Nordstrom Inc. has been in business for 120 years and Erik Nordstrom, a great-grandson of the founder, has been with the company for over a third of the stretch.
Now, as CEO, he’s guiding the family-run company through a most critical, pivotal phase filled with opportunities centered on Nordstrom’s new “Closer to You” long-term growth agenda, unveiled last February to the investor community, as well as external hurdles, ranging from supply chain bottlenecks, labor shortages and increasing wage and delivery costs to uncertainties surrounding the pandemic, compounding challenges in planning the business.
“These are very unpredictable, volatile times. Today is a lot different than a year ago,” Erik said in a wide-ranging, candid interview. “We have a lot of challenges these days. I don’t think anyone is short on those. With the pace of change, the mix of business and the mix of product, obviously the pandemic is still causing a lot of uncertainty. Supply chain has been a big challenge for everyone, both externally slowing down and just [creating] difficulty managing the flow of product. We are not a price-promotional retailer. Our customer looks to us for newness. That steady flow of product is really our lifeblood and it continues to be challenging to manage to a steady flow.”
Asked if managing certain categories is more difficult than others, Erik replied: “It’s not that predictable. It changes. If it were that predictable, we could get in front of it.”
On Aug. 24, Nordstrom Inc. reported second-quarter results that were mixed. There was improvement on the top and bottom lines from the year-ago quarter, though the sales revenue fell below the 2019 level. Consequently, Nordstrom shares took a big hit on the stock market as investors were disappointed that the retailer couldn’t keep up with competitors such as Macy’s and Kohl’s, where second-quarter 2021 top-line figures surpassed second-quarter 2019 results.
Still, Nordstrom cited “some real rebounding in stores, in dressier categories,” and that’s cause for optimism. Nordstrom Inc. did report sales momentum from the first quarter to the second quarter, and healthy profits in the second quarter, motivating the company to raise its outlook for the year. “Business continues to improve,” said Erik. “Particularly for us in stores, recovery has happened faster and more impactful than we had planned.
“On the category side, we’ve seen a dramatic shift, to some real important categories for us, the dressier categories. There is still the overall trend of casualization, but customers are buying for occasion, to get back to work, to get out in the world again. We always had a good reputation [catering to] high-stake occasions.”
The company’s “Closer to You” agenda calls for “widening the aperture,” meaning a massive expansion of the digital assortment from 300,000 items to potentially 1.5 million within three to five years; injecting lower-price offerings into the Nordstrom Rack off-price matrix to gain share from less-expensive off-pricers such as T.J. Maxx, Ross Stores and Burlington Stores, and finessing the three-year-old market strategy, which revolves around linking Nordstrom full-line department stores, Rack off-price stores, Nordstrom Local locations and a variety of services, in different ways to deepen customer engagements, such as through BOPIS, ship from stores and faster deliveries.
Nordstrom’s market strategy is fundamental to sustaining the company’s large and loyal customer base, service reputation and recapturing what it had for so many years — an edge on the competition.
“The market strategy has a lot of traction. It’s been very successful. It’s now rolled out in our top 20 markets,” Erik said. “In a nutshell, it’s about leveraging those physical assets available in the market where the customer lives, and the outcome is bringing much more selection at much faster delivery to the customer — at their doorstep, at the store, at curbside, within the same day or next day. Our capabilities are being enhanced to serve customers much more on their terms.”
Asked how he knows the market strategy is working, the red-haired, soft-spoken CEO answered, “We look at market share, No. 1. Then we have performance metrics like how many customers are engaged with the different services. We look at trips a lot, including digital trips.
“In the last year, we were able to turn on Rack stores, as part of our market strategy, so Nordstrom.com orders can be picked up at any Rack location, returns can be made as well. About 30% of our store pickups occur at Rack stores, which is terrific.”
When the retailer first unveiled its Nordstrom Local service format in September 2017 in Los Angeles, there was some sense that for consumers, a learning curve was necessary to understand its functions and purpose. Nordstrom Locals are situated where customers live and work, so trips to actual Nordstrom stores farther away, for order pickups and returns, can be avoided. Nordstrom Locals also offer alterations and styling assistance, but do not sell merchandise.
“I think the concept is pretty understandable for customers,” Erik said. “Customers take to them pretty quickly. It’s not like we have much marketing around them. The idea of having a neighborhood location, where someone can do an order pickup or return, instead of jumping in their car and going to a mall, people pick up on it quickly.”
Currently, there are a total of seven Nordstrom Local locations in Los Angeles and New York City. Asked if it was important to have Nordstrom Locals in other major markets, to further the Closer to You agenda, Nordstrom replied that enabling Rack “gave us a lot more coverage, more quickly. … We still think there is a place for Locals. They’ve been very successful. We do plan on adding more. There is still opportunity to add some more in the L.A. and New York markets,” which are Nordstrom’s two highest-volume locales. “But that faster ramp was by lighting up our Rack stores.”
Another possibility is for bringing Nordstrom Local to Seattle, the company’s third-largest volume market and where Nordstrom is based.
To dramatically ramp up the digital offering, to that 1.5 million item goal, “We think it’s going to take a different model with different products, different brands,” said Erik. “The traditional wholesale retail model won’t get us there. Drop ship has been the example we’ve had in the past. It’s a way of bringing more product choice and [complete] brand expression. We need to add flexibility.
“A real good example is our Asos partnership. We are really excited about that and what we can do together with the Topshop brand,” which is part of the Asos portfolio. “Topshop has been a big, big brand for us for a number of years. But also there are other brands” at Asos.
In July, Nordstrom revealed that it had acquired a minority interest in the Topshop, Topman, Miss Selfridge and HIIT brands owned by Asos, the London-based fashion website. It’s an unusual type of partnership, considering Nordstrom has not been in the business of investing in market brands that it sells at its stores and online. The deal is designed to help grow and ensure the future of the four British brands, in particular the trendy and affordable Topshop women’s and Topman men’s labels.
The transaction also reflects Nordstrom’s efforts to bolster its appeal to younger shoppers. For decades, the retailer’s image was rooted in catering to more traditional and mature audiences, though in the past decade Nordstrom has made several initiatives to achieve a greater balance in the business, including staging pop-ups and collaborations with emerging and advanced designers, notably the Dover Street Market Incubator Brands, as well as establishing a wholesale relationship with Madewell. An early initiative came in 2012 when the Seattle-based retailer became the exclusive distributor of Topshop and Topman in the U.S.
“We have a lot of respect for Asos and their capabilities,” Nordstrom said. “That partnership can allow us to bring more exciting choice to customers, but will take some different business models. We entered a joint venture with them. We made an equity investment in a holding company that owns the Topshop brands. It’s a clear signal of not only our openness, but we think it’s a requirement moving forward. We have different ways of bringing customers the brands they want and the selection they want.”
Erik said the company’s e-commerce operation is “moving to more of a hybrid commerce model,” though it wouldn’t be accurate to consider it a marketplace model, at least at this point in time. “For us to have the capability of accessing the amount of product we think we need and that our customers want, it’s going to involve product we own directly and product we don’t own as well.
“We still have quite a ways to go around maximizing our inventory selection for customers,” added Erik. “There are two specific examples,” he said, citing “forward deployment of inventory” first. “That’s having inventory in stores in the markets, as opposed to a centralized warehouse — more than what store sales require. You need to have really good store fulfillment capabilities to do that. It allows faster delivery.
“The flip side of that is inventory holdback. We still have some supply chain facilities to build out in our network,” to have inventory in a market within a day of delivery to stores.
It’s generally believed that retailers make more money by selling an item in a store rather than online where there are rising fulfillment and delivery costs. But at Nordstrom, “It’s parity, profit-wise. We’ve been there for a few years now,” said Erik. He explained that Nordstrom started investing in e-commerce operations years before most other retailers. Nordstrom.com launched in 1998.
He also said that sellers online don’t get commission, whereas store sales associates do, and that Nordstrom fulfills many of its online orders from stores, which makes deliveries faster and less expensive.
“A Nordstrom.com sale and a Nordstrom store sale are pretty darn even,” Erik said. “We absolutely do not care whether we make a store sale or a digital sale. A big part of our strategy is valuing engagement — not the sale in that visit. If we do a great job making a return in a store faster, or making an order pickup faster, customers don’t necessarily buy on that trip, but they come back and become a customer in that store, even if they never visited that store before. … I really feel strongly that serving that customer takes a singular focus and if you throw in criteria that’s not the customer’s criteria and say what channel do we want them to shop in, that just makes us less effective. And I think it becomes transparent to the customer.
“When I grew up selling shoes, I was taught with a customer return, get them in the chair and make sure they leave with something else. That’s changed. If it’s most important to the customer to get in and out to make a return — great. Let’s make it fast. Look at things like curbside services. If you do it well, customers want it and they do come back. Seeing the big picture there, it’s much more about customer lifetime value than one specific interaction.
“I’ve been working here at Nordstrom for 45 years now. There is a natural tendency to think of the good ole days. I’ve always had a great appreciation for what came before, and mainly it’s the culture and our values — things that are woven throughout our company. I really think they are more alive today than ever before. Our people are better than they were when I was selling shoes. The company has been able to keep its core values and apply them in a modern way for changing times.”
Erik first joined Nordstrom Inc. when he was 12, stocking shoes. “I didn’t get to start selling shoes until I was 15. I had to work into that.”
It could be assumed that it was a forgone conclusion that Erik and his two brothers, Pete and the late Blake Nordstrom, would automatically be part of the family organization at very young ages and quickly ascend the ranks. “That’s not true at all,” Erik said. “But with our dad, [Bruce Nordstrom, chairman emeritus], the work ethic was really important. You turn 12, you get a job. He didn’t care where it was. I didn’t have a lot of job opportunity at 12, so working the stockroom seemed pretty good. It wasn’t like any of us graduated college and got into the corner office.”
After stocking and selling shoes, Erik became an assistant department manager, and later a department manager. He became the sole CEO in March 2020 after serving as co-CEO with his brother Pete following their brother’s death. Pete then shifted to president and chief brand officer. Their cousin Jamie serves as president of the
Nordstrom full-line stores, and Blake’s daughter Alex (Erik’s niece) is an assistant buyer.
“For me, Pete and Jamie, we liked it and just kind of hung with it,” Erik said. “Although I didn’t love it at age 12, that’s part of it,” meaning taking the good and the bad that comes with any job.
“What I really liked all along was working in stores — the team aspect, especially selling shoes. There’s some bonding in the stockroom that could go on there. It was very evident to me early on that people with different backgrounds and talents can come together and be better than any of us individually. You get the crew together every morning and talk about how we are going to take care of customers today and the curtain goes up and you’ve got to perform.
“We have been very explicit and absolutely believe that you can’t create a place where you treat customers well if you don’t first treat each other well. We have to be a great place to work.”
But retail is not for everyone, especially when it comes to dealing with the public. “We have our share of turnover. Where we are a little different is that we get people who like it and stay with us for a long time. A number of people on our executive leadership team have been with us for over 30 years. That’s pretty humbling,” he said.
There are also salespeople who have been with Nordstrom for decades.
“There is a woman who sells shoes in the store I am in right now [the downtown Seattle flagship] who sold shoes for me when I was a department manager — 35 years ago,” he said. “Sometimes you hear about people today who don’t have a work ethic or don’t care. I don’t see that at all. We have new people who blow me away, especially this last year when things have been so challenging. People care about doing a good job. They care about the company. They care about the customers and the people they work with. … It’s always very encouraging to see the caliber of the people we have. We are fortunate.”
Asked what makes Nordstrom distinctive in a country that’s still overstored, Erik replied, “First and foremost, it’s the focus on the customer. Everyone says that, but our aim is simply to make customers feel good. We think about that through the lens of getting closer to our customers, physically in ways of having the product closer to the customer, and in delivering one-on-one service, which has always been important to us,” he said.
Today, that means delivering what the consumer wants, and empowering them and bringing them a bigger selection. “We are a house of brands. We are not a price-promotional retailer. I think customers have confidence in coming to us for something new. Many don’t come to us with a shopping list knowing exactly what they want. They are seeking something new, the breadth of our merchandise.”
Having two strong brands — Nordstrom and Nordstrom Rack— enables the retailer to bring brand stories to life in a dynamic way. He cited the rise of On, a fast-growing running footwear player.
“Our active shoe business is really good. One of our very top vendors now is On, a fairly new brand. It’s not only become a big resource for us. We are one of [its top] retail partners. Here is a new [name] that has real innovation. Our team has done a good job of telling that story.”
Some vendors and industry analysts have the perception that Nordstrom is investing in Rack, digital and technology at the expense of its full-line stores.
“I am a little surprised to see that. That is just not the case. Look at the investment in our Nordstrom stores, both in our remodels, in things like our pop-in shops, but you also have to look at our New York flagship store. It’s the biggest investment we have ever made. Having such a flagship reflects our belief in physical retail. We really feel great about the store. It’s a modern, world-class store.”
The New York store opened in October 2019 and cost well over the initial $500 million budgeted.
“I still believe as much progress as we made digitally, telling a brand story, with the brand partners we have and also with our own brand, is more effective in a physical store than online,” Erik said. “So we continue to invest in the capabilities of our physical stores and in linking them with our digital capabilities.”