Nordstrom Analysis

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The value-creation logic for related diversification is leveraging core competencies. Nordstrom has created value mostly by leveraging its customer-service core competence across the companies it has acquired. Since the company’s beginning, Nordstrom Inc.’s “raison d'être has been to do whatever it takes to take care of the customer.”[16] Each of Nordstrom Inc.’s recent acquisitions lists customer service as a priority. Trunk Club offers “convenient” and “highly personalized”[17] service, and Jeffrey promises warm and friendly service[18] to its customers. These companies not only value great customer service, but they also enhance and vary the Nordstrom shopping experience. Customers can choose to shop for full-price or discount merchandise either in store or online through Nordstrom Inc.’s acquired companies and its developments. Everything Nordstrom Inc. does is for its customers, even its diversification. Nordstrom Inc.’s acquisitions and developments make it easier to give its customers what they want as well as improve its customer-centric business model.

To compete with luxury clothing store chains Saks Fifth Avenue and Neiman Marcus, Nordstrom made a strategic move by acquiring Jeffrey. After the acquisition, Jeffrey Kalinsky, the founder of Jeffrey, became the vice president and designer fashion director at Nordstrom, thus leveraging Jeffrey’s core competency of procuring the latest, most exciting fashions[19] to Nordstrom. Nordstrom hopes that Kalinsky’s knowledge of high-end fashions will change the public’s perception of the store as a “middle-of-the-road” fashion retailer into a designer or luxury fashion retailer.

Nordstrom Inc. has also engaged in backward vertical integration. Since 2014, Nordstrom has been selling clothing in its stores under the private label Treasure&Bond[20]. The label offers clothing that is “funkier” than what is typically sold in a Nordstrom store[21]. Also, five percent of net profits of Treasure&Bond are donated to a nonprofit that empowers youth[22].

Nordstrom Inc.’s business-level strategy is differentiation through its superior customer service and quality products. All of Nordstrom Inc.’s business segments offer brand name and designer merchandise at full or discounted prices. The true differentiation factor for Nordstrom though, is its customer service. Nordstrom’s employee handbook advises that its employees stay true to the company philosophy to “use good judgment in all situations.” This empowers employees to work and make decisions autonomously and better serve the customer[23]. Nordstrom believes that the people who are closest to the customers should make the decisions. Nordstrom has also implemented new services such as Buy Online & Pick Up in Store and curbside delivery[24] to make shopping more convenient. In all, customer service is rooted in all aspects of the company’s culture and is seen as an imperative means of differentiation.

Nordstrom Inc. has only recently become an international firm. It opened its first international full-line Nordstrom store in Calgary, Alberta, in the Fall of 2014. Nordstrom has also added stores in Vancouver, Ottawa, and Toronto[25]. Nordstrom entered Canada mostly by remodeling former Sears department stores but a new store expected to open in the Fall of 2016 will be built at Toronto’s Sherway Gardens[26].

Nordstrom’s internationalization is consistent with the CAGE distance framework. Canada’s proximity to the U.S. and the cultural similarities between the two countries make it a natural stepping stone for Nordstrom’s internationalization. Over 15,000 Canadians are already Nordstrom credit-card holders[27] and Canadian consumers are likely to be familiar with brand carried in Nordstrom stores. The purpose of this internationalization was to increase market share by growing the business through new entering new markets. The Canadian market is promising considering that “sales per square foot at Canadian malls were almost 50% higher than sales per square foot in American Malls”[28]. Nordstrom’s Canada stores have yet to turn a profit but are boasting impressive sales numbers. At the Calgary location, for example, sales are higher than the store U.S. average[29].

Despite the obvious allure of expanding into Canada, Nordstrom has chosen to move slowly, recognizing that Canadian consumers are different than U.S. consumers[30]. The company is learning from the mistakes of stores like Target that have failed to successfully expand into Canada. Target assumed Canadian consumers would have the same shopping habits as U.S. consumers but found that Canadians tended to buy more clothing so stores experienced a large number of stockouts. To prove that it is not Target Canada, Nordstrom overstocked its shelves for its store openings[31].

Key Issues

Nordstrom Inc.’s biggest challenge is its ability to successfully and efficiently execute a high-quality customer service strategy across all its platforms[32]. This includes adding technology in stores that offer services that, for example, allow customers to check their emails. Additionally, Nordstrom will have to improve their customer service as they expand their online footprint. Because Nordstrom has acquired many different companies to help improve their e-commerce, it may be difficult to implement a consistent strategy. As Nordstrom continues to open more stores across Canada and the US, it will be challenged to maintain a similar platform that creates value for customers.

When looking at the threat of substitutes in the family clothing store industry, it is clear why it is crucial for Nordstrom to be successful in customer services across its various channels. Online retailers are a major substitute to the clothing store industry and have been siphoning sales from firms like Nordstrom. Nordstrom’s embrace of this new trend can expand the business and mitigate some of the threats of other e-commerce players. If they fail, the threat of substitutes just becomes more substantial. Nordstrom’s business strategy is to differentiate based on the quality of its customer service. Since Nordstrom’s differentiation factor is customer service, its failure to implement technology appropriately could hinder the service that Nordstrom promises, resulting in dissatisfied customers. Because rivalry is high in this industry and there are many other shopping opportunities for unsatisfied customers, failure would result in a significant loss in sales.

Suggestions

Nordstrom so far has been successful in expanding to discount stores like Nordstrom Rack, online retailing with Hautelook and nordstrom.com, and also moving