Nordstrom’s Operational Improvements Lead to Top Line Growth

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Nordstrom’s Operational Improvements Lead to Top Line Growth

By Nicole Gillo - 12/15/2016
Nordstrom’s third-quarter results demonstrated the progress the retailer has been making to improve its operating model. Over the last year, the retailer has been addressing not only the challenges of top line trends, but also the longer-term impacts of operating a fast growing e-commerce business. During Q3, Nordstrom has begun to reap the benefits of operating leverage generated by these adjustments, in particular from inventory and expense.
 
Over the past five years, the retailer has made strategic investments to meet changing customer expectations, which enabled the company to grow its top line by 50%. Moving forward, the retailer will continue to adapt its operating model to improve the customer experience and deliver long-term profitable growth.
 
“This year, we've made tremendous progress in right-sizing our expense trajectory through increased efficiencies across our enterprise capabilities,” said Mike Koppel, EVP and CFO, Nordstrom on a recent call with analysts. “This includes our efforts to expand our digital experience, which is enabled through technology.”
 
For example, the retailer upgraded a vast majority of its website platform, which allows it to accelerate the continuous delivery of new customer-facing features. From a productivity standpoint, it prioritized investments toward modernizing infrastructure and implementing high value customer experiences.
 
In supply chain, the retailer has implemented a number of initiatives focused on improving the customer experience and reducing per unit cost. Based on these efforts, Nordstrom is on track to achieve savings of roughly $50 million in shipping and fulfillment costs this year.
 
Supply chain has become an integral part of customer service. As the retailer’s focus remains on the customer, the last couple of years have included big investments to ensure that the supply chain is in lockstep with customer demand.
 
“I think the biggest thing is the roughly $50 million in savings throughout this year that we're finding in back-of-the-house system efficiencies,” commented co-president Blake Nordstrom. “But the bigger picture is the mix subject - distribution centers versus fulfillment centers. We continue to see year in, year out our core efficiencies in the distribution part of it. The mix of timing and the type of goods, and how we're getting goods to customers, and then there's the reverse logistics subject which in aggregate means more cost. And so we're working really hard on that to, number one, meet the customers' demand; and number two, meet our goals and results and [show] our shareholders that we're doing it in an efficient manner.”
 
In marketing, the expanded Nordstrom Rewards loyalty program represents a meaningful opportunity to directly engage with customers, drive customer lifetime value, and increase the efficiency of marketing spend. Since its launch in mid-May, there are now more than seven million customers in the program, an increase of more than 40% from a year ago. In the third quarter, the spend from loyalty customers composed 45% of sales.
 
Discover how retailers such as Nordstrom are rethinking e-commerce and m-commerce strategies with personalized gifting at NRF 2017 on Monday, January 17. Sean Burrow, director of gift card, Nordstrom will share his insights in his “Gifting Disrupted - New Personalized Experiences for e-Commerce and m-Commerce” session.
 
For more on NRF 2017 be sure to check out RIS’ preview guide here