MR Honors The Game Changers: Part One, Nordstrom
MR SALUTES AN INDUSTRY IN TRANSITION AND THOSE TAKING IT TO A NEW LEVEL.”This is a tough business; it’s getting tougher all the time, which demands a lot of humility,” Nordstrom co-president Pete Nordstrom confides in the following interview, which appears in the current Game Changers special awards print issue of MR. Here, read more about our Retailer of the Decade…
NORDSTROM THE COURAGE TO CHANGE
Despite its conservative heritage, Nordstrom has evolved into a fashion leader, risk taker and true retail innovator.
Back in the day, during boring summers when he worked at the store to save money for basketball camp, Pete Nordstrom and his brother Erik would throw shoes at each other in a dark stockroom. “I was probably 13, Erik was 12, and our summer job was to work in the women’s shoe department, mating up singles. For hours on end, we’d go through boxes upon boxes, trying to match pairs. After a while, we’d go a bit crazy and start throwing shoes at each other. I can picture my dad walking in at exactly that moment (he was often lurking around, checking on us), and getting pretty mad. He’d admonish us to be respectful of the merchandise, to try hard, to take our jobs seriously. This was so important to him, which left a huge impression on me.”
Years later, Pete, Erik and their older brother Blake are Nordstrom co-presidents. No longer throwing shoes at each other, they allegedly don’t even argue all that much. As Pete explains it, “We have tremendous respect for the decision-making process here. We don’t need to be involved in everything; our egos are not that big. So we empower our people and give them tremendous latitude to execute. When issues do roll up to us, we discuss them, seek out our commonalities, and generally agree. When we don’t, the person who feels most strongly usually prevails.”
Among the recent decisions putting Seattle- based Nordstrom on an upward course: a newly aggressive stance on acquisitions, collaborations, and expansion. As Pete explains it, it wasn’t until around 2000 (when the company had been through a tenuous period of missteps and precarious sales) that they realized they needed to change. “Ironically, it was our lack of success at the time that forced us to evolve. Had we continued to do what we’d always done, we might not have made it. The success we’ve had since then came from a new curiosity, a willingness to learn from others, that wasn’t engrained in our culture. It took us awhile to figure it out.
“This is a tough business; it’s getting tougher all the time,” Pete reflects thoughtfully. “Maybe I’m just getting older or something, but it requires a lot of humility these days. It’s rewarding but tough: every day is different and you need to apply a lot of energy to reach your goals. I’d say my greatest challenge at the moment is to get the entire company aligned around our goals: to be smart, fast, nimble and customer-focused. In other words, my job is to inspire people to keep evolving. To do this, we needed to get really clear on identifying our core values and best practices to get our people eager to take the journey with us. We needed to learn together. Actually the core values were the easy part: they’d been in place from the beginning, but the practices needed to change. I know it’s all obvious stuff, but that doesn’t mean it’s easy to implement when you’re turning around a company that’s always done things a certain way. Fortunately, we had the support of our dad and the Board to do whatever was necessary.”
“BUSINESS TODAY IS DRIVEN BY CUSTOMERS’ APPETITE FOR NEWNESS.” – PETE NORDSTROM
Asked to define those core values and best practices, Pete doesn’t hesitate. “We put the customer front and center of all decision making. Once you do that, it makes the rest easy! And since customers’ needs and wants change, it forces us to change. You can’t have a company whose number one goal is to improve customer service without making customer service a foundation element in all decisions. It was important that we backed up our goal with relevant actions, which wasn’t always easy since those actions sometimes conflicted with what employees wanted to do. To this day, not all our decisions are always popular, but as long as we’re clear about what they are, and about the fact that they’re customer-driven, it gets people aligned around our philosophical approach and it’s pretty liberating.”
