How Nordstrom Responds to the Ecommerce Challenge

This content relates to : MARKETING INNOVATION

Pete Nordstrom

President, Nordstrom

The Snyder Innovation Management Center presents the 2021 CEO series focusing on innovations in the retail sector in partnership with The Robin Report.  

S.P. Raj: Welcome to the Robin Report CEO series. I’m S.P. Raj chair of the marketing department and direct the Snyder Center for Innovation and professor of marketing at the Whitman School of Management at Syracuse University and proud partner of the Robin Report for this exciting forum. Today, we have Robin Lewis, founder and CEO of his namesake brand, the Robin Report and Pete Nordstrom, president and chief brand officer of Nordstrom.

Nordstrom is one of the most prestigious names in retailing. Pete is a fourth generation leader of the Nordstrom family and began his career in the stock room of his family’s downtown Seattle store. He worked in sales and stock through high school and college.

And the rest is history.

Robin Lewis: Thank you, Raj, for very kind, introduction and Pete, I’m honored, once again to have this time with you, to talk about your undoubtedly, your favorite pastime time in life, which is Nordstrom.

The new local Nordstrom Nordstrom local stores kind of bring it all closer to you, the customer. So Pete, these images are great and, and are really architecturally appealing along with, uh, you know, some in-store sense of elegance and kind of the personality of what your brand stands for and represents to, uh, your customers.

And more importantly, your sales associates, one could say obsession with satisfying consumers’ desires to the point that your entire enterprise supports that one end goal. And to this point, Pete, um, tell us about your historically vaunted inverted organization chart.

Pete Nordstrom: Robin, I appreciate the setup there. I enjoyed looking at those images too. It’s nice. You know, I, our New York store, it’s such a source of pride for us.

But I think to your point about the people thing, which is what you’re touching on here is, you know, ultimately the biggest differentiator we have is the way we serve customers. I mean, period. And the touch point for that is more, most often defined through people. And if it’s not specifically about people, at least their ability to be, um, accountable, uh, particularly as the, the ones that are close to the customer and anything that relates to customer touch points. So we do have that inverted pyramid and what I mean by that, is so kind of people like me are at the bottom and the people that interact with customers are at the top.

Um, you know, that thing that all came to be, uh, pretty organically, I think just as the business evolved, you know, from the generation of my great-grandfather starting, it’s my grandfather and his brothers. And then my dad and his cousins running that the inverted pyramid thing became formalized during my dad, the third generation, or since I, it was probably in the seventies, I think when they developed that and those were, they were the guys that really took this idea of customer service and how to empower people to, to have ownership and input into that.

I think, you know, if we’re doing our job well, it’s maintaining that focus about the people that interact with the customers are the most important people are in our business.

Yeah, I mean, you know, the, the fact is that the business has become more complex and, you know, there’s a big part of our operation that isn’t about helping customers directly, but it’s about all the, the process that happens behind the scenes to ensure, uh, expedient and compelling offer. And that’s not trivial stuff.

So yeah. I mean, you know, if you’re going to be working at Nordstrom on the front lines or in a store, anything help them dealing with customers. I think that’s absolutely right. Its not rocket science. You’ve got to have people that, that intuitively though want to help customers. They buy into that idea. It makes sense to them. They like it. They like people, you know, you can’t teach that stuff very well. You could have the world’s smartest person, but they just don’t want to be bothered with dealing with customers. There’s, there’s probably a longer list than what I can really go into.

If you think about it in my dad’s generation, they, they ran the business from, oh gosh, the early sixties through the mid- nineties or so, um, nothing really changed in the formula of how retailing it in department stores was done.

It was done in a physical building. Um, it was all the rollout of where malls were happening. The growth plan had to do with, you know, having the capital. And the, you know, the foresight and the wisdom to pick new locations every year and to keep growing and keep adding, you know, so in the sixties, we were only a Northwest company.

It wasn’t until 1978 that our company put its first store in California. And then we started to expand that was successful. So they, but that became their formula and it was, it was tried and true and it worked and they just kinda kept growing. And by the time they were leaving the business, all of a sudden it’s like, ah, you know, there’s, this there’s a catalog business that we kind of got into because that became a thing.

And, and we were pretty much then in all the different regional places. So it’s not really clear how we’re going to grow and then quickly you know catalog gave way to internet and you know, and that whole thing is just completely different than anything I was ever around. Like, you know, in the seventies and stuff, growing up, selling shoes and stuff from the store.

And, so, and that kind of goes without saying, and right now we do over 50% of all of our business is done online. So, you know, when people talk about us being a department store, when the fact is over 50% of it’s done online. So it’s not like we’ve got some kind of a legacy program about preserving physical stores and malls.

