Sunday, May 22, 2016

Nordstrom: Re-Imagining Customer Service in an E-Commerce World

The news wasn't good for Nordstrom last week: a 64% year-over-year decline in first-quarter earnings sent its shares tumbling by more than 20%. The luxury retailer, which operates more than 120 full-service department stores and 200 off-price Nordstrom Rack stores, further spooked analysts by cutting its full-year 2016 sales outlook and EPS guidance, and warning that same-store sales would likely decline in 2016.

This wasn't supposed to happen. Long viewed as best-in-class in department store retailing, Nordstrom, analysts and investors believed, had done everything right. Its intense focus on the customer, an up-market demographic, a successful stretch strategy in off-price retailing and an aggressive and promising e-commerce transition positioned Nordstrom for continued success in a retail world battered by's on-line vision.  

Just last August, Walter Loeb of Forbes had the following to say about the company: "I believe that Nordstrom's customer service philosophy has guided their strategic initiatives with great results. I have followed Nordstrom for decades, and management has always put itself in the customer's shoes when making decisions."

Then came the disastrous announcement last November of a same-store sales decline. And now this.

In Building Your Company's Vision, authors James Collins and Jerry Porras outline Nordstrom's Core Values:
  • Service to the customer above all else
  • Hard work and individual productivity
  • Never being satisfied
  • Excellence in reputation; being part of something special
In the first, the company is unwavering. "We will never change our commitment to service customers, but recognize how they want to be served has been changing at an increasingly rapid pace," Blake Nordstrom, co-president of Nordstrom Inc., said in an April statement related to job cuts at the company. "Meeting our customers' expectations means we must continually evolve with them."

This statement offers possible hints at what's gone wrong. For decades, Nordstrom expressed its core values expertly through high-touch, in-store interactions with sales associates trained to deliver excellent customer service and to build long-term customer relationships. Operations aligned well to values.

And they aligned well to profitability. Brick-and-mortar stores cost more, but tend to deliver higher margins, especially in the luxury category. On-line sales, meanwhile, may cost less per unit, but there's more variable cost related to shipping and returns, and there's more price transparency alongside other e-commerce retailers. 

About 20% of the company's sales now happen on-line. Nordstrom expects that figure to hit 30% by 2020.

Nordstrom's adaptive strategy positioned it to capitalize on e-commerce trends and demand for luxury goods at off-price rates. But, as Mr. Nordstrom suggested, the pace of change in retail is rapid. One might infer that while the company's strategy was in-touch with shifting retail dynamics, its leaders may not have adapted quickly enough.

An article on Geekwire (April 18, 2016) outlines changes the company is making to try to redefine superior customer service in an e-commerce world: text-to-buy, curbside pickup, purchasing through Instagram, and others.

In doing so, Nordstrom's hoping to re-define a retail world (Shaping strategy) where the boundaries between on-line and in-store shopping are crumbling, and stay true to its core values....and return to defining retail trends, rather than playing catch-up.

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