Embracing change, Pete reiterates, is not always easy for a 118-store company, which is why collaborations have been so important. “It’s all about doing things that will be compelling and relevant to our customers. There’s always new stuff out there: you don’t have to invent it, you just have to find it. We look for companies with compatible long-term goals; we test in select doors and we try to act like a small nimble retailer. For example, the Topshop/ Topman collaboration has been great for us: it not only attracted new customers but it also made our regular customers happy. They wanted fashion, they wanted newness, and Topshop product wasn’t widely available in the States. Plus, it’s amazing how well known the brand already was to our customers: we didn’t have to run big marketing campaigns; we put it out and it sold. Yes, they do things a little differently which has sometimes been challenging to us in terms of our practices and our egos. But when you’re open to learn, really good things can come of it.”
Pete describes the recent Trunk Club acquisition as another good fit. “It was a natural for us because of their customer-centric model. If we didn’t buy them, we would have figured out how to do it ourselves. (The decision always comes down to: Can we develop this ourselves? How long will it take? How much will it cost?) Bottom line: if there’s a way to improve customer service, we want to be part of it and Trunk Club is really good at it. Plus, they do a lot of business. Yes, it’s different from how we do business but that’s a good thing. With a big company like ours with all this history and legacy it’s often hard to change. So it’s truly exciting to work with a start-up that’s energized, ambitious, nimble, focused on knocking down barriers and making things happen. It reminds us of what this business should be about, and it’s been truly inspiring to our team.”
Asked about retailers he most admires or strives to emulate, Pete cites nearly every single one of his competitors. “I’ve had the good fortune over the years to meet, and learn from, many of our competitors, and I believe I have a good relationship with all of them. I know, and admire, Karen Katz and Jim Gold: we have tremendous respect for what Neimans is doing. Also for Ron Frasch, Steve Sadoff and Marigay, formerly at Saks, for Josh Schulman at Bergdorfs, and Mark Lee at Barneys… I believe we have a certain mutual respect and camaraderie: I truly enjoy knowing these very smart and interesting merchants. I realize we’re all trying to do the same thing, but for some reason it’s pretty friendly. Among other mentors: Mickey Drexler (we’re working with him on Madewell), Sir Philip Green at Topshop (there’s so much to be learned from him), Paolo De Cesare, CEO and chairman at Printemps and Andrew Keith, president of Lane Crawford. For me, these relationships have been super valuable: even if we don’t compete directly, we share many of the same challenges so we can learn a lot about great ideas and solutions to problems, interpreting these in ways that work for us. We don’t always need to invent stuff: we just need to interpret from great role models.”
“We put the customer front and center of all decision-making: once you do that, it’s pretty liberating. It makes the rest easy!”
Among the more controversial matters of the moment, curious minds want to know, why did Nordstrom switch from their postseason semi-annual sales to more frequent inseason promotions? Pete downplays the controversy. “The half-yearly sales came from footwear. Shoes turned twice a year so you clear out twice a year, which was great until we got more into the apparel business and turns started speeding up (even in footwear). We’ve always matched price with competitors so we were marking down by department throughout the year anyway. So we decided we might as well do it in an inclusive way and consolidate events on a more regular basis. It’s not about finding a way to boost volume by having more promotions and sales: that’s not what we’re about; we care more about newness and flow. So rather than have separate sales for each category, we now have all departments participate six times a year, and as it turns out, we’re actually on sale fewer days per year than we were two years ago. Of course our goal is to run a clean business but the reality is that if you want to turn fast, you need markdowns. It’s not the clearance, but the newness that drives sales.”
Is he nervous about the much heralded opening of their New York City flagship, now scheduled for fall 2018? “Yes I’m nervous,” Pete confides, surprised by the rhetorical sounding question. “This is our single biggest investment by a lot and our aspirations are huge: we want this to be one of the world’s greatest stores. Period. Of course we have an aggressive sales plan (and of course I’m not revealing it…). There’s great competition in New York City: there are great stores and they all do a lot of business, which is both motivating but daunting because they’ve been doing it for a long time and we’re just getting started here. We know we’ve got to earn the business; no one’s going to hand it to us. So we spend a lot of time looking at what others do and how they do it. Our objective is not to copy, but to determine how to deliver the best possible Nordstrom experience in the world’s most dynamic marketplace. There are things we believe we do really well, but there’s a big gap between aspiration and execution in a competitive city like New York. Our store has to be beyond compelling. It needs to exceed all expectations, which is occupying a big bunch of our mind share right now.”
