Rise of e-commerce triggers Nordstrom to rethink business model

An overhaul of its store-based model and diversification of retail channels could prove invaluable for the luxury department store as it navigates through the pandemic

The rise of e-commerce brought on by the coronavirus pandemic has prompted luxury department store group Nordstrom to rethink its business model.

Overhauling its traditional store-based model, the American chain is making a rapid transition to a digital-first strategy, the beauty and fashion retailer announced at its Investor Day presentation earlier this month.

A fundamental change will be Nordstrom's sales brought in by wholesale. Today that figure makes up 85% of the businesses revenue, but will reduce to 50% from as part of the new model.

The move means more sales will be generated from drop ship, concession and revenue share from Nordstrom’s brand partners, which include cult beauty brand Glossier.

“We have developed this strategy in a retail landscape that has experienced a period of accelerated change,” said Erik Nordstrom, the group’s CEO and Principal Executive Officer & Director.

“We have seen a transformation in who the customer is, what the customer wants and where and how the customer shops. And as a result, exceptional service, which has been the hallmark of Nordstrom since its founding has changed as well.”

Under the new model, Nordstrom has set its sights on reaching US$17bn in sales, while expanding its profit margins by 6%.

Surviving a pandemic

Against an increasingly bleak outlook for the high street, this diversification for the retail Behemoth could prove invaluable protection from the effects of the Covid-19 pandemic.

The loss of Britain's department store staple Debenhams and Nordstrom competitors Barneys and Neiman Marcus filing bankruptcy are stark reminders that the death of the department store chain is not just a possibility, but a reality.

“The pandemic only accelerated shopping preferences that were already shifting online,” Romulus Grigoras, CEO of omnichannel service OneStock told Cosmetics Business.

“These habits are unlikely to change, so retailers need to make store shopping as convenient as possible if they are to compete with pure players with low fixed costs and massive warehouses.”

To guarantee its survival, Nordstrom intends to marry two principles: convenience and connection.

“Convenience comes from leveraging infrastructure to better serve customers how they want to be served,” added Nordstrom’s chief exec.

“Connection means knowing the customer, being relevant and being able to personalise the experience digitally and in-store. We are in a unique position to provide this to our customers as it builds from the principle of service that is in our DNA.”

Customers should also brace for an influx of Nordstrom private label brands.

Through its private label business, Nordstrom Product Group, the century-old retailer expects to double its market penetration to 20% by 2025.

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