriate quantities.
Another sales tool Nordstrom should test utilizing is virtual reality. Through virtual reality, consumers can create representations of themselves to try on clothes digitally [9]. This would not only lower the barrier to purchasing new clothes for consumers, it would also optimize Nordstrom’s ordering through better predicted demand. Nordstrom supply chain professionals can monitor which items are being tried on most frequently via virtual reality in different locations and and adjust ordering appropriately.
Open Questions
My questions center around how Nordstrom can integrate some of these forward-looking technologies in a way that is true to their brand. Nordstrom is known for providing excellent customer service and for being on the “trendier” end in the market of large department stores [10]. Given that, items that sell out can help to cultivate the scarcity that fashion brands like. Would Nordstrom want to over-optimize on ensuring popular items are always in stock? Additionally, trying clothes on in the store provides a touchpoint for Nordstrom sales reps to prove their value through suggesting other items and building a relationship. Is this something Nordstrom should want less of in the name of lower labor costs and providing a variety of options for customers to engage? (789 words)
[1] Inbound Logistics, “You Are Everywhere: Mapping the New Retail Supply Chain”http://www.inboundlogistics.com/cms/article/you-are-everywhere-mapping-the-new-retail-supply-chain/, accessed November 2017
[2] Retail Dive, “The 7 trends that will shape apparel retail in 2017” https://www.retaildive.com/news/the-7-trends-that-will-shape-apparel-retail-in-2017/433249, accessed November 2017
[3] Wall Street Journal, “Nordstrom Buys Stake in Software Firm” https://www.wsj.com/articles/nordstrom-buys-stake-in-software-firm-1467970381, accessed November 2017
[4] Puget Sound Business Journal, “ Nordstrom Taps Former Wal Mart E-Commerce Exec” https://www.bizjournals.com/seattle/news/2017/03/29/nordstrom-taps-former-wal-mart-e-commerce-exec.html, accessed November 2017
[5] Wall Street Journal, “Wal-Mart Reigns Back Inventory in a Revamped Supply Chain” https://www.wsj.com/articles/wal-mart-reins-back-inventory-in-a-revamped-supply-chain-1439933834, accessed Novembr 2017
[6] Uber “A Custom Delivery Solution, Powered By UberRUSH” https://www.uber.com/newsroom/uberrush-api/, accessed November 2017
[7] Forbes Insights, “Digital Supply Chain – Are You Leading the Pack?” https://www.forbes.com/forbesinsights/cognizant_supply_chain/index.html, accessed November 2017
[8] Retail Wire, “Will Smart Shelves Ever Be Smart Enough for Kroger and Other Retailers?” http://www.retailwire.com/discussion/will-smart-shelves-ever-be-smart-enough-for-kroger-and-other-retailers/, accessed November 2017
[9] Forbes, “Virtual Reality: Coming Soon to a Clothing Store Near You” https://www.forbes.com/sites/currentaccounts/2016/01/28/virtual-reality-coming-soon-to-a-clothing-store-near-you/#392c11b7ce3e, accessed November 2017
[10] Business Insider, “Nordstrom’s Simple Strategy For Beating Everyone Else In Retail”http://www.businessinsider.com/nordstroms-business-strategy-2014-10, accessed November 2017
[11] McKinsey, “The Future of Retail Supply Chains” https://www.mckinsey.com/~/media/…/retail/…/future_of_retail_supply_chains.ashx, accessed November 2017
Cover image: Forbes, Image, https://specials-images.forbesimg.com/imageserve/1c56e783bcd546338e1aa093a6f60dc3/960×0.jpg?fit=scale, accessed November 2017
Nordstrom is very active in bringing digitalization into the brick and mortar business, particularly with the rise of e-commerce. However, in investing in new technologies, the retailer is moving away from traditional stores and in person customer service. Although that strategy is in line with their goal of targeting more millennials (https://finance.yahoo.com/news/nordstrom-target-customers-140545216.html), one can wonder if they are alienating another customer segment that prefers in person service, and has been shopping at Nordstrom for decades. Should they decide to continue serving both types of customers, it should consider reviewing its spend allocation to also invest in maintaining and improving its in-store customer service.
This essay about Nordstrom is a great example for the potential of supply chain digitalisation. Virtual Reality (VR) is highly promising for a luxury retail chain, because its customers are wealthy enough to be likely early adapters of VR applications. Usage of VR should enable Nordstrom to learn about individual customers and customer behavior patterns in certain regions. This should in turn allow the company to manufacture and pre-ship goods according to trends.
The essay, however, also mentions drop shipping that is already applied by Nordstrom. If the company learns more about customers using VR and increases automatic supply chain management, it can extend drop shipping to maximise inventory holding costs.
I think this essay raises some interesting questions. Lynn’s response above about whether Nordstrom would be alienating certain customer segments if they move towards more VR or online experience models should be an important consideration. I think the future of retail should always include a combination of bricks and clicks, its just more about what the weighting of each should be. I think about smaller retail services like Rent the Runway for example. 90% of the experience is enabled through their digital platform. Even without VR, they have created an experience where I can look at reviews and customer photos to get a sense for how the dress would look on. And they have created a fairly seamless return or exchange process if something does’t fit right. They ALSO have a select number of boutique store fronts where you can actually try on the clothes and rent real time. If Nordstrom were to adopt a similar approach they may be able to move over to a more asset light model and better manage inventory.
Your piece introduces great examples of how Nordstrom is using digitization to remain at the forefront of customer experience in innovation. You pose the question of whether the company should pursue the trade-off of digitization vs. less consumer foot-traffic in brick-and-mortar and a potential hit in customer experience. Nordstrom must prioritize and continue to drive innovation in the omnichannel shopper experience as online is now ~25% of the company’s sales, with a 8% yoy growth rate. [1] This digitization should look to innovate in brick and morter, online, and omni sales experiences. Nordstrom can leverage the hire of Walmart’s Beabout to implement some of the digitization efforts. For example, Wal-Mart has deployed the use of robots to optimize in-store shelf inventory replacement. [2] Additionally, Nordstrom should consider launching its’ own innovation team. This year Wal-Mart launched an incubator lab focused on projects in robotics, virtual and augmented reality, and AI. [3]
[1] http://www.businessinsider.com/nordstroms-impressive-online-sales-2017-2
[2] http://fortune.com/2017/10/26/walmart-shelf-scanning-robots/
[3] https://www.usnews.com/news/best-states/arkansas/articles/2017-03-21/wal-mart-launches-incubator-lab-to-house-startups