I mean, they’re great. And they’re part of the formula part of the equation for us, but we’ve had to evolve and just be more than that. So that’s that’s number one. But then I think in, in terms of what happens is the stores and you and I talked about this a little bit. If you’re going to be in business today in the kind of stuff that we carry, where we’re really trying to satisfy and compel customers to buy something for $15 and something for $15,000, we, we have that breadth of offer in our store and to do it, you’ve got to build in a lot more flexibility into how.

Robin Lewis: Your loyal consumers go to your brand. Your brand means something to them and they love your brand. And the point about bringing the best brands into your store and online, it should just make them love you all the more.

Pete Nordstrom: That’s the idea

I mean, if you can take the friction out of it.

And first of all, it’s the nature of what a department store is, is that it’s a one-stop shop. You can, you can buy a lot of different things. So when people say, well, department stores aren’t necessary anymore, but that, that would mean that people have to go out and go to a bunch of different places. Even if it’s online and you guys know this, I mean, you have to like, okay, now I’m leaving this site.

Now I’m going to another site now. And the next site and I got another login and a password. And I’ve got rigmarole, you know. It’s certainly doable, but it’s not frictionless and it’s not convenient. So if we can offer the best the world has to offer, you know, we can get that customer that comes and goes, well.

I mean, I’m really here to buy, a jacket for myself, but while I’m here online, I guess I need to buy some kid’s socks because they’re going to camp. And I guess I got to buy my husband’s shaving cream or something. And then before, you know, it, it, because it’s convenient because customers trust us and like us, and because we have, you know, a good functioning, high functioning website with good selection, all of a sudden, you know, we become a compelling choice for people, if we do it right.

I want to dive into your recently presented a strategic positioning direction, which also I think informs, uh, your future to a certain extent. You know, our marketing piece for this forum for this interview was a one word description localization.

And of course, I make that synonymous with the current buzz word personalization, I do believe that personalization is the next big thing. Actually, it’s now the big thing. So, um, which given what I just opened with fits kind of perfectly into Nordstrom’s wheelhouse.

So can you explain its objective and how, in fact it literally brings all of Nordstrom’s assets closer to each and every each and every one of your customers?

Pete Nordstrom: Yeah, I think it, you know, it starts from a customer point of view and I think your point is right there, Robin, about personalization stuff. But ultimately if you look at it from a customer’s point of view, they’re looking for, you know; does this place know me? Does it resonate with me? I mean, does it make my life better?

Do I feel good, shopping there? Does it make me feel good? Like what I’m buying is the process of buying convenient and easy, you know, they know me or is it a giant hassle? And you know, if you look at the essence of retailing, it’s always been about this personal one-on-one thing and where we’ve had the most success is, you know, again, look in the past was where you had a salesfperson that I had a relationship with a customer; and that trust happened and the Nordstrom ended up being defined by that person, not by someone like me, but their touchpoint to Nordstrom. And it’s these people that created this high touch nature of what we do. And so, you know, here we are now, and you, you have that high touch stuff, but, but you also have to speak to what customers, how they define good service.

And it’s not just this super high touch, personal thing. It’s convenience and speed and all, all that stuff too. So what closer to you is, is taking all the assets that we have. We have physical or physical stores. We have people, we have digital assets and functionality, and we’ve got, you know, distribution centers, fulfillment centers.

And, and how can we bring all of that in a seamless way, closer to customers so they can access the breadth of what Nordstrom has to offer easily. Um, in kind of one click or one visit and get the benefit of all the things that we do rather than having to, you know, kind of like we talked about the inconvenience, going to multiple places and then stuff coming from all over the place.

So if you take, you know, like our market strategy is really where this, the closer to you idea started from. So you take a market like Los Angeles or something, and I don’t know, what do we have 16 stores in the greater Los Angeles area. And, you know, we, we’ve got a couple of locals. We get, we get all this stuff going on.

And so if you’re buying something online, the best way to do that is to say, well, you live in Los Angeles. Let’s see if that item is actually in one of the stores in your area, because that way we can get it to you in a day. If it has to come from Cedar rapids, Iowa, or Pennsylvania or other places, we have fulfillment distribution centers.

It’s going to take more time. It may not be as convenient. There’s really, you know, it’s going to come straight to your house. But if we, if we say, look, it, you live in this area, what would you like to do? Do you want to pick it up at a store? Do you want it delivered to your house? Do you want to get it in a day?

I mean, all these kinds of things and you know, yeah, I need it. I need to get alterations. Okay. Here’s the different place you can do that, you know, we can totally local to take care of that for you. I mean, all the things that we can bring to bear again with the combination of all these assets that we have and bring that closer to a customer, I think creates a lot more stickiness and relevance with, with those customers.

