Nordstrom, Inc.

Nordstrom is a very focused retailer specializing in apparel, shoes and accessories for women, men and children. It strives to be the best in the business in those categories. The depth of the merchandise supply, high quality of goods, and the superior customer service are what differentiates the company in the eyes of shoppers. As a result, sales per square foot at Nordstrom are about $383, more than twice the average of $158 for mall-based department stores. But the company differs from other upscale retailers in many other ways, such as organizational structure, management style, decision making and ownership. All these characteristics, however, are designed to facilitate providing the highest possible level of service in the industry and to guarantee that no customer is ever unhappy.

Legendary customer service

Nordstrom’s CEO defined the service philosophy for the company in his statement “Listen to the customer. Provide them with what they want. Appreciate the fact they came to your store, and do everything within your power to ensure that they're satisfied when they leave.” And the company has been consistently delivering on this promise for several decades. Everything starting with the store layout and ending with providing jumper cables to forgetful customers is meant to make the shopping experience at Nordstrom’s the best in class. Sales representatives are encouraged to develop a bank of personal customers whose purchases and preferences they regularly track. Then, they can directly contact those customers and offer suggestions as new merchandise arrives. At times, salespeople will even go as far as buying an item from a competitor if the store does not have it in the appropriate size or color. Moreover, Nordstrom offers hassle-free returns (no receipt required) and such special promotions as coordinating special trips for “serious shoppers” from states where the company does not have a store.

To deliver such service and build its reputation, the company invests into its personnel rather than advertising. It provides extensive employee training focusing on product knowledge. Nordstrom also pays its salespeople commissions substantially higher than competitors, ranging from 6.75% to 13% depending on the type of merchandise sold. An average salesperson makes about $27,000 a year versus an industry average of $16,000, while top representatives can reach an annual income of $75,000 to $80,000. But such incentives also result in a competitive working environment where employees are under pressure to meet their quotas and are frequently secretly tested by corporate staff posing a shoppers.

Empowerment

In order to deliver this level of service, employees have to be able to make quick decisions. The manual for sales representatives constitutes of a single 5x7 card stating “Use your best judgment”. The rest is up to the individual and this policy extends through all levels in the corporation. Employees are promoted on the basis of teamwork, customer services and leadership on top of standard sales numbers. Department, store and regional managers are encouraged to treat the areas they are responsible for as their own separate businesses. Nordstrom strives to create a sense of pride, ownership and to foster an entrepreneurial spirit among its employees with this approach. But this full autonomy also comes with full accountability for one’s actions and increased performance expectations.

Decentralization

Nordstrom stores are managed in a very decentralized manner with emphasis placed on listening to the local customer. Store managers have full discretion over the services and amenities they provide in their stores. Unlike competitors, Nordstrom assigned its 1000 corporate buyers to individual stores. Such approach embodies a decentralized buying strategy allowing to better fit the merchandise to the local demographics and preferences. Buyers make purchases based on their own tastes and knowledge of the local market. That policy had resulted in some problems for the company lately as inexperienced buyers overstocked on some basic fashions, which had to be later sold at substantial markdowns.

Family ownership

The family still controls more than 40% of the Nordstrom’s stock. The fourth generation of Nordstroms is currently running the company, but family members followed the same track as other managers. They all started in the stock rooms, then moved to the sales floor and later managerial positions. Currently, six co-presidents (all part of the family either by birth or marriage) run the company and each one is responsible for one merchandising line and one administrative function. Such “family-centered” management may cause problems in retaining talented people from outside the family at the higher levels of the corporation.

Management style

Everyone in Nordstrom starts on the sales floor and can only be promoted from within. By the time employees assume a managerial position, they would have already done everything they ask their employees to do. This allows them to build respect for the sales staff. Nordstrom also hopes that this enhances the level of service provided by those employees and that the customers can recognize that.

The company also tried to carry that mutual respect up to the executive corporate level. Despite the fact that there are individuals responsible for specific merchandise categories and operations, all company-wide decisions are made by committees and require consensus of the six co-presidents.

Technology in inventory management and decision support

In order to satisfy the needs of its upscale customers, Nordstrom carries twice as much inventory as most of its competitors. This diversity of merchandise combined with delivery problems, hassle-free returns and buying goods in the last minute to satisfy specific customers caused earnings to plummet in the last few years. Moreover, a company-wide re-merchandising plan aimed at updating the mix of fashions offered by Nordstrom resulted in buyers inheriting merchandise they did not like and marking it down. Those markdowns hurt margins, which are nevertheless still high at 4.5% (compared to the industry average of 2.7%).

The company realized a few years ago that such volume and diversity of merchandise required a sophisticated inventory management and control system. The selected technology had to provide more than inventory tracking information. Nordstrom’s new system addresses the needs of buyers, suppliers, salespeople and store managers. It allows buyers to plan inventories, classify sales by size and color and to plan markdowns. It helps to quickly identify customer trends, make purchasing decisions and build pricing strategies. Store managers can then project profits. The system is also networked so any buyer can check sales of an item across the company. Buyers can also improve their relationships with vendors by tracking where and when what item was sold to better coordinate buying and shipping in the future. E-mail allows scattered buyers to communicate effectively and to exchange invoices and shipping data with suppliers. Vendor performance can also be monitored. Salespeople, on the other hand, can check availability of products and the status of customer orders.

To further enhance its customer service, Nordstrom has recently developed an on-line shopping service in addition to its catalog division.