Understanding Nordstrom’s New Mindset: Business Model Diversification

Pete Nordstrom, president and chief brand officer at Nordstrom, said the luxury retailer’s adoption of non-traditional types of selling partnerships, marked by collaborations with Asos and Fanatics, came about partly to keep up with online’s “endless aisle,” but also as part of a more open mindset around selling arrangements.

Mr. Nordstrom, speaking at a session at the NRF Big Show, recalled the days when previous generations of his family would question why the store was selling a “competitor” like Brooks Brothers.

“The fact is, customers don’t look at it that way,” Mr. Nordstrom said. “Customers look at it like, ‘I like that brand.’”

“Business model diversification is a top growth engine for retail, including retailers forging partnerships with one another and wholesale brands opening stores,” commented Carol Spieckerman, president of Spieckerman Retail on RetailWire last week.

Mr. Nordstrom cited Madewell, which first began selling inside Nordstrom in 2015, as an example. “One of the common things we heard from customers that just validated the whole idea was, ‘Wow, now I can buy my favorite brand in my favorite store,’” he said.

E-commerce growth has also opened up expansion opportunities. Customers may find a full range of a brand’s offerings online, but minimal or no stocks in store due to space constraints. In early 2021, Nordstrom predicted its online assortments could potentially expand to 20 times that offered in its stores, up from three times currently, as it leans into drop shipments, concessions and revenue share deals.

Such alternative arrangements have to be a “win-win” for both parties, according to Mr. Nordstrom.

Many on the RetailWire BrainTrust saw wisdom in this strategy when they discussed the moves in an online discussion last week.

“As more (DTC) brands emerge traditional retailers will benefit by developing partnerships,” wrote Patricia Vekich Waldron, CEO of Vision First. “It’s foolish not to expand ones offerings and offer shoppers easy access to new in-demand items, as long as they support the overall brand vision.”

“Smart retailers recognize that they can’t win by being standalone brands anymore,” wrote Melissa Minkow, director of retail strategy at CI&T. “Collaborative partnerships like this allow consumers to shop the way they want to – this is the present and future of retail.”

In its online-only partnership with Nordstrom, Fanatics fulfills and ships all orders and owns the inventory to reduce risks for the department store retailer. In the Asos arrangement, the U.K.-based online retailer retains operational and creative control, but the two companies share ownership to ensure collaboration.

Nordstrom has numerous partnerships with DTC brands likewise aimed to be complementary.

“The perfect scenario for us is to have a well-known, highly-sought brand that you can’t find in a lot of places,” said Mr. Nordstrom. “I don’t think we are great at making an unknown brand known. But we are good at making a known brand bigger and better.”

Going into these partnerships with a clear idea of the value the partner brand brings to the customer base was, for the BrainTrust, what set the strategy apart.

“I especially appreciate that Nordstrom isn’t choosing to just partner with anyone though, they are strategically working with brands that seamlessly fit in with theirs,” wrote Ms. Minkow. “As retailers get closer to operating like marketplaces, consumers want and deserve consistency of experience regardless of which items they’re buying. Taking a careful approach to choosing and working with partners will enable that consistency.”

“Nordstrom will reap the benefits of brand partnerships outside the traditional wholesale/retailer relationship because they are constantly learning about what their customer wants,” wrote Liza Amlani, Principal at Retail Strategy Group. “Aligning with brands that have a point of difference is all part of the Nordstrom merchandising strategy and I am here for it.”

And one BrainTrust member noted that Nordstrom’s digital positioning was another element making the strategy work.

“With over 50 percent of sales online, Nordstrom’s definitely has more options to play with in 2022 when courting and curating brands and digitally native retailers,” wrote Brian Cluster, director of industry strategy, CPG & retail at Stibo Systems. “With Nordstrom’s understanding of their customers and ability to attract premium focused/affluent customers, they have an advantage over other retailers in attracting fashionable brands that want to explore new partnerships.”