That’s what we believe. And I think, again, we get the benefit of not just a super functional, mechanical, automated thing, but all this personal high touch stuff that goes with it too, we can do both. And that’s where we can compete, I think successfully, which is the pure play guys that do online and look at it.

I mean, let’s be clear about it. I mean, Amazon set the bar for what good online retailing looks like. And we can’t, we can’t say, oh, we ship in a week and a half when they ship in two days, that’s that ain’t going to cut it. So we have to live within the expectations that people have had that people like Amazon have created the bar for, but we, we can bring other things to the party, like an example.

I don’t know what the percentage is, but it’s really high. It’s like maybe half or something. Uh, when people want to return something they bought online, they choose to return it in a store. Not because we forced them to do that. But that’s what they choose and maybe because they know they can exchange it or it’s just gonna be easier to, don’t have to worry about someone picking something up my house.

Robin Lewis: That’s on my way to work. Oh, here it is. Um, and that’s a great service to people. Amazon doesn’t have that capability, so that’s how we can be what we do, bring it closer to customers. Yeah. So that’s the advantage of having a seamlessly integrated digital and physical world,

Pete Nordstrom: Robin, that stuff that we talked about with some of our competition and it looks at that a little bit differently.

There is no doubt. That’s the secret sauce for the future. It’s an integrated connected friction-free.

Robin Lewis: But now there are two other, two other strategies that you talked about that I’d like you to get into a little bit.

You said that you were going to bring, uh, your concession business from 5% to, I think 30%. And also there’s this whole thing called drop shipping, which really doesn’t define what it is. But will you talk about those two things and what you’re doing and explain concession strategy?

Pete Nordstrom: Yeah. I touched on a little bit by talking about the Chanel example, but the way most of the big luxury designer guys, you know, Prada , Dior, you know, let’s see auger, I mean, on and on all these guys, that LVMH group or the caring group, they tend to prefer a concession. And what a concession means is they own the inventory and they would actually own the people too.

So it would be their employees inside our store with their inventory.

Robin Lewis: But the big deal, is they own the inventory, which means what positive for you? Right?

Pete Nordstrom: Well, the big positive is they’re willing to kind of load up with more inventory. And, you know, it was just up to us, particularly buying really expensive stuff.

I mean, it’s nerve-wracking. Like, geez, I don’t know if I can buy this and that, let’s mark, that thing , that $30,000 thing down, that’s going to be a killer. Um, because we own the inventory, but when they own it, they may say I’m going to put that $30,000 thing in there. And if it doesn’t work, then I’ll move it to some other store or whatever, even though they’ll figure that out.

But it’s just in our experience, typically when they own the inventory, they put, they beef it up more and that’s, that’s usually pretty good. Um, and then with the people that’s, that can be a rub with us. Cause it’s the problem we’re trying to solve, isn’t usually our people aren’t very good at you’re selling your stuff or give a poor service that may be true with some others, but that’s not our problem.

So, you know, what we usually say is, okay, well, what problem are we solving for? If you want to be in concession, if they say, look it, I think we could do more sales because we’re going to pump in the inventory. Then, then we say, well then maybe there’s a hybrid way of looking at this. Maybe. It can be your inventory yet.

It’ll be our people and off. And oftentimes that becomes something we could do. But anyway, that’s the nature of a concession. So then what you get is you get a fee like, hey, look at it and I’ll make this up. We’re going to give you 18% of sales, you know, straight up. And that’s what you get for being, and we’ll have this shop in your store, what have you.

Now the downside to that is we’re, we’re a multi-brand retailer. We don’t want to be a landlord that operates like a mall where you just have a bunch of different shops run by different people, getting, getting back to a frictionless kind of, you know, ecosystem that that’s a tougher deal.

So we’re willing to have some concessions, um, but they’ve gotta be done well, and it’s got to serve the whole. Well, I mean, again, we’re not, we’re not just trying to turn our business over to brand Zalio. I know we’re, we’re landlords, which in a lot of ways, European department stores and Japanese department stores in particular, do you know Robin that they operate much more of that way than we do.

But I think it’s fair to say, if we go to a brand and say, look, it, I’m not super hung up on whether it’s a wholesale arrangement or a concession arrangement. We just want to have the best goods and serve customers in great ways. How can we do that together? And that usually leads to a great spot because then it takes it out of a transactional relationship with brands and into more of a collaborative one.

And that’s usually a better way to go. Just, you know, again, there’s, there’s some finesse to all this and we have to work through that. But I think what we’re trying to say is, you know, we’ll see where this all goes, but we’re open to letting it find its own level. We’re not going to artificially tamp down concessions if we just, if it bothers us because we want to let it find its level based on what customers like with us.

Robin Lewis: Obviously, it’s working for you. What about this drop shipping thing?

