Nordstrom is building out new retail strategies that will drive sales and promote customer loyalty, and it’s using its largest market, Los Angeles, as a test bed.
The company has found that customers who shop both online and in stores spend five times more than customers who only shop one or the other, and that customer profitability doubles, per its most recent earnings. It’s been investing in its e-commerce platform by launching capabilities like buy online, pick up in store, and in the second quarter for financial 2018, sales for that channel rose by 25 percent. (The company doesn’t break out specific revenue figures for its e-commerce business.) Overall, comparable sales were up 7 percent over last year.
To make the most of customer dollars, the company is putting resources behind new store strategies that can complement that growing online business, a targeted marketing approach segmented by region, and an improved and localized supply chain that can speed up the production cycle and make it work more efficiently.
All of this will play out in L.A. over the next year before it goes nationwide. The company claims to have 4 million customers in the Los Angeles area, worth $1 billion in full-price sales from 16 Nordstrom stores and online. (Full-price sales account for Nordstrom purchases, excluding Nordstrom Rack and HauteLook.) By the end of 2019, the company plans to open a West Coast fulfillment center, as well as two more Nordstrom Local stores, its smaller, inventory-free retail stores that act as physical outposts for online orders and returns. The first Nordstrom Local opened in L.A. in October of 2017.
“Through our focus on our top markets, we’re combining the scale of our national infrastructure with our local assets of people, product and place to drive increased customer engagement and gain market share,” said Nordstrom co-president Blake Nordstrom during the Thursday earnings call with investors. “We’re starting in our largest market, Los Angeles, where we’re bringing all of our digital and physical assets together in a seamless ecosystem.”
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The investments in supply chain and a new retail model that supports online purchases come at a time when Nordstrom is revamping other parts of its business, including merchandising and store strategies, as peers like Macy’s and JCPenney see declines. The company has accommodated expanded merchandise recently, by pushing for more extended sizes from brand partners as well as investing in direct-to-consumer brands. Its first standalone men’s store opened in New York earlier this year, and a full-line Nordstrom store will open in the city in 2019.
“What Nordstrom is doing is helping it to become one of the most well-run department stores today,” said Ed Gribbin, CEO of retail analyst firm Alvanon. “They put the customer first. Everyone says that, but they do. They give the customer what they want, and they don’t want what they see when they walk into another department store.”
With the new updates, Nordstrom will test its West Coast fulfillment center, with the goal to get inventory more in step with customer reactions and behavior, and more efficient in the long run. It will also test the Nordstrom Local concept by opening it up to more customers in L.A.: The company hasn’t shared specific results on how the first Nordstrom Local has performed, but it’s closely watching how its “beta customers” are responding to features like online orders and personal styling appointments. If successful, both formats — localized fulfillment and Nordstrom Local — will roll out nationwide.
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“We know we’ve got a big opportunity [in Los Angeles] to increase market share and do a better job for customers,” Nordstrom said.
