Nordstrom sees more e-commerce, mobile commerce in its future
The Internet is Nordstrom's fastest-growing channel, and it's spending heavily to support that growth, meaning more jobs at its Seattle headquarters.
Seattle Times business reporter
As someone who works in downtown Seattle and lives in Renton, Chelsea Shipp tends to not be very far from a Nordstrom store at any given time.
But because she finds the Web's 24-hour browsability and home delivery hard to beat, the longtime Nordstrom customer increasingly goes online when she wants to refresh her wardrobe.
"If I just need a pair of black pumps, I don't need to go to a store," Shipp, 31, said. "I know the size and style I'm looking for, so why not buy it online."
Shipp, a sharply dressed management consultant, represents the changing face of Nordstrom customers.
The Internet is Nordstrom's fastest-growing channel and, with $1.5 billion in cash on hand, it's spending heavily to support that growth, meaning more jobs at its Seattle headquarters.
The 111-year-old company is working on new mobile shopping options and personalization features, so that visitors to its website might soon receive recommendations based on their online and in-store buying habits.
It's also testing a local same-day delivery service for a possible broader rollout, and it's expanding its merchandise assortment online to give customers more selection. "If you're listening to customers, they're telling you that their expectations around how they want to shop are evolving," Jamie Nordstrom, who oversees the company's website as president of its direct division, said in a recent interview at his corporate offices.
"Many customers today don't have several hours to shop like maybe previous generations did," he said. "They're looking to be efficient, and they're looking for help."
Locally, the company plans to hire about 350 additional employees in the next few months, and it's looking for more office space on top of the 1 million square feet it already occupies downtown. Most new hires will work in e-commerce, mobile commerce and IT.
"Certainly here in Seattle, we haven't hired this many people in a short period of time in our history," Nordstrom said.
Last spring, at the company's annual shareholder meeting, President Blake Nordstrom said he hoped to look back on 2011 as the year Nordstrom "got behind what it took to be best of class online."
In fact, the company had been moving in that direction since 2005, when it began integrating its online and in-store inventory systems. In 2007, it doubled the size of its Cedar Rapids, Iowa, warehouse, to handle more Internet orders, and by late 2009, its Web and in-store operations shared the same inventory platform, enabling them to call on each other to fill orders.
Last year, Nordstrom bought the Los Angeles-based website HauteLook, which offers limited-time "flash sales" on discounted designer goods, for up to $270 million in stock. It also launched free shipping and free returns for online orders of any size; introduced a smartphone app that lets customers scan bar codes to check on a product's availability or browse styles based on a personality type; and began testing a same-day delivery service in parts of Seattle, Bellevue and La Jolla, Calif.
Analysts credit Nordstrom's technological changes for much of its recent financial success. The stock, which closed Friday at $48.48, has been trading near the upper end of a 52-week range between $37.28 and $53.35.
Nordstrom reported nearly $2.5 billion in sales for both November and December, representing a 12.3 percent increase over the 2010 holiday season. By comparison, retail-industry sales for the same period rose 4.1 percent from a year ago, according to the National Retail Federation.
Chief Financial Officer Michael Koppel told analysts in a quarterly conference call last August the company will spend about 15 percent of its planned $2.5 billion capital-expenditure budget on technology upgrades over the next five years.
"It's a cost of doing business that you have to do right, because this is how many customers want to shop," said Sucharita Mulpuru, who follows the e-commerce industry at Forrester Research in Cambridge, Mass.
She says the emergence of smartphones and tablet computers makes customers more likely to browse websites like Nordstrom's.
"If you have some idle time, you can snack on its content. More screen time means more opportunity to be exposed to its content," Mulpuru said.
Although online sales are the fastest-growing part of Nordstrom's business, the vast majority still comes from its stores. The company added 18 new Rack stores last year, and it plans a similar expansion this year.
What's more, it continues to look for sites where it can open new full-line clothing stores, including in Manhattan and Vancouver, B.C. All told, the company operates 117 full-line stores and 104 Racks.
"This is not about, 'Hey, we're going to stop replacing the carpet or light bulbs in our stores and focus only online.' It's not that at all," Jamie Nordstrom said. "We're still bullish on our stores."
The direct division generated $705 million in the fiscal year that ended Jan. 29, 2011, up from $563 million in the previous year.
With an annual growth rate nearly three times higher than Nordstrom's full-line stores, the direct division accounted for 7.5 percent of the company's total retail sales, compared with 6.7 percent a year earlier.
More recent data is not available because Nordstrom no longer breaks out direct sales as a separate category on a monthly basis. Instead, it rolls them into its full-line store results, figuring that customers don't differentiate between the two channels anyway.
Still, analysts estimate that Nordstrom's online business represents 8 or 9 percent of the current total, making it likely to hit double-digits soon.
"We used to think that online sales as a percentage of retailers' business would cap out at 5 percent," Mulpuru said. "Now, we really don't see any signs of abatement."
Barbara Kahn, director of the Jay H. Baker Retailing Center at the University of Pennsylvania's Wharton School, predicts an increasing number of shoppers will use Nordstrom's website to reorder items they bought in the past. What she doesn't see changing anytime soon is their desire to try on new styles and seek advice in stores.
"Nordstrom has a history of very good customer service, and I think people will continue to want that," Kahn said. "Their shoe department is a fun place to be. You're sitting there, and everyone's trying on shoes, and you're getting ideas from them. That's not something you can get online."
Shipp, the Nordstrom customer, said she has upped her online purchases in the past year partly because of regular emails that seem to know just how to make her give in to temptation.
"The subject line will read, 'find something sparkly,' so I'll click on it and say, 'oh, that's kind of fun,' " she said, laughing. "They definitely get me to click through."
Amy Martinez: 206-464-2923 or firstname.lastname@example.org