Pete Nordstrom: Okay. Yeah. So drop ship. What that means is, you know, you would have on our website, the breadth of someone’s selection. So if you think about a brand, let, let’s take a brand like Burberry. Someone might say, gosh, I mean, Nordstrom has Burberry that that’s great.

Well, there’s no way we would carry everything they have because that’s not a concession or rancher. Mostly it’s a wholesale, we just can’t. But so, but from a customer’s point of view, they would expect a comprehensive selection of a brand like Burberry at Nordstrom. So we talk about is, and this, this may not be the greatest example because I don’t know if they do the drop ship thing, but we might say, Hey, let’s light up your entire offer for the season, but we’re going to own this amount of it.

But online, it’s gonna be a seamless thing. If someone clicks, I want to buy this thing. Then that may be a drop ship item and it would go straight to them. They, it shipped from their inventory, from their fulfillment centers and it comes to them. You know, it wouldn’t come in a Nordstrom box, it would come in a Burberry box, whatever.

And then, you know, we work out in the backend, how we reconcile that, that sale, but it allows us to have access to a lot more inventory without having to actually own it. Which again, when you own a lot of inventory, there’s a lot of risks that, that the more inventory you own, the more risk that you have.

So it’s a way of maybe sharing risks with the brands yet benefiting from the upside, but it does mean they have to have capabilities to be able to ship and deliver in a good way.

Robin Lewis: Yeah. You know, you also mentioned that it, it kind of does create that endless aisle so to speak, right. Which it does right.

Pete Nordstrom: In a, in a store setting that would be overwhelming.

But online that may be okay. I mean, you might be saying again, like Burberry sells things like, um, dog leashes or, you know, pet food bowls or something. We may not carry that. But some, like, I think that’s awesome. I want that check Burberry dog leash and like, boom. And like here it comes. So it works out great.

Robin Lewis: Okay. Quickly on one other. AI, artificial intelligence, data analytics, you know, uh, that drives, gets to personalization. Uh, Amazon, obviously from the get-go was able to know what people wanted before they knew what they wanted. Anyway. So you guys were given a lot of kudos as early movers in technology and the internet.

So tell me about AI and data analytics and how you guys are using it. And where would you say you are along the path to being 10, suppose, you know, from one to 10?

Pete Nordstrom: Well, gosh, you mean,

It’s hard to know because the, the capabilities of technology and data keep evolving, improving, like my, I have young kids. They always ask,

“Is technology going to be better? Like in 10 years”; I said, yeah, it’s gonna be better in ways you can’t even imagine there’s going to be stuff happening that you never even thought of that, you know, I just think about my lifetime. You think about our kids’ lifetime. Goodness, it’s really gonna change.

So, I mean, I don’t know. We’re probably two on that journey. We’re not a 10, but I will tell you compared to where we’ve been in the past, it’s, it’s infinitely different. I mean, we use objective data inputs to help solve all kinds of issues and customer problems, whether that’s, you know, how we buy, how we allocate and for, for sure that it helps indicate that it helps us personalize helps us understand customers better when we have good data and information.

So, I think when you get back to the essence of retailing, there’s some of these practices and the control you may have on them have there’s something there, but for sure. When you talk about having control and having access data is like, you don’t want to give away your data or lose visibility to your data to others.

You want to have, you want to know all your data, what it implies about customers, what you’re selling and all that stuff so that you can make the best decisions on behalf of your customer. That is, that is a place where I think you don’t want to like, you know, sell that off to somebody else. So it is a big unlock, I think, for us to improve service.

Again, if you look at it all through the filter of, if our number one goal is to improve our service every year, one of the ways to do that is to have better data. So we know customers better. So that. we can personalize stuff from to your point, Robin, and that’s, that’s kinda like the holy grail of all this.

We talked about this morning, we were talking, you know, sell through rates. There’s objective ways of knowing, or is product good or bad as long as there’s objective, sell through rates by week.

And we can know things like, you know, seasonality how it really impacts or, I mean, things like tops, the bottoms ratios or sizes or colors, you know, in what, in what percentage and ratio do they sell better than others? When I was a buyer, there we go. Yeah. I know it’s somewhere black shoes and anything else, maybe it’s two to one.

And so you’d write your sizes. And then I think I’m going to sell more. I sold shoes more seven and a half mediums in a women’s shoe than an 11 or a four, but most of it was anecdotal. It was experience. Yeah, we can guess that, but now we really, we know. And so it, it really helps the efficiency or inventory models.

Robin Lewis: So thanks again for your time. And I also want to thank our partners at Whitman school of management at Syracuse university and Raj and our audience.

Thank you so much for attending. Thanks Pete. Thanks everybody.

Pete Nordstrom

President, Nordstrom

https://www.nordstrom.com/