Nordstrom Adjusts to New Realities
We don’t know if Mike Koppel, chief financial
officer of Nordstrom, was a Boy Scout in a past life but he is certainly
big on being prepared.
According to a Dow Jones Newswire report,
Mr. Koppel told attendees of a Bank
of America Merrill Lynch consumer
conference that his company was actively engaged in "scenario planning" to
develop "contingency plans in case things get
much worse."
Nordstrom, whom Mr. Koppel
likened to a cross between a department store and specialty retailer, has
made a number of adjustments already, including bringing in and promoting
lower price point items, tightening standards for holders of its credit
card and pulling back on expansion.
The move to some lower-price
items was, according to Mr. Koppel, "some short-term aligning of
our merchandising mix… more consistent with what the customer is looking
for today."
Nordstrom took this action
after a holiday season in which it repeatedly engaged in markdowns to move
merchandise. According to a Seattle Times report, Nordstrom "had
10 times more markdowns" this past holiday season than the year before.
In moving to merchandise with lower prices, Nordstrom is hoping to avoid
resorting to markdowns to turn its inventory.
While it faces
challenges, as do other retailers, with their own credit card business,
Nordstrom is not looking to sell. "We believe it continues to be
an important strategic component of how we build relationships with our
customer," Mr. Koppel said.
Discussion Questions: What do you think of
the steps Nordstrom has taken such as slowing expansion, bringing in
lower-priced merchandise and tightening standards for its credit cards
as a means to stay strong in the current business environment? Does it
risk its image by stocking and promoting lower-price merchandise? What
are your thoughts on its use of scenario planning to ready itself for
the future?
Let’s not assume Nordstrom has lost its way. Good merchants always keep their assortment in flux. Nordstrom is merely saying they are agents for their customers rather than agents for their suppliers.
Increasing the mix of lower-priced merchandise is a way for Nordstrom to recapture some of its loyal customers. Many of us used to be drawn by the mix of value-priced private brand programs and more “aspirational” goods all the way to designer price points. In the men’s area, for example, it has become harder to find opening price points outside of the basic dress shirt program, especially shopping for casual sportswear key items.
There is no doubt that shoppers “discovered” Nordstrom as it expanded around the country, and were often surprised at its affordability within the context of an upscale design and good customer service. This has been a key strategic advantage for Nordstrom, allowing it to build loyalty as it expanded. Revamping the mix isn’t just a knee-jerk reaction to economic times but a welcome return to the company’s roots.
I just posted about Neiman’s and Nordstrom based on a interview of an audience member at one of my speeches. It isn’t the “value” or the “discounts” when it comes to women’s apparel. The reality is, nothing fits and they are fed up. Read more here….
Nordstrom is doing what it should to weather the current economic storm. Offering lower-priced items is attractive to consumers, and when the alternative is empty stores, it makes sense. All retailers should be planning: planning for better times and planning what to do should the economy head lower.
The key is to remain true to your core story. If Nordstrom continues to provide the excellent customer experience that it is famous for, it can offer lower priced merchandise without damaging its brand. Retailers that do not have a strong core story will find it difficult to recover after shifting prices, because they do not stand for anything.
By their own numbers of sales being down 10.9% for the four-week period of February, with same store sales down 15.4%, they certainly need to be thinking and doing something. By introducing moderation in product and pricing to gain ‘entry’ and retention, it’s certainly a beginning.
Doing this while maintaining margins to support their superior experience offering will be the challenge. If they can, however, it will allow the opportunity for stronger growth. Regardless of economic environment, a Nordstrom customer, new or old, who enters their doors will still have experience expectations far higher than they would for other retailers. Nevertheless, even in a down economic environment, consumers still thrive on experience equal to or potentially greater than any other factor, even to price. If price has been a factor in their recent performance, their strategy may win over those who are hesitant or who are purchasing moderately-priced goods elsewhere. All things being equal, from my view, the consumer will always choose experience. Isn’t that sort of the essence of differentiation? One might think that Nordstrom exists based on differentiation.
