Nordstrom heads into the Holidays as a born-again "digital majority" retailer...but will it last?
- Nordstrom's benefitted from the COVID crisis in terms of morphing into a digital-dominated retail business - for now at any rate.
US retail institution Nordstrom heads into the Holidays having passed an important milestone in its omni-channel transformation as the majority of its revenue - 54% - now comes from digital channels.
For a legacy bricks and mortar retailer whose omni-channel journey stretches back two decades and hasn’t always been a smooth one, that’s a big deal, although it comes with an important caveat as the online/offline mix picked up a boost from the decision to pull forward its annual Anniversary Sale from Q3 to Q2 this year. Whether the revenue split remains digital-dominant won’t be clear until early next year when Q4 numbers, incorporating the crucial Holidays spend, are released.
But for now at least, Nordstrom is a born-again digital-first retailer, with online sales of $1.6 billion and a digital revenue share up from 34% of total this time last year. CEO Erik Nordstrom says:
We view this as a fundamental shift in shopping behavior and we are well positioned to support our customers across both Nordstrom and Rack [brands] with a scalable platform that has been built to support many years of growth. We also know that we must translate the heritage of service that defines us more effectively in this digitally connected world. This means delivering personalization at scale by creating greater linkages between the digital and the physical experience.
The COVID crisis-inspired wider shift to online retail has of course helped in this, he admits:
COVID was less about change that no one saw coming [than] a massive acceleration of change that was already in place. Two things in particular. One, the shift to digital…The other piece is the business model. We have been evolving our business model and certainly one of the driving factors in that is not just the shift to digital, but the changing role of stores as we fill more orders out of stores and do more order pick-up, having those capabilities and really having to change the organizational model that we have in stores. COVID accelerated both those things in a big way. And yes, I would say, we would not be where we're at today if it wasn't for COVID. I mean that got us very focused on embracing the new world where we're a majority digital [retailer].
Some 25% of digital orders are currently picked up at Nordstrom or Nordstrom Rack physical stores. In October, the firm rolled out capabilities to allow customers can now pick up their nordstrom.com, nordstromrack.com and HauteLook orders at nearly 350 locations in the United States, as well as opening fourth local Nordstrom neighborhood service hub in the Los Angeles market with a fifth site opening later this year.
The discount price Nordstrom Rack brand, which provides a third of overall business, is proving particularly helpful in the omni-mix with online now making up 40% of its sales with the Rack app chalking up 3.5 million apps to provide the highest converting channel in the Nordstrom empire.
Nordstrom Rack is also competitively positioned as the only off-price retailer with a significant digital platform, says CEO Nordstrom, with more than 80% of the top 200 brands at the flagship Nordstrom itself also carried at the Rack. The brand has also adopted some of the inventory management and fulfilment practices of the main store, he explains:
For more than 10 years, our Nordstrom full-price business has been able to use all sources of inventory across stores and fulfilment centers by having a single view of inventory. In October, we launched these capabilities in Nordstrom Rack, enabling online order pick-up, expanded selection and store fulfilment. We added 30,000 more customer choices online and nearly one quarter of our online orders are fulfilled from stores. Additionally, we're already seeing strong customer response with more than 10% of online orders being picked-up at Rack stores.
By connecting our store inventory, our Rack store inventory, with our e-commerce business [and having] Rack.com and HauteLook being able to do store fulfil and store pick-ups is a big deal for us. It also allows for customers even to do a Nordstrom.com order and pick-up at a Rack store. So we have a lot more locations for customers to really receive the merchandise on their terms. We think there's a lot of runway there, not only just connecting the digital and physical parts of our business, but in leveraging the physical assets we already have. We continue to open a few local service hubs. They've performed well, but there's a lot of those services like store pickup and alterations that we're doing in our Rack stores.
So what lies beyond the Holidays? Will the "digital majority" retailer’ mantle hold? Nordstrom is cautious in his predictions:
[There are] two things about our digital business. Number one is its scale. We tipped over to where it's 54% of our total business is digital, so we are a majority digital business right now. It's important because of not only the flexibility it gives us, but the efficiency it gives us. Our digital business is profitable, so that gives us a lot of flexibility and a lot of strength there.
Market strategy is really how we're doing business moving forward and part of that is providing customers more options on how they want to pick-up. I mean, clearly, curbside services and order pick-up is growing - and really growing for any retailers that's offering it. It's particularly important right now, given the uncertainty that we face with the pandemic.
What gives us confidence is we're in a much better position now than we were in March when stores first closed down. Our Rack stores are able to fulfil orders now and so we really don't have any place in our ecosystem where inventory gets trapped. It allows us to offset some shipping expenses…But I think the point for us is that we've got, number one, the scale of digital and number two, the connection to our physical assets to be well-positioned for a majority digital business.
The ‘digital majority’ label is nice, well-timed for the Holdays and worth flagging up for kudos, but until there are a few more quarters under the belt with that title holding fast then it’s still a novelty worth noting more than a permanent change. That said, Nordstrom has put over 20 years into digital and omni-channel investment and deserves to claim its successes, particularly given the current COVID-damaged retail landscape. What will be interesting to observe over the current Holidays period is what happens to the retailer’s bedrock of formal and occasion wear in a party season that has to play out against the backdrop of COVID-19.