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The integration imperative at Nordstrom - striking the omni-channel balance

Stuart Lauchlan Profile picture for user slauchlan March 4, 2018
Integration of offline and online is imperative for a successful omni-channel retail strategy. Nordstrom reckons it has had a headstart that's paying off.

Nordstrom bag
Here at diginomica we’ve spent a lot of time over the past year or so looking at examples of retail companies which have managed - or are attempting - to strike the elusive omni-channel balance between online and offline.

As more and more CEOs come to the realization that it’s not all about ‘being Amazon’ and chasing everything online, more and more retailers have started to fall back in love with their stores as an asset that can complement digital channels. While there have been a lot of ‘fire sales’ of real estate, that’s all part and parcel of the rebalancing exercise going on.

What the end goal needs to be is an integrated online/offline ecosystems of channels and platforms. That’s not ever going to be the easiest of things to achieve and it certainly won’t happen overnight for any of the ‘legacy’ retailers. But with patience and pragmatism, the scales can be balanced.

Take Nordstrom as an example, where CFO Anne Bramman argues:

The economics of serving customers are greatly enhanced by having combined digital and physical assets in a given market… In our full-price business, we have a high-quality portfolio of around 120 full-line stores in roughly 50 markets across the U.S. In these markets, the profit per customer is more than double that of markets without a Nordstrom store presence. This market-focused approach informs how we allocate capital, leverage our capabilities and measure our success.

We have now reached a point where our full-price digital business is at a scale in which costs to serve customers are comparable across our stores and online channels. This year we are planning for a turning point in improved profitability as we scale our generational investments and leverage our enterprise capabilities.

What this means in practice is a more vigorous pursuit of omni-channel integration and an overhaul of thinking away from online and offline to a single vision, she adds:

We're increasingly managing our business primarily through two brands, Nordstrom and Nordstrom Rack, rather than by channel. This includes migrating our metrics from a legacy store view to those that are more relevant to how customers are engaging with us.

Integration imperative

This is all possible because Nordstrom got the memo about integration earlier than some rivals, suggests company President Blake Nordstrom:

We invested early in our omni-channel capabilities integrating our inventory across our stores and online over a decade ago. This has enabled us to serve customers in multiple ways. Today we have more than 60 combinations in which merchandise is ordered, fulfilled and delivered. Through these investments, we have strengthened our foundation to better serve customers and gain market share.

In our Nordstrom business, we have made meaningful progress in meeting customers' expectations around speed, convenience and personalization. We offer a number of ways to serve them on their terms seamlessly across stores and online. Our services such as Buy Online, Pick Up In-Store, Reserve Online & Try In Store, and Style Board grew by more than 30% over last year.

Overall, digital growth is impressive, he adds:

Our accelerated investments in our digital platform continue to pay off with digital sales representing 30% of our full-price business… has 700 million annual site visits offering expanded selection in key brands and categories. Over time, about one-third of our off-price customers cross-shop in our full-price business. In addition, and HauteLook represent our fastest growing business to reach $1 billion. In 2017 it accounted for 18% of off-price sales and had new customer growth of 45%. Its integrated digital and physical experiences led to 85% of online returns being made in store, which drove more than 4 million store trips in 2017.

The overall message is that it’s full speed ahead on further integration, confirms Nordstrom:

We're focusing on further integrating our digital and physical assets in our top markets to deliver best-in-class services and experiences. We will bring our capabilities together across supply chain, technology, marketing, product and services to create a digitally connected and differentiated experience for customers to shop on their terms.

Coming up for 2108 is a major pilot project in Los Angeles, where Nordstrom has 6 full-line stores, 27 Nordstrom Racks, distribution and fulfilment centers and Nordstrom Local and Trunk Club presence. It also serves 4 million customers online from the LA geography.

Pulling all that together is a challenge that will deliver important learnings for other regions. Erik Nordstrom, co-President, explains:

We've been investing pretty significantly against adding capabilities, certainly digital capabilities, but also capabilities in our stores to serve customers in the new ways they want to be served. Many of these capabilities are in place, yet they're not linked.

So we see the opportunity . First, we think we can move faster for the whole company by focusing our efforts in Los Angles to learn quickly. But we see the opportunity to link many of these capabilities to really make a difference with customers. So our focus is this year to move fast in Los Angles to connect these capabilities, both physical and digital, and learn a lot, to where we can start scaling out to the rest of the company in 2019 and 2020.

My take

The LA pilot is clearly going to be one of Nordstrom’s most crucial omni-channel pushes to date. Get it right in such a busy market and what emerges in terms of learnings - both painful and beneficial - should set up the retailer well. If the current rumors of the family-founded firm being taken private are true, then that will enable it to move even quicker towards pushing an integrated digital/physical agenda.

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