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Posted Date: 9/25/2012

Nordstrom's Big Secret Revealed

By Jordan Speer, Editor in Chief
"I haven't done a lot of these things," said Jamie Nordstrom, president of Nordstrom Direct and great-grandson of Nordstrom's founder John Nordstrom, speaking to a large audience at Shop.org's Annual Summit recently in Denver, Colo. Nordstrom joked that his own take-away from conferences he'd previously attended was that companies gave away their strategies and secrets — which didn't seem like such a good idea.

"Now here I am, so I guess I have to tell you all of our company secrets."

So here it is, Nordstrom's big secret [Drum roll, please]: "Improve customer service."

There you have it, folks.

And why is that Nordstrom's master plan?

"Because you sell more stuff," said Nordstrom, adding, "We are not a non-profit organization."
Improving customer service is Nordstrom's No. 1 goal, always.

"How people define customer service — that is where the battle will continue to be won and lost," said Nordstrom.

Focus on the No. 1 goal
Nordstrom enjoys a healthy financial position — $1.3 billion in cash on the books, 11 straight quarters of comp-store sales increases, double the industry average of sales per square foot and the No. 20 position in Apparel's Top 50 companies ranked by profit margins — and an enviable market position in terms of the esteem in which it is held.

But it's not one to rest on its laurels: You "may enjoy a previous reputation," says Nordstrom, "but you're winning and losing it every day."

Nordstrom's customers have higher expectations than they've ever had before, he said. "All the traditional definitions of customer service still exist, but e-commerce has changed those definitions, and added a lot of new ones."

What started as a small shoe store in Seattle will hit 240 stores by the end of the year and ship to 44 countries from its web site. And while pleasing customers in 1901 was much different from pleasing customers in 2012, "The cornerstone of the business has always been the people," said Nordstrom. "We spend a lot of time talking about how we can improve our team. … It's the topic at most of our meetings."

One secret to its team's success is the relative absence of rules and guidebooks. "We don't like to make decisions about customer service in the board room. We leave it to the people closest to the customers. One rule is, use good judgment. By not having a lot of rules, you empower associates to innovate and come up with solutions for customers."

So what is customer service? "Customer service is things that customers value over and above the product they're buying."

To keep customers coming, retailers need to do a better job of creating experiences that customers value, evolving with the customer, so that those experiences always match — and exceed — expectations. "Customers will buy more when they're happy," says Nordstrom.

And while this has always been the case, the challenge is that "what has made them happy has changed," says Nordstrom.

Majority of growth will come from e-commerce
In today's shopping climate, many opportunities for happiness improvement come in digital form, says Nordstrom. Succeeding at providing the best e-commerce experience is crucial. "E-commerce is going to be where the majority of our growth comes from, period," he says.

Citing a statistic that 80 percent of the growth in its space would occur online, Nordstrom says: "We took that to heart." Nordstrom's e-commerce sales are up "40 percent year to date," he said, adding: "We think that is where the battle will be won and lost."

Nordstrom dove into the e-commerce space relatively early and at the time made lots of mistakes, struggling to figure out how to nurture a fast-growing e-commerce business under a big-business umbrella.

By 2000, the company's website was an online version of its catalogs. "You sent me an email. I didn't send you an email. We had disconnects."

The next several years saw big changes, as the company worked to synchronize the online experience with the in-store experience, which required a big investment in systems integration over several years.

More difficult, however, was integrating the organizations, said Nordstrom. The online team thought of itself as the "fast, cool, smart kids" and of the store team as the "old dumb dinosaurs." In addition to struggling with the culture clash, the integration of the channels — focused on providing a single view of inventory and of the customer, and allowing the salesperson and the customer to access any piece of merchandise any time of day from anywhere — created a challenge relative to who gets credit for the sale.

Nordstrom's answer was always: "The customer doesn't care who gets credit for the sale." Still, it was an issue that had to be worked out, and the solution was several years in the making.

By 2009, Nordstrom had for the most part achieved complete integration of its online and store channels, with customers able to shop from anywhere, access inventory from anywhere and pick up from anywhere.

