Case Study: How You Can Copy Nordstrom’s Secrets to Massive Retail Success
American upscale fashion retailer Nordstrom is outperforming every other retail company. Nordstrom’s success is built on excellent customer service. But is its employee handbook really only a single line long, as the widespread legend goes? We think there is more to it.
Retail Business Profile
Nordstrom’s success story is remarkably unswerving. Its sales are increasing every year, coming from $US 8 Billion in 2009 to $US 13 Billion in 2014. It has long been ranked around #250 in Fortune 50.
Nordstrom is said to have the highest sales per square foot performance in the retail industry.
It is listed on NYSE, with a market capitalization of almost $US 10 Billion.
Nordstrom, Inc. was founded more than century ago, in 1901. John W. Nordstrom and Carl F. Wallin started the company, headquartered in Seattle, Washington, as a shoe retailer. It has since expanded its inventory to include clothing, accessories, handbags, jewellery, cosmetics, and fragrances.
Some Nordstrom stores have a wedding and home furnishing departments, too.
Altogether, there are 323 stores operating in 39 states, including 119 full-line stores and 194 Nordstrom Racks, the latter expanding rapidly.
Despite its age, the company has adopted the innovative multichannel retail business model. It serves its customers through Nordstrom.com, the newly developed e-commerce site nordstromrack.com, and its online private sale site, HauteLook. For now, the online sales make 3% of total sales.
What to Say in Customer Service Handbook?
For many years, Nordstrom’s new employees were given a copy of the Nordstrom’s Employee Handbook, a single 5-by-8-inch (130 mm × 200 mm) grey card containing 75 words.
Nowadays retailer’s handbook has been streamlined to the company’s “One Rule”: “Use good judgment in all situations.”
Nordstrom is very focused on hiring nice, capable people whose judgment can be trusted to represent the company. This reflects in favourable salaries and working conditions, too.
Besides great financial results, the company has been present in Fortune’s “Best Companies to Work For” Top 100 for years, ranking around 90th.
While the “One Rule” truly exists, there actually are many rules and standards that are communicated by overseeing personnel or in other documentation.
A Nordstrom employee has listed some of these statistics:
– A Nordstrom salesperson rarely points. If you have a question about where something is located, they walk you there.
– Salespeople are taught to walk your bagged purchased around the counter to you vs. just handing it across the counter.
– Salespeople can offer to ring up your purchase without you ever having to stand in line. This particularly happens a lot in the shoe departments.
– Departments are generally trained to answer the phone on no more than the 2nd ring.
How to Build Successful Customer Service?
As written by Micah Solomon in Forbes, Nordstrom and every other great organization have standards. Yes, the employees are encouraged to be flexible and adaptive, but there indeed are additional guidelines and internal, the codified knowledge that support the employees and multiply the power of their “best judgment.”
“Employee autonomy — “using your best judgment” — is extremely important to delivering Nordstrom-quality customer service,” Solomon writes. “And it crucially comes into play on the more complex and unpredictable tasks, of which there are many: selecting items for a customer’s wardrobe makeover, walking the line between honesty and not insulting a customer when she’s trying on clothes, finding ways to go the extra mile for a customer.”
Mr. Solomon provides this highly illustrative story: “For example, do you know who’s legally responsible if a common carrier leaves your Nordstrom delivery in the rain and your $200 shoes are ruined? Well, the responsible party might be you or it might be the trucking company, but it’s absolutely not Nordstrom. Yet, when this happened to me, not for an instant did my salesperson /…/ consider saying “You need to file a claim with the trucking company.”
The example ends with a pleasant and quick solution for Mr. Solomon:
” She instead told me, without hesitation, the following: “I’m so incredibly sorry that happened, and I’m bringing over a brand new pair of shoes–will you be home in forty-five minutes?“”
This is actually a policy, not an initiative by the salesperson. Nordstrom will take back any merchandise people bring back, no questions asked.
In any Nordstrom retail store, you can easily notice that employees are clearly empowered, but it’s equally clear that Nordstrom is running a really tight — maybe the tightest there is — retail ship. Nordstrom-level customer experience is impossible to accomplish solely by empowering employees. There are standards and training, where the employees work with examples and model cases.
How to Build Business Standards?
There’s a refresher on standards in the Forbes article by Mr. Solomon: Standards help you ensure that each aspect of your service at your company reflects the best way your company knows to deliver it.
The summary of each standard should include three points:
1. Why the service is of value (why we’re doing this in the first place)
2. The emotional response the customer should feel
3. The expected method for accomplishing the service in question.
It’s important to use this exact formulation so that your employees — your empowered employees — know when and why it may be appropriate to deviate from the service delivery method you have recommended. “Most of all, it’s important to realize that standards and employee autonomy aren’t conflicting forces,” Mr. Solomon concludes. “You need autonomy and you need standards, and the two need to work in harmony.”
Are there Other Keys to Retail Success?
Sure it cannot be just about customer management and employee policy. Business Insider lists 3 key factors that help Nordstrom to beat retailers from Macy’s to T.J. Maxx. Great customer service, i.e. factor #1 is what we know the best and already researched.
Besides that, Business Insider points of the retail outlet business. According to the company’s 2014 Investor Presentation, Nordstrom Rack that has grown from 17% to 24% of company’s operations in five years. Consider that Nordstrom has increased sales from $US 8 Billion in 2009 to $US 13 Billion in 2014, so the Nordstrom Rack is a huge cash machine for the company.
There is only a 10-20% overlap between Nordstrom Rack customers and the high-end department store, meaning that plenty of people are still paying full-price too. The Nordstrom Racks are a small operation that can be set up quickly. Nordstrom has opened more than 70 Rack locations since 2010 and has plans to build dozens more.
There’s obviously a great deal of supply chain optimization going on Nordstrom’s back office, provided by enterprise resource management software. Inventory management, central price lists, product information management, customer relations software, and integrated POS software are all essential tools for getting these results.
Retail Outlets to Reach Youth
Robin Lewis, CEO of The Robin Report, points out that Nordstrom has solved one of the biggest problems facing retailers: reaching millennial customers.
“The outlet business gives Nordstrom exposure to young customers who are seeking a deal and otherwise wouldn’t be shopping there,” Lewis told Business Insider. “The company believes that the younger customer will migrate into the full-line stores as they grow older.”
While Lewis believes there is a risk of the outlet business diluting the brand’s image, he says that brands like Nordstrom that offer a variety of brands are less at-risk than name brands like Michael Kors.
Omni-Channel Retail Experience
Part of excellent customer service to not to limit, where and when the customer can shop. While some retailers see online commerce as a threat, companies like Nordstrom are a proof that online and offline retail business can co-exists, and even benefit each other.
Nordstrom is apparently determined to be amongst the world’s top omnichannel retailers. Contemporary retail management software is perfectly geared to solving any supply chain problems. Evidently, omnichannel retail business does not mean just a possibility to shop both online and offline. A strong customer relations management backbone is vitally important, so Nordstrom can provide its notoriously great customer service.
“This company is at the forefront of e-commerce and omnichannel retail,” Robin Lewis has said. Nordstrom is innovating the shopping experience: recently made it possible to instantly buy the items featured on Instagram.
Employees also merchandise stores using input from its Pinterest page. Items that are popular on the social media site are featured more prominently on the sales floor.
Nordstrom has also aggressively invested in e-commerce, investing in men’s brand’s Bonobos and Trunk Club and its own flash-sale site, Hautelook.
“Nordstrom has spent more than a billion dollars investing in this aspect of the business, and it’s paying off,” Edward Hertzman, founder and publisher of retail publication Sourcing Journal, has told.
To sum up, how the retail giant has maintained its success story, we should detach retail policy and retail management tools. Nordstrom’s retail business policy is focused on their clients.
Their goal is to provide excellent customer service, so people not only buy more at one time, but come always back for more.
For this, a set of internal standards is set, like the no-questions-asked return policy. It is true that Nordstrom’s main customer service handbook is virtually a one-liner, but other methods, notably training are used to communicate the rules to employees. Also, employees need to be more capable, and are rewarded accordingly.
Below the clearly visible retail customer service layer, there are retail management software tools. It would be impossible to personalize the experience without proper Customer Relations Management software.
The use of retail management software does not stop with CRM software.
As the company has big full-price stores, small retail outlets, discount outlets, and online channels, advanced Inventory Management software is inevitable. You have to match your supply and demand and be able to handle prices across different sales channels.
As pointed out, Nordstrom exploits different retail models and several trademarks, all of which have a similar set of suppliers. To manage the wide range of clothing and accessories, the company needs centralized software for Product Information Management.
Being an innovator in omnichannel retailing, Nordstrom has naturally complex, yet easily manageable Stock and Point of Sales (POS) system that support simultaneous online and offline retail experience.
So, to put it short, to copy the success story of Nordstrom, you need to build your business policy around customer service, and start using a retail management software system that is rich in features, integrates smoothly and facilitates growth.