Nordstrom - Strategic Management

Nordstrom has come a long way since its humble beginnings as a shoe retailer in the early part of the 20th century. Now with the 4th generation of Nordstroms at the helm, it has positioned itself for the future with its customer-centric focus and rich history of entrepreneurial spirit. This analysis will focus on the transformation of their core operations and the potential for future strategic movement in the world of retail sales.

Corporate strategic and organizational practices

From the early stages as a wholly owned family business, Nordstrom was characterized by its ability to provide the highest quality and largest selection of products at very competitive prices. One of the most distinctive corporate traits that helