"A digital kind of a data-first approach" - Nordstrom's rocket fuel to power up its "digital velocity"

Profile picture for user slauchlan By Stuart Lauchlan November 25, 2021 Audio mode
Summary:
CEO Erik Nordstrom wants the retailer to become faster and more aggressive. Can data analytics provide the rocket fuel to drive "digital velocity"?

Nordstrom

More speed, more aggression and more “digital velocity” - that’s what’s on Erik Nordstrom’s Black Friday shopping list for the eponymous US retail institution of which he is CEO.

While confessing to being too slow to react to the ongoing global supply chain crisis, Nordstrom has - so far - managed to avoid the disastrous impact of it on the bottom line. It’s just turned in Q3 numbers of $64 million net income on sales up 18% year-on-year to $3.53 billion. But that last figure was actually down one percent on the new retail baseline of fiscal 2019.

So Nordstrom wants to see urgent action:

We have long benefited from a commitment to customer service, interconnected digital and physical assets and innovative brand partnerships. However, we need to move faster and more aggressively to better capitalize on those strengths.

And that includes increasing the firm’s so-called "digital velocity". In Q3, digital sales increased 20% over the third quarter of 2019 to make up 40% of overall business. Traffic is returning to some stores and that combines with the digital play to create a solid omni-channel offering, argues Nordstrom:

We are leveraging a strong store fleet that positions us physically closer to the customer and drives value across the business. As a result, we are able to better serve customers and provide greater access to products by linking our assets at the market level.

Our market strategy delivers incredible convenience that provides customers with four times more product available for next-day pick-up, a one-day reduction in average shipping time and the ability to pick up orders at the Nordstrom, Nordstrom Local or Nordstrom Rack location of their choice.

Pick-up is a big deal, he adds:

This quarter, one-third of next-day nordstrom.com orders were picked up at Rack stores, showing continued evidence of the power of integrating capabilities across our two brands and across our digital and physical platforms. In our top 20 markets where our market strategy continues to gain traction, order pickup accounted for 12% of digital demand versus 4% in other markets. Since we launched order pick-up at the Rack last year, we have seen 70% growth in the program. As we head into the holiday season, we are encouraged to see steady increases in order pick-up demand each month, which is evidence that customers are taking advantage of our integrated touch points.

This is advantageous to both buyers and sellers, he suggests:

Buy Online, Pick-up in Store provides our highest satisfaction customer experience, which in turn drives more return visits. It is also our most profitable customer journey. The value of our interconnected model is evident as customers dramatically increase their spend when engaging across multiple channels, banners and services. For example, the average customer that shops across both banners, in-store and online, spends over 12 times more than a customer utilizing a single channel.

Digging into data

So, given all of that, what is the plan for accelerating that velocity? According to Pete Nordstrom, President and Chief Brand Officer, the answer lies in digging down deeper into data analytics to drive strategic planning - or as he pitches it “a digital kind of a data-first approach”. He explains:

I think what you're going to see from us is more of a surgical effort to leverage that data to make markdowns, both related to timing and depth of markdowns in a way that maximizes the profitability. I know that sounds obvious and we've always been a version of that. But I think taking kind of the extra step to take a more analytical approach to that is something that we think will bear fruit and something we piloted and worked on the past, but I think we can apply that methodology more broadly, and we believe that there's a lot of goodness that can come from that, that will affect our profitability positively.

He points to the use of dynamic pricing analytics to optimize promotional effectiveness and improve the pace and depth of markdowns to move product profitably at the end of each season, an initiative he expects will deliver benefit in Q4. Next up will be a push to improve category management processes, he adds:

We are using a data-driven, customer-centric approach to define the role of each category at Nordstrom and Nordstrom Rack and then optimize our assortment for the role each category plays.

But first there’s the all-important Holidays season to navigate and here again it’s analytics that hold the key, he argues:

To drive holiday performance, we're leveraging analytics as well as learnings from our anniversary sale, where we combine the art of merchandising with data-driven insights to put the right assortment in the right place at the right time. Through our customer analytics work, we learned that we have a lot of opportunity to expand holiday gifting. And in response, we significantly expanded our gifting assortment and featured gift shops, both in-store and online.

He also points to choice count expansion from partnerships with Fanatics and ASOS. Such partnership are very much part of Nordstrom’s roadmap, he  explains:

Nordstrom.com customers will now have access to Fanatics industry-leading assortment of high quality licensed sports products. This partnership demonstrates our ability to increase choice count quickly and at scale. With Fanatics, we'll scale to 90,000 new customer choices on nordstrom.com, an increase of over 20% in our total choice count without a corresponding increase in owned inventory or labor.

We're also excited to advance our partnership with ASOS and offer a broader assortment to better meet the needs of 20-something customers. We launched select ASOS brands on nordstrom.com and in two pilot stores this month. Though we are in the early days, preliminary reads are very promising. We'll expand our in-store ASOS offering with a market rollout launch this spring. Nordstrom stores will be the only physical locations in the world where customers can buy ASOS product, and we are excited about our opportunities to build on this partnership.

My take

You can’t really argue with “a digital kind of a data-first approach”, although clearly the question here is how that moves from buzzword bingo to practical deliverables on the shop floor. How effectively Nordstrom can execute on this remains to be seen. Let’s see where we are when the Q4 numbers come out in a few months. The supply chain crisis will cast a long shadow over the entire retail sector and it’s unlikely that Nordstrom will escape the damage.