“WHEN YOU’RE OPEN TO LEARN, GOOD THINGS CAN COME OF IT.” – PETE NORDSTROM
Asked about international expansion, Pete talks about Canada, projected to represent a $1 billion sales opportunity over time. “We’re there because we think the potential is huge. Then if we do well there, it could inspire other opportunities abroad. But this was the most logical first step: first of all, it’s close by and easier to manage; second, we’ve had the Canadian customer shopping with Nordstrom for years and years. Yes it will be difficult: it’s challenging and of course it’s expensive, but we’re confident that we can build a fabulous business there. We have no other plans for international expansion at the moment but if the right opportunity comes along, we’re open.”
Although the company is getting plenty of press these days, the Nordstrom family personally eschews the limelight (“Please don’t put us on the cover; it’s not about us,” Pete insists.) He does, however, answer a personal question about his wardrobe. “Okay, at the moment I’m wearing Incotex pants, a Nordstrom brand dress shirt and a Todd Snyder blazer. I like clothes, but at six foot seven, I’m often limited by what I can find to fit me. Even so, I’m dressing a lot more modern today than I was a few years ago. Menswear business these days is largely driven by fit, and fit keeps evolving. The current trend, pants and sportcoats worn slightly shorter, is certainly not a problem for me!”
2014 Full-Year Financials
Total Sales: $13.1 billion
Full-Line Store Sales: $7.7 billion
Nordstrom.com Sales: $2.0 billion
Nordstrom Rack Sales: $3.2 billion
Total E-commerce Sales: approx. $2.5 billion including Nordstrom.com, HauteLook, Nordstromrack.com and Trunk Club.
Number of Stores: 118 full-line stores in the U.S. and Canada; 178 Nordstrom Rack stores. Nordstrom also owns Trunk Club, Jeffrey and HauteLook.
Growth Plans: Three new and one relocated fullline stores; 15 Rack stores this fall. Announced goal for Rack stores is 300 by 2020.
International: Two stores in Canada (Calgary and Ottawa); four more by 2017 (Vancouver this September and three in Toronto: two in 2016 and one in 2017). No plans beyond Canada, “but if opportunities arise, we’re open.”
Nordstrom Inc Financials: 1st Qtr 2015
According to public reports, first quarter sales were up 9.8 percent to $3.16 billion; net income was off 8.6 percent to $128 million due to investments in new store openings, remodels and online initiatives. For fiscal year 2015, the company has allocated $1.2 billion in capital expenditures.
Answering questions about the figures, Blake Nordstrom virtually cites a mission statement. “The company is uniquely positioned to serve customers through multiple ways: fullprice, off-price, stores and online. This approach links our business through service, products and capabilities.”
Not overly concerned about cannibalization of full-line stores to off-price and online, Blake notes that Nordstrom is “squarely focused on serving customers on their own terms, and delivering the high level of service they expect from us.”
Nordstrom Timeline Highlights
1901: Founded by John W. Nordstrom, who arrived from Sweden in 1887 at age 16 with $5 in his pocket. After working in mines and logging camps, he heads to Alaska in search of gold and returns to Seattle with $13,000. Opens a store with shoemaker Carl F. Wallin based on service, selection, quality, value. (First day sales: $12)
1933: Nordstrom grows into the largest independent show chain in the U.S. (8 stores and 13 lease departments)
1971: Nordstrom goes public
1973: Opens the first Nordstrom Rack; total company sales surpass $100 million
1988: Nordstrom opens its first East Coast location: Tyson Corner, McLean, Va.
1998: Launch Nordstrom.com
2000: Nordstrom acquires Faconnable
2005: Purchases a majority interest in Jeffrey. “I learned a lot about merchandising from working with Jeffrey Kalinsky. Having small stores forces editing that leads to a ‘best of the best’ assortment,” says Pete Nordstrom.
2011: Nordstrom buys HauteLook
2012: Online sales reach $1 billion; Nordstrom partners with Topshop/Topman
2014: Announces plans to open full-line stores in Canada, and a Manhattan store in 2018
2015: Blake, Pete and Erik Nordstrom named co-presidents of the company