In the end, they may find that their anticipated offering could become a required standard following recovery. They may capture a new segment of consumer. In doing so, they will then have an ‘entry’ for a consumer that may have thought otherwise. Even the moderated shopper in good economic conditions will trade up to experience and the brand when price is eliminated as a factor.
They are likely making a good short- and long-term strategic move.
Nordstrom is solving the wrong problem. They have lost sight of the taste level of their core customers and have headed in a fashion direction that has a more limited appeal. Their comp store trends started to deteriorate in the fall of 2007, well before the Country’s economic problems started to appear.
I walked one of their stores yesterday and it appears that they may be starting to return to their more classic roots. I would be surprised to see their business start to improve but it will not be due to lower price points. I hope they do not miss-read the results and change the business model that made them successful.
Wow, Bob Phibbs nailed it. The online apparel market is severely stunted because women have no clue of what size will fit. I usually wear size 0 jeans and a size 10 bathing suit. A large from one manufacturer is a small for another. The most serious problem seems to be that manufacturers want every woman to feel flattered by the size number; if large women can wear an 8, what are small women to wear? It’s a shame that retail’s trade associations have failed to address this issue.
One of the key elements of Nordstrom is their heritage and the fact that they have been in business since 1901. The other is customer-centricity. Their scenario planning is partly about being in a position to meet the appropriate and relevant needs (and wants) of its customers.
At the same time, this allows them to be more flexible to anticipate what so many other businesses have failed to do: that this time the economic environment is not the same.
Nordstrom’s commitment to their credit card business, and its long-term viability, is based on it being the linchpin of what enables them to identify, track and engage their customers and support Fashion Rewards.
If there had been higher credit standards not just in department stores but in all consumer lending (i.e., mortgages), it’s safe to say things would be a lot better than they are now for a lot of businesses and people.
Last, there are no questions surrounding Nordstrom’s viability, which sadly cannot be said for other department stores or high end merchants like Saks. Look at how many retailers have failed even in times not so nearly as bad as today (e.g., Macy’s–the original, not the Federated version).
What I see Nordstrom doing with their assortments is re-balancing their mix toward more moderate price points. It’s not that they’ve abandoned top-line price points, it’s that those price points don’t make up as great a percentage of the mix as they have in the past, while lower price points have taken a greater share. I think this is a very sensible approach.
I wish the article had gone into a little more detail about what this “scenario planning” involves, since the changes discussed–slowing expansion, broadening price lines–seem to be along the conventional lines (i.e. “reaction”), while scenario planning usually sounds good in theory. After all, how many people are going to say “oh no, best to be unprepared? It often involves choosing between mutually exclusive paths (e.g. riding out a downturn vs. seizing opportunity)…Montgomery Ward’s (in)famous retrenchment following WWII being a classic example of the right idea/wrong time mix.
Ii find the “scenario planning” to be a key difference, and applaud Nordstrom for being ready vs. reactionary. Reactionary retailers continue to slash and discount, asking vendors to take margin hits, all of which send everyone’s ability to forecast and plan with rational heads out the window. Nordstrom will emerge stronger as it continues to please the shopper with the right inventory for the times as well as a continued focus on its brand promise of superior service and attention.
Mr. Ramey is right; Nordstrom does act as agents for its customers and Mr. Goldberg is Right; Nordstrom simply needs to assert and maintain its incredible passion for service and they will be fine. Also, it IS POSSIBLE to add in lower price point articles which still maintain style. These are available with in the supplier channels and private label may be the vehicle to utilize.
Quality does not need to be compromised. Due diligence by the buyers will pay off. People always need basics as well, and merchandise mix can change season to season so the lower price points do not need to be permanent–although I agree with another commenter that in “the old days” there did seem to be much wider price levels available than more recently.
All said, they remain Great merchants.
Nordstrom’s main draw has always been customer service. If they keep the customer service good, they will always be a good place to shop. They need the variety of pricing also. People are shopping much more prudently these days. Even the rich are looking for good prices. It is the “in” thing these days to tout what a good buy you got on merchandise.