Nordstrom Case Debate Outline
1). Company Overview
● Nordstrom, Inc. is a fashion specialty retailer based in Seattle, WA
● Founded by John Nordstrom and Carl Wallin in 1901 as a shoe store
● Went public in 1971 and hit $100 million in sales in 1973
● Currently operate in 38 states with Nordstrom and Nordstrom Rack, online
(nordstrom.com and hautelook.com), and internationally through acquisition of
Façonnable
● Chosen as America’s favorite fashion chain in 2013 because of their customer service,
ambiance, return policy, and merchandise selection
● Rated one of the best organizations to work for in the US
● Management structure empowers sales employees, giving them the freedom to use their
best judgment in all situations with no other restrictions
● Operate on the strategy of putting customer service above all else and keeping
employees happy
● $720 million net income in 2014
2). Industry Overview/ Competitions
We assign Nordstrom a high uncertainty rating. Nordstrom operates in the highly
cyclical retail industry, which poses many risks for investors. Although the company benefits
from more-affluent customers who have continued spending even through tough economic
times, Nordstrom and other high-end retailers were not immune to recession-related sales
and margin declines. Currently, growth in high-end consumer spending has been strong,
and Nordstrom appears to be gaining market share through comp-store sales gains,
including an improving online business. However, there is a risk that luxury consumer
spending could slow, or that same-store sales increases become harder to attain as
comparisons become tougher. As stores age, the company faces the risk that it will not be
able to refurbish its store base at a cost that generates positive returns on capital, or that
customers' tastes and preferences could change and Nordstrom would no longer be as
fashionable a place to shop. Nordstrom's high dependence on fashion apparel and footwear
makes it vulnerable to buyers' and designers' ability to consistently be on-trend with fashion
offerings, and it is also vulnerable to vendors' ability to deliver products on time and at a
reasonable cost.
There is the risk that Nordstrom could eventually face increased competition. Macy's is
upgrading its merchandise assortment and growing sales online and at Bloomingdale's,
while Saks has been adding affordable luxury. Other retailers such as Neiman Marcus and
Lord & Taylor have received private equity funding, and eventually could grow store bases
again. Still, we note that Nordstrom has been using its operating system for decades, and
that the competitive environment has been tough in retail as long as the industry has
existed. If the company can continue generating high inventory turns and high sales per
square foot, the cash returns it makes will be a driver of being able to invest in staying one
step ahead of the competition.
Our fundamental outlook for the department stores sub-industry is neutral. According to the U.S. Census
Bureau, sales at department stores (excluding leased departments) decreased 2.1% in 2014, to $167.8
billion. We believe this decline was largely driven by sales losses at a major moderate-price department
store chain that resulted from changes in its pricing and merchandising strategies. Department stores faced
tough apparel sales comparisons in the first half of 2013 as they benefited in 2012 from an early arrival of
spring weather and a new color trend in fashion. In addition, we think consumers took advantage of low
interest rates and looser credit standards to spend more on big ticket durables (e.g., cars and appliances)
and less on apparel. Following what was a highly promotional and challenging holiday season, department
stores in 2014 benefited from easier comparisons and continued labor market improvement. We also think
there tends to be a lag of about a year before increased wealth leads to increased spending, so 2013's and
2014's stock price appreciation likely were more beneficial to consumer spending in 2014. However, we are
concerned about caution from lower-end consumers weighing store traffic and demand. We believe
department stores offering differentiated products and engaging multi-channel shopping experiences will
gain market share in 2015. We see best-in-class department stores creating a sense of newness for
shoppers with more frequent product deliveries. They are also tailoring merchandise assortments by store to
improve sales productivity. The goal is to grow sales by delivering the brands, styles, and sizes customers
want. Year to date through March 13, the S&P Department Stores Index was up 4.8%, versus a flat S&P
1500 Composite Index. In 2014, the sub-industry index rose 16.5% compared to a 10.9% gain for the S&P
1500. --Efraim Levy
3). Pertinent Issues
(Technology Undermining Customer Service)
(Decreasing in-store sales)
(Focus on
4). Connections to Class materials
5). Recommendations
Nordstrom Information to Develop Case Debate:
From Seeking Alpha:
The company plans to invest $4.3 billion or 5% of sales over the next 5
years. The allotment of the investment is expected to be technology
advancements (35%), new stores including the entrance into Canada and
Manhattan (43%), and reinvestment in existing stores (22%).
Nordstrom opened their first international store in the company's long
history. The first opening, in Calgary, Alberta, presents a terrific opportunity
for the company to prove itself where other US retailers have failed recently.
This store opening is just the beginning with plans to open five additional
Canadian stores in 2015 and 2016. Outside of this near term, the company
believes they could have as many as 10 full stores, up to 20 Nordstrom
Racks, and a separate e-commerce platform for the country. The Canadian
market is expected to represent a $1 billion-plus sales opportunity for the
company. While I think the Canadian market presents Nordstrom with a
significant growth opportunity, I think it's more important to look at the big
picture. This Canadian expansion will allow the company to test their abilities
internationally for the first time and give them an indicator of whether they
can penetrate other international markets in the future, which could unlock
significant expansion opportunities.
While international growth is certainly on the company's mind, they are
continuing to expand in the US. The company plans to open 5 full-line
domestic stores and 27 new domestic rack stores. As you can see by the
numbers, the Nordstrom Rack stores, which act as a Nordstrom outlet with
reduced prices, are growing at a much faster clip than the full-line stores.
With the 2015 new domestic Rack stores, the 26 planned openings for 2016,
and consistent openings from 2017 through 2020, the company expects to
reach 300 Rack stores by 2020. While the full-line stores are important to
the company, the Rack stores are the #1 source of new customers, with
nearly 4 million in 2014. New customers are defined as customers having
purchased within the last year, but has not shopped at a Nordstrom store in
the four years prior. These new customers and new location openings are
the reason the Rack achieved sales growth of 17% in 2014. I believe the
Rack stores will continue to drive sales increases going forward as the
company makes the investment to expand these stores through the US.
As the retail consumer transitions from an in-person shopper to an online
shopper, it is important that the company continues to evolve their sales
model to accommodate this new environment. I believe that Nordstrom is
doing this with their technology investments concentrating on investing in a
merchandising solution, expansion of their fulfillment network, the launching
of the nordstromrack.com, and the acquisition of Trunk Club. Out of these
technological advancements, I think the Trunk Club is the most noteworthy
going forward.
The Trunk Club is a progressive take on the retail landscape as it services
men by sending them a trunk full of hand-picked premium clothes for them
to try on at home, choose from, and return the unwanted articles at no cost.
At first glance, this is a very different strategy than Nordstrom is
accustomed to offering. However, by taking a closer look, it fits their model
better than one might think. First, the purchase is giving them access to a
new male audience that probably doesn't currently shop at Nordstrom if
they're having clothes delivered. But most importantly, this will be a source
of traffic in their physical locations as customers of the service will enter the
store to return or exchange articles they received in the mail. This fits in
with their current model, as Nordstrom has always been known to return
any type of merchandise, because they feel like once you're in the stores,
their superb sales team will be able to convert you to being a customer. I
think this seemingly small acquisition will prove to be very beneficial for the
company as it introduces them to a whole new customer.
SWOT Analysis
1. Nearly 120 Full-Line stores and 110 Nordstrom Racks
2. Revenue performance is strong and has a good market reputation among
customers
3. 52,000+ employees
4. Operates in Clothing, footwear, bedding, furniture, jewelry, beauty
products, cafe, and House Ware category
5. Offers free shipment options to customers which adds experience and
Strength
value
1.Presence in other continents Is very low
Weakness
2. Presence of many similar stores means market share is stagnant
1.Disposable income is increasing of the customers
2. Tapping the international market specially emerging economies
3. Acquisition of smaller retail chains
Opportunity
4. More visibility through advertising and customer focused services
1. Reducing Sales may dilute brand equity
2.Emotional connect with customer might decline
Threats
3. Strong competitors and economic scenario can affect operations
Possible Ideas for where we can make a point with our strategy suggestions?
Nordstrom‘s effort is not nearly as risky as Whole Foods’, but it’s not wise. It is trialing curbside
pickup for online purchases. The intent is to offer convenience when shoppers just want to pick
up something purchased online. “A store employee will run the purchase outside so the
customer never has to leave his car,” said a report in the Puget Sound Business Journal, which
then quoted Nordstrom President Jamie Nordstrom saying, "We're trying to make shopping
more convenient. In the past, we’ve made people come all the way up to the back of the third
floor.”
At a glance, it seems an admirable effort, extending the customer service reputation of the
chain. But the true realization of that goal would be a white-glove home delivery of the item,
where the employee would unwrap the product and remove all of the packing debris. (Take that
Amazon Frustration-Free Packaging.) Then the associate would assist with the item, potentially
helping the shopper find apparel items that would complement the new purchase. That's the
kind of service people expect from Nordstrom's, not throwing a package in the car and running
off.
In the classic battle of mostly-in-store retailer versus mostly online e-tailers, the stores need to
flex their muscles. With Nordstrom’s, it’s taking their legendary customer service, complete with
endless patience and that Nordstrom “we’ll take care of everything” attitude and amplifying it.
Curbside provides no opportunities to make the experience powerful. Yes, curbside can be
quick and convenient, but it’s playing into e-commerce’s hands because that is something that
the Amazons of the world can match and better. Play that game at your own peril.
3). Pertinent Issues
(Technology Undermining Customer Service)
4). Connections to Class materials
5). Recommendations
Nordstrom Information to Develop Case Debate: