Nordstrom and its Path into the Future

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Consume. America is a consumer society. We like to eat, drink, and shop. And as the holidays roll around we are constantly bombarded with advertisements and marketing campaigns reminding us that it is time to buy- buy gifts for our family, jewelry for our wives, toys for our kids, and even treat ourselves. However, over the past decade the annual pilgrimage to the shopping mall has experienced a shift. With the still growing trend of e-commerce, more people are looking online to make their holiday purchases. This comes as no surprise to Nordstrom who has been adjusting their company strategy to maintain a competitive edge as the landscape of retail changes.

Over the past 100 years Nordstrom has built itself into a trusted and recognizable retailer throughout the United States. They are known for their impeccable customer service and good selection of products. However for a high-end retailer it is not easy to stay afloat in the current retail scene. In order to run a physical store, a lot of costs are involved. The retailer has to pay rent to a landlord, pay utilities, keep an inventory, hire employees, account for theft, and much more. These costs have always been a factor in opening a store however the ever-growing bigger threat to traditional stores is e-commerce. Our society has progressively become more connected to technology and this has influenced our shopping habits. As a result the traditional store set up faces real obstacles moving forward.

These purchasing habits can be seen in Nordstrom’s division of sales. In 2014, Nordstrom’s web sales increased by 26%, accounting for $2.5 billion in revenue. For the first six months of 2016, Nordstrom reported net sales of $6.782 billion with $1.178 from Nordstrom.com, up 6.6% from the previous year. This number has only continued to increase. E-commerce has become such a burgeoning item that during the second quarter of 2016, Michael Koppel, Nordstrom’s CFO announced, “We recognize that the shift towards e-commerce is having an impact to our financial model. As we accelerate investments to support changes in customer expectations, our expenses, particularly in technology, supply chain and marketing, grew faster than sales”. This means that for Nordstrom to stay competitive in today’s market they need to pivot the way they make their products available to consumers. They have invested heavily in growing their e-commerce platform and on engaging their customers on their mobile devices. In the past couple of years Nordstrom has really begun to reap the rewards with 21% of its revenues coming from digital sales.

 

If you open Nordstrom.com you will be exposed to a carefully planned marketing set up. Their opening page constantly changes showcasing the most popular products and trending brands.

Their website is also extremely customer friendly and easy to navigate with tabs dedicated to holiday shopping. Carefully curated links can be found with Gifts for Her, Gifts under $100, and Luxury Gifts, making the shopping experience a hopefully easier one. They also make sure to be at the forefront of online promotions. Leading up to Black Friday they sent out email blasts reminding their customers of the promotions they were offering. Beyond that they regularly send out emails giving product suggestions and to inform their customers about new arrivals.

One of Nordstrom’s possibly most competitive strategies is their price matching promise. They have a competitor price matching policy that states, “We are committed to offering you the best possible prices. If you find an item that we offer, in the same color and size, in stock at a national retailer, we’ll be glad to meet a competitor’s price”. By offering this they are promising their customer that at no other location will they be able to find a better price, and in the event that they do, Nordstrom will match it. This makes it easy for shoppers to shop on their platform with confidence that they are getting the best prices. While perusing Nordstrom.com it is quite common to come across the red “We’re Price Matching” banner. In many occasions the customer does not need to shop around and compare prices because if Nordstrom sees a competitor selling a product at a lower price, they automatically match it so the customer does not need to ask for a price adjustment. This also makes the store immune to shoppers who come in to look at the physical product just to make the purchase online for the cheapest price. This policy is more valuable than meets the eye because according to Entrepreneur’s article, millennials are price sensitive and are using their mobile devices in store and online to compare prices. With a website that works symbiotically with its online stores, Nordstrom effectively cuts out its competition for millennials who would otherwise be searching for cheaper prices.

Some might question what the comparative advantage Nordstrom has over other retailers offering similar prices, but Nordstrom offers quite a few very enticing incentives. They offer free shipping on all orders without a minimum purchase requirement making their website a go to source when shopping for virtually anything that can be purchased online. The customer can also have peace of mind that the product that arrives on their doorstep is authentic and accounted for because Nordstrom has an established reputation. Making a purchase with them also means knowing you will receive impeccable customer service including an extremely lenient return policy. They handle their returns on a case-by-case basis with the goal of keeping their customers happy, relying on the idea that if they treat their customers fairly, their customers will also treat them fairly.

They also have a price adjustment policy that ensures customers that the price they pay is not going to fluctuate and in the event that the product goes on sale for a lower price within two weeks they will be able to be reimbursed for the difference.

It’s stores work symbolically with their online website. Customers who might not be fully accustomed to shopping online can satisfy their need for instant gratification because they can place their orders online with the comfort of knowing that they can bring their items in to the store to exchange for a different size or color or get a refund. This saves them the hassle of having to ship their packages back and wait to receive their money. Customers also have the option of buying online and picking up their purchases in store. This gives them the convenience of shopping online without the downsides of having to wait for shipping. This also saves them from the potential of going to a store just to find out its run out of stock of the item they are looking for. This is a win-win situation because when a customer picks up their items in store, Nordstrom saves on shipping costs. And whether a customer is coming in for an exchange or a pick up, the company has won half the battle once a customer has stepped into the store. Whether the shopper is looking to make a return or pick up their items, they are likely to browse as they walk through the store. So in all actuality by creating a business model where both a physical store and an online store serve important needs but have enough of a point of difference where they are both valuable makes for a sustainable business in today’s world of instant gratification and convenience.

Nordstrom’s stores pose a benefit beyond it’s physical sales as well. They are an essential part of Nordstrom’s brandy equity. Their brick and mortar stores occupy space in some of America’s most prestigious malls. Their well-groomed stores alone are a marketing tool. People walking by cannot help but notice the health and wealth of their storefronts. Businesses trying to sell their products take notice too. They have access to exclusive brands and therefore carry what is coveted, trendy and popular. In the past they have struck deals with the likes of Baublebar and Shoes of Prey both of which are brands that are exclusively online. The reason they may be willing to work with Nordstrom is because they become associated with Nordstrom’s name and thereby reputation. Furthermore their inventory is up to date. So if Rebecca Minkoff launches a new line in her stores, you can be sure that Nordstrom will have them available as well. According to Forbes’, millennials are brand loyal so once they trust a company and are accustomed to them, they are likely to continue to be patrons into adulthood. This shows the importance of capturing the millennial generation retailers have as these relationships are formed and often continue to just build on itself.

Nordstrom is also the parent company of other business such as Nordstrom Rack and hautelook.com, both of which have proven to be successful. Nordstrom Rack offers branded clothes, shoes, and accessories at a discount. Nordstrom Rack continues to expand with 113 stores and an e-commerce site that launched in February 2014. It makes up about one fifth of Nordstrom’s overall sales at $2.5 billion since 2013. Similarly, HauteLook is a shopping website and mobile app that has flash sales and limited-time sales events with branded apparel and items such as makeup, jewelry and home decor. HauteLook encourages their browsers to make purchases because of the way their website is set up. Their product offerings change daily and the time restrictions set on them create a sense of urgency. HauteLook was launched in 2007 and was purchased by Nordstrom in March 2011 for $180 million in stock. This is significant because it showed Nordstrom’s commitment to branching out into e-commerce. Furthermore it was one of the first times a traditional retailer acquired an online retail company. Since its acquisition, it has been racking in sales. Nordstromrack.com and Hautelook brought in $323 million in sales in the first six months of 2016, a 38% increase from the $234 million the year before.

While all these projections and figures sound extremely promising. Nordstrom’s ecommerce success also comes at a cost. Interestingly enough it might be taking away from some of its in store purchases which are actually more profitable for the company. Online purchases are generating a lot of sales but not always at the best margins. Online super star, Amazon, has been infamous for their extremely low profit margins but Nordstrom does not necessarily have the same business goals as Amazon. Moving forward, Nordstrom has some tough decisions to make. The efforts and investments they have focused on the past few years may need yet another adjustment to stay on top of the game. The costs involved in creating a successful e-commerce platform on a large scale are not small. They opened their second e-commerce fulfillment center last summer to expedite their shipping process and accommodate the volume of sales. This year the company played around with the idea of opening a third fulfillment center estimated to cost about $170. This may be a smart move because of the slowly online growth they have been experiencing, but it may also be a risk worth taking as Nordstrom’s upfront investments in growing their online business have paid off in the past. Nordstrom has since held off as the future of their online sales is still uncertain. These decisions are pertinent in Nordstrom’s future, as they will have repercussions whichever way they decide.

Is Cyber Monday a new Holiday?

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Leading up to Thanksgiving, advertisements can be seen everywhere. Ads for shoes, ads for electronics, ads for department stores on virtually every outlet. This is due to the high quantities of sales that are made during the holiday season. This is also the case because of Black Friday, which has virtually become a nationwide event. However in recent years a new “holiday” of sorts has come about, Cyber Monday.

Cyber Monday is a marketing term that was created because of the deals that are offered online on the Monday following Thanksgiving. Cyber Monday has gained more and more popularity generating approximately $3 billion in 2015 and in one to the most profitable single days for online retailers.

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One of the reasons Cyber Monday may be gaining in popularity is the shift in the way consumers are shopping. Shoppers are more and more comfortable with shopping online. It has been eclipsing Black Friday in some ways because people are able shop in the comfort of their own homes. This means not having to deal with parking, sifting through products, waiting in lines, and the crowds of people. This is also beneficial because consumers do not have to feel the urgency of snatching up the best products before everyone else. They also do not have to worry about things being out of stock or the store running out of their size and trying to locate a store that still has their sizes. In fact Cyber Monday’s success may have impacted sales on Black Friday. In recent years sales on Black Friday have decreased while sales on Cyber Monday continue to grow. With the two being so close together, shoppers may feel that participating in one is enough.

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Other factors have contributed to the rise of Cyber Monday including the use of social media as an advertising medium as well as increased mobile shopping. While there are not many long-term effects on the stock market, it is important for major retailers to participate by advertising or giving promotions to stay competitive with other companies in their market segment. Cyber Monday has become such a phenomenon that by not being a part of it would serve as a disadvantage.

Decreasing growth of Global Trade

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On September 27th, the World Trade Organization forecasted the growth of trade to be 2.8%, a major decrease from 2016’s 1.7%. GDP has been growing at a slow pace and this year trade may be even slower. In the past global trade flourished, however, many factors contribute to the rate at which trade grows such as protectionism and changes in demand. Trade is an important factor in the global economy because it allows countries to spread ideas. It allows countries to interact with each other and in turn expose themselves to new ways to thinking and new products. Furthermore it is important for the economy because it promotes competition in the marketplace.

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In the past, trade was given steam by the explosion of growth of China’s economy. This was in part due to large investments and led to high imports and exports as well as the use of huge quantities of resources. China’s growth has since stabilized and has been growing at a slower rate. This has in turn affected trade around the world, about one sixth of the slowing exports in Asia from 2014-2015.

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Another factor is Brexit which has impacted Britain and Europe negatively thus far. America is also facing some changes with its upcoming political election. In response to what has been deemed “unfair” trade advantages, trade laws have been put into place. China has been cited for dumping and having extremely cheap labor costs which drove down their prices. This has caused millions of American jobs, such as at the steel mills in Ohio and Pennsylvania, which used to be steady and secure job source to be obsolete. It has also caused American to have a trade deficit with China. Donald Trump says that he will renegotiate trade deals and stop NAFTA and the Trans-Pacific Partnership. These impending changes have caused uncertainty and will definitely have a ripple effect on global trade.

Economics and the airline industry

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The airline industry is tied to the economy in virtually every single way. It is influenced by people’s disposable income, leisure time, business travel, etc. When people have more disposable income, it allows them to be more flexible in traveling. Furthermore they are more inclined to spend money when they arrive at their destinations. Travel is increased by business. As the economy is increasingly global, it requires more travel between countries. As a result, companies must send their employees across the globe. This creates a benefit on all ends because the airlines benefit from increased travel, while the economy is benefited because of increasing business. According to Airlines for America, the airline business creates $1.5 trillion of economic activity in the United States and supports upwards of 11 million jobs. The number of flights and flight prices are also affected by season meaning there are peaks seasons of travel such as spring break, Christmas, and summer. When the economy is good, airlines flourish raking in more profits and as a result they can increase their investments and give good returns to their shareholders. Another factors that influences air fare is oil prices. One of the largest costs an airline has is the cost of fuel. However they have to be strategic in the way they change their prices because of the competition they face with other airlines. If they increase their prices too much they can put themselves at a disadvantage because other airlines may be more conservative with their price jumps. At the same time, airlines need to be conscious of their profit margins and ensuring that they are making enough profit after they deduct the overhead costs involved such as employee wages and benefits, air plane maintenance, and airline space.

Economic Indicators: Beer

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Economic Indicators: Beer

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The world’s economy is constantly changing and while people commonly use economic indicators such as GDP, unemployment rates, etc. to gauge the economy, other surprising measures can be decently accurate. One interesting economic indicator is beer. When the economy is good beer consumption at restaurants and bars are relatively stable/high. However when the economy is slower, beer consumption also slows down. The reason for this shift is that when people have less spending money they generally go out to eat less and even when they do eat out they are less inclined to purchase drinks at dinner. Similarly people may frequent the bar less and if they do go to the bar they might drink before hand or purchase less drinks at the bar to save money. Instead they might purchase beer at a grocery store and drink it at home or forego drinking entirely. People are less likely to spend money are items that are not considered necessities. The consequences of declined beer consumption affects more than just bars and restaurants. It affects the waiters and waitresses at the bar and the breweries themselves. The waiters make less money and tips, which affects their purchasing power. The breweries may also earn less revenue due to decreased consumption. As a result they may slow down production and produce less beer. This could also have a domino effect on their employees if they no longer need as many workers to sustain the demand on their products. All these consequences also affect tax revenues. The government will not be able to collect as much tax revenues if less product/money is being earned.

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