"You need to be best in class in store and online," says Nordstrom. Just because you have a great brick-and-mortar store customers won't "give you credit" for that while they're shopping your lousy online store, and vice versa. Young customers, especially, want a best-in-class experience at all times, whether they are in the store, at home or on a mobile device.

Stores the heart of the business
While e-commerce grows rapidly, stores remain the — expanding — core of the business. After a 25-year search for a New York City location, Nordstrom finally will offer Manhattanites a "true flagship" experience on the corner of 57th and Broadway. Other new full-line stores are planned for Puerto Rico, Jacksonville, Fla., and Houston, as the department store retailer "takes advantage of opportunities when they arise."

Nordstrom also hinted at the announcement which came two days later that it will expand into Canada, with four stores opening in Calgary, Ottawa, Vancouver and Toronto between the fall of 2014 and the fall of 2016.

Its outlet Rack stores have also proven to be great business, says Nordstrom. "They're highly productive. Customers love them. The more we open, the more we realize the opportunity is even bigger than we thought." By 2016, the company expects to reach 230 Rack stores.

Sometimes a Rack store is located literally across the street from a full-line store, but the effect is additive rather than reductive. "One plus one equals more than two," says Nordstrom. Women in particular, he says, understand the thrill of the hunt, which is unique to the Rack store, while full-line stores offer a completely different experience, and "customers want both," he says.

Innovation sprouts from everywhere
Partnerships are also enhancing the in-store and online experiences while taking the business in new directions as well. In 2010, Nordstrom announced a partnership to offer Peek … Aren't You Curious children's wear in its stores and online, becoming the exclusive retailer for the company outside of Peek's own stores.

Then last year, it threw its hat into the flash-sale ring with the purchase of Hautelook, marking the first acquisition of an online private sales company by a traditional retailer. "Flash sales are not a fad," said Nordstrom. "Customers love shopping that way." Mostly, however, Nordstrom says the retailer wants to "learn from those guys." Hautelook is "fast and nimble, can make mistakes and teach us things — that's valuable."

Nordstrom cites the same potential benefits — e-commerce experience, agility — behind its investment earlier this year in men's wear company Bonobos. "Plus, we liked their merchandise, and they wouldn't let us carry it unless we invested."

Most recently, Nordstrom has partnered with U.K.-based fast-fashion retailer TopShop. The chain, which appeals to younger customers, will likely attract a new customer base to the department store and, says Nordstrom, "has potential to be a big part of our business."

In-house, Nordstrom has been cooking up ideas of its own at its much-talked-about "Innovation Lab," a spry, flexible, independent division that tests and creates new concepts each week — for example building an iPhone app — to uncover new ideas for the business.

Innovation is sprouting in other quarters. Nordstrom has dramatically increased its number of personal stylists and invested in in-store technology as it works to transform the shopping experience. The store is finding success on the sales floor with mobile devices, and "in the future will be entirely mobile," says Nordstrom, completely eliminating cash registers and wrap desks.

Currently its mobile devices have about 85 percent of the capacity of its cash registers, but by the spring will far exceed their capabilities. "[Our current cash registers] can't handle the amount of stuff we're trying to pump through them. An iPad or [iPod touch] can do way more than one of those."

Nordstrom also offers free shipping and free returns — "customers like free, in case you were wondering how that's going. That works," quipped Nordstrom, who says the retailer has also made it work economically. Citing customers who increasingly want their merchandise delivered faster, Nordstrom said, "I think we're going to get to the point where same-day shipping is widely available."

On the topic of personalization, Nordstrom noted that while five years ago using personal data to advise customers about what they might like seemed "creepy," customers have shown that they want a personalized experience. Possessing knowledge about a customer will play an increasingly large role in building loyalty with her, Nordstrom believes, citing the way in which iTunes and Netflix create loyalty by providing very relevant recommendations.

"That is going to make you loyal to their brand." More than being about miles, points and discounts, loyalty is "about giving [people] something personalized and relevant that they value."

Jordan K. Speer is editor in chief of Apparel. She can be reached at jspeer@apparelmag.com.

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