With Nordstrom Inc., department store growth has slowed and efforts to go private are on hold, yet online selling is racing ahead.
“About 26 percent of all business we do is online. I think it’s reasonable to assume we will probably be doing half of our business online in the next five years or so,” said Pete Nordstrom, copresident of the Seattle-based Nordstrom Inc., delivering a staggering forecast. “It’s growing at that kind of rate.”
Between how much is sold online versus in stores, Nordstrom’s business will find a balance, Nordstrom assured. “It’s not that one thing takes over the other. The future is to have an online and digital experience that dovetails with the physical experience.”
Speaking at the WWD CEO Summit on Tuesday morning, Nordstrom covered much ground discussing what’s in the cards for his company. He detailed the just-revealed Nordstrom Local pilot store, a small, service-only format where no merchandise is sold.
He cited designer and luxury goods as the fastest-growing merchandise areas at Nordstrom over the past 10 years. He spoke of the challenges expanding in the U.S. and Canada, and underscored the magnitude and ramifications of the New York flagship, which is under construction. He also suggested the company was open-minded about expansion outside North America, though there are no signs of anything in the works on that.
Regarding taking the company private next year, Nordstrom was virtually silent, citing legal reasons. Earlier this month, the company said it put on hold efforts to go private until next year.
Nordstrom, while indicating little room left to open additional department stores in the U.S., maintained the format is far from dead, citing strength at the two-year-old Vancouver flagship, among Nordstrom’s top-performing locations, and the very strong response to the new Century City, Los Angeles store. But if a retailer purely defines itself as a department store “singularly, that’s trouble,” Nordstrom said. “We have to be where the customers want us to be, and we made that decision a long time ago. We have a strong presence online.”
Nordstrom has visited department stores around the world to help educate him about possibilities on how to shape his stores. “It is super humbling to go around the world and look at all the best stores,” he said. “There are so many good things going on out there. How can we bring all those great ideas to our stores? That’s impossible. Generally, we are well served to be curious about what is going on out there.”
It’s possible some concepts Nordstrom has seen overseas get translated to the company’s upcoming New York flagship complex. The Nordstrom flagship, located on West 57th Street between Seventh Avenue and Broadway, will be the retailer’s first full-line department store in the city, consisting of a 320,000-square-foot women’s store, expected to open fall 2019, and a separate 47,000-square-foot men’s store, scheduled for a spring 2018 opening. The men’s store opens ahead of the women’s store because it’s retrofitting an existing space, while the women’s store is being built from the ground up.
“We want to make sure that our store here in New York is set up to be well-revered and acknowledged worldwide,” Nordstrom said.
He said New York City isn’t foreign territory. “New York is the single biggest online market we have today,” said the copresident, who shares the title at the $14.5 billion Nordstrom Inc. with his two brothers, Blake and Erik.
“Once we open a store in a new market, the online business in that market lifts 20 percent. We already have a Rack store [in New York City’sUnion Square] and we are opening a new [Rack] at the end of the week,” which will be in Herald Square. “We don’t feel like we are coming into some place cold…There are a lot of people that know about Nordstrom and are interested in us being here,” in New York. “There are also a lot of people that don’t know much about us.”
Regarding future brick-and-mortar expansion, Nordstrom said, “I don’t think there is lot of opportunity for us to have a lot of physical store growth in the U.S. We are pretty everywhere we want to be. But we will keep open-minded about it. We are not so much focused on a store-count strategy as we are focused on a customers and market share strategy.”
He said that with six department stores opened in Canada now, “I’m not sure there is a lot more” room for additional Nordstrom department stores. “Perhaps a few.”
Regarding international expansion outside North America, Nordstrom said the New York flagship experience would be a factor. “So much of what happens here is through an international lens. If there is a lot of success with tourists, we would be open-minded to that. We are also supermindful that there are plenty of places to buy a pair of pants.”
The New York project is “difficult and expensive,” said Nordstrom. It’s exceeding $500 million in costs, as WWD previously reported.
On the other hand, “It’s a lot of fun for the whole organization and something very positive in a tough environment,” Nordstrom said. The goal is to “redefine what a great modern department store experience is.”
Designer and luxury goods will be part of the offering and Nordstrom feels good about how that merchandise has been faring. “It’s been the single-fastest growing part of the business for the last ten years,” he said. “It’s been great. It’s been about 20 years where we really made a big concerted effort to do a better job with luxury. We had always been in the designer and luxury business particularly in shoes, but in a haphazard way.”
He said Nordstrom, until the last couple of decades, didn’t have much synergy between categories in luxury, or a consistent presence. But the company stepped up and started doing things differently.
“The biggest catalyst for us in terms of having success in the luxury/designer world is when we bought the Jeffrey business [12 years ago] and got Jeffrey Kalinsky on our team. The guy is a fantastic merchant. He created some context for us, what good looked like. He came in and helped us raise the bar. It’s been completely accretive. Everything we have done with designer has been additional and not come at the expense of anything else. It’s a big initiative.”
One advantage the New York City flagship will have over other city flagships is that it’s being built to capitalize on the latest technology.
The new Nordstrom Local debuted in West Hollywood, Los Angeles, in early October. Nordstrom characterized the format as “a pilot situation for us….We created an experience that doesn’t cost us a fortune. It’s 3,000 square feet and we are not selling things.” Instead it’s about offering services like tailoring, alterations, stylists, and a place to pick up, exchange or return merchandise. “So far, so good. It’s early days,” Nordstrom said.
Because Nordstrom has a wider breadth of offering of some other department stores “that creates an opportunity for young people to discover brands,” at Nordstrom. “Our customers are significantly younger than most retailers we compete against. We have a very large beauty business. We get a lot of new customers through the beauty business. There is a whole selection that includes designer type product that an aspiring person can afford. It begins their journey,” through other areas of the store. “We try to have a very inclusive environment where people can discover things.”