Nordstrom Needs to Keep its Focus on The Magic
I fell in love with Seattle when I first visited in 1991. As a token of my affection, I applied for a Nordstrom credit card. Even though I lived in Denver, which had no store it didn't matter. I was carrying a little slice of Seattle in my wallet. Soon I found out why Nordstrom was special as a retailer. Denver cardholders were invited to take free-chartered flights to Salt Lake City where Nordstrom’s had a modest store. Nordstrom was rewarded in sales from the visiting Denver population. We enjoyed the impeccable service, the upscale products and all that Nordstrom has to offer.
Today, Nordstrom operates seven full stores and Nordstrom Racks in the Denver area alone. From a modest Seattle shoe store, Nordstrom has grown to 329 stores in 39 states, including 121 full-line stores in the United States, Canada and Puerto Rico. The Nordstrom's flagship is in the up enemy of a classic department store and is in downtown Seattle. It still is a grand piano as part of the shopping experience. Publicly held and family-run, Nordstrom accomplished this growth while other department stores were consolidating or vanishing. Rarely has such an active business been pulled off. Along the way, the company succeeded by the special culture of desire with which is seduced market aftermarket.
Yet now the ride seems to be definitely facing some turbulence. Although the company beat Wall Street expectations in its recent quarterly earnings report, this is only a reprieve from deeper troubles. Growth has stalled after steady increases through last year, when shares hit a record $80. People are buying less apparel and more electronics instead. Many suburban malls have never recovered from the great recession. Broader shopping tastes have changed. Online shopping is a challenge to traditional stores with Amazon as a hometown serial killer.
Nordstrom is not alone in these challenges. Macy's has said it will close 100 stores. Other apparel retailers are struggling. But it's noteworthy that these forces have reached Nordstrom's. Every city has its unique local department store. In Cincinnati it's Shillitos. In Chicago, Marshall Fields. Philadelphia has Strawbridge and Clothier, and Phoenix has Goldwater's. Even as the stores merge into larger companies they usually kept their local names.
Department stores were powerful and beloved by shoppers for their selection, service and sumptuous settings. Customers made a trip to their favorite department store for a special event. These stores made their way into the suburban malls and usually were a valuable anchor of the mall. The dominance began to fade with discount retailers. The great destruction came not from customer behavior but because of a corporate raider in the 1980s. Financier Robert Campeau used junk bonds to acquire Allied Stores in 1986, then the old Federated in 1988. He amassed 7 billion in debt making the acquisitions, too much for the stores to ever pay off. The giant company filed for Chapter 11 protection in 1990 and was the largest retail bankruptcy in history. This bankrupted more than 250 profitable department stores. The dramatic jolt to Bloomingdale's, Abraham and Strauss, Jordan Marsh and other proud stores reflects his overreaching grasp and oversized ego. Federated emerged without Campeau and went on to acquire another big chain, May, and changed his name to Macy's. Nordstrom's however avoided the clutches of Campeau and went on its remarkable expansion. The reason this history is important is that department stores have been written off before and of come back.
Nordstrom still has his appeal for baby boomers that have money to spend, even if it is struggling with millennial's. Nordstrom Rack stores are more popular with a wide demographic. The company is implementing such strategies as partnerships to sell limited distribution brands such as J Crew. They recently launched online coupons for Nordstrom to attract more customers.
The leadership under Blake, Eric and Peter Nordstrom knows the company has a problem. No denial or deflection. Upping the company's game online will be a critical challenge and some store closures may also be inevitable. For example Nordstrom last month closed in downtown San Diego where it was one of the original anchors of Horton Plaza. The second worst mistake management can make would be to forget the tactile, sensory and social pleasure of shopping in a classy store with great service and amenities. Maybe we are reaching a point where things don't matter but I don't think so. Customers want to shop in a store and online as well. Nordstrom's could be the store with this magic continues to be made. The only other worst mistake management could make would be to fall into the clutches of a latter-day Campeau or into other destructive financially driven wormholes.