Store Concept of the Year:
The retailer's merchandise-free concept store stands out as a smart differentiator for Nordstrom and, potentially, its savior.
(Author : Cara Salpini)
In a category frequently criticized for its inability to evolve, Nordstrom stands out among department stores for its innovative approach and generally positive earnings results (though there have been some bumps). At the forefront of this innovation is Nordstrom Local, the department store's merchandise-free concept store, which first opened in October 2017. Experts point to Local as a smart differentiator for Nordstrom and, potentially, its savior, as department stores struggle for relevance. The concept takes a page out of the showroom strategy of direct-to-consumer brands like Bonobos, but it also harkens back to an idea at the core of Nordstrom's value proposition: service.
"We've come to realize that customers that interact or engage in Nordstrom Local are spending two and a half times more with us as a direct result of that engagement. I think it's just evidence that ease and speed and sort of the value of time matters a lot to consumers today," said Shea Jensen, senior vice president of customer experience at Nordstrom, noting that the stores offer services to their customers.
What makes the Local concept different is its focus on the space where service and the experiential meet, going beyond a simple showroom. The stores offer three core services: online order pickup and return, alterations, and style advice and tailoring services. Other offerings, including nail beauty services, in-store bars and services like stroller cleaning or clothing donations, vary by location.
Although the concept launched two years ago now, it's finally becoming clear just how much of an impact these stores could have on Nordstrom's future. The department store opened two Local stores in Los Angeles in the fall of 2018 and another in New York City in September 2019, and now has five total in those two cities: three in Los Angeles and two in New York.
Jensen also noted that Los Angeles is Nordstrom's largest market and New York is its largest digital sales market, but that may not be a good reason to use those locations as test labs, according to Lauren Bitar, a retail consultant at RetailNext.
"My concern is: If you're testing these concepts in these places that are unlike anywhere else in the country, or the world, is you're not going to get a good data set to say, 'Is this going to work somewhere else?'" she said.
Bitar thinks suburban locations are a better long-term plan for the concept, since cities like New York are saturated with retailers, which downplays the convenience of the store's services, and New York comes with high real estate costs as well.
In Q1, co-President Erik Nordstrom went so far as to say that Nordstrom Local stores were the company's "model for the future." But Bitar thinks in order for them to live up to expectations, the offerings will have to become less "cookie cutter," and localization and personalization will have to become more important, which is costly.
Jensen shied away from talking in specifics about the retailer's plans for Nordstrom Local, but noted that the idea of suburban or rural stores was "absolutely interesting." Right now, however, the focus remains on taking away learnings from New York and Los Angeles, and while Nordstrom Local could end up fulfilling Erik Nordstrom's grand visions, the department store could just as easily pivot again in the future.
"Our model of the future is not dissimilar to how we've been serving customers over time, which is to stay focused on our customers and adapt and respond as they need," Jensen said, calling Local an example of that. "It's the customer centricity that I think is consistent. The way in which we do it has always changed, frankly, and I think will continue to change."
Some remain unconvinced that Nordstrom's efforts to evolve are enough. S&P lowered its outlook on Nordstrom to negative in May, citing "recent execution issues, heavy investments, and intense competition at both its full-price and off-price businesses."
Then, in July, UBS designated Nordstrom a "no-growth retailer," partly based on shifts in apparel trends that don't favor the retailer's upscale focus. Both reports also mentioned missteps, with the UBS analysts specifically targeting the execution of its new loyalty program. Whether or not Nordstrom Local is enough to save the department store from the fate of its peers, it's certainly done much to separate Nordstrom from the rest of the pack — and will likely impact how department stores see physical retail in the future.