Nordstrom Department Store Accelerates Successful Market Strategy Heading into 2020

Department store retailer Nordstrom has been strategically pairing Rack and flagship stores with smaller Nordstrom Local stores in the same area, to increase access to both inventory and services.

The retailer has found success scaling its market strategy and now says it will accelerate the tactic to its remaining top 10 markets by the end of 2020 through a focus on shared inventory and access to services.

Nordstrom’s acceleration also includes plans to open more Nordstrom Local service hubs in Los Angeles and New York, while leveraging additional Rack locations to offer express services, such as order pickup, returns and alterations.

“Our goal is to gain market share while driving customer engagement and inventory efficiencies,” said Erik Nordstrom, co-president, Nordstrom, Inc. in the retailer’s recent earnings call. “There are two elements to this strategy. First, we're giving customers greater merchandise selection with faster delivery without increasing inventory levels. Second, we're engaging with customers by offering express services, such as order pickup, returns and alterations at additional locations.”

Leveraging inventory in stores, close to customers, allows Nordstrom to provide shoppers a bigger selection at a faster delivery time, while helping the retailer’s inventory efficiency significantly.

“Our market strategy is transforming our business model in how we’re serving customers,” said Erik Nordstrom. “We have a unique mix of assets – Full-Price, Off-Price, stores, and online – and we are further linking our businesses to serve customers in new and differentiated ways.”

Nordstrom recently expanded its market strategy to New York, San Francisco, Chicago and Dallas to offer shoppers a larger selection of inventory available for same-day pickup or next-day delivery. Since scaling its market strategy in Los Angeles, third quarter 2019 sales growth outpaced other markets by approximately 100 basis points.

“Leveraging existing store assets and digital capabilities enabled us to implement their shared inventory approach without making additional material investments,” explained Erik Nordstrom. “Order pickup is our most profitable transaction…This represents a meaningful opportunity to increase convenience for customers during the holidays and at a lower cost for us.”

In the third quarter one half of digital sales growth came from order pickup and in Los Angeles, where the company is most advanced in its market strategy, two thirds of digital sales growth came from in-store or pickup.

“That's going to be a big part moving forward and we are like barely in the first inning on that one,” said Erik Nordstrom.

Nordstrom’s digital sales grew 7% in its third quarter and represented 34% of the business. The department store includes both online sales and digitally assisted store sales in this number, such as online order pickup, ship to store and Style Board, a mobile selling tool that allows salespeople to create digital boards filled with personalized style recommendations which customers can purchase from Nordstrom.com.

Nordstrom reported earnings that exceeded expectations as sales trends improved across both its full-price and off-price businesses. It raised the lower-end of its full-year profit forecast and said it now expects full-year earnings to be $3.30 to $3.50 per share, up slightly from a prior per-share range of $3.25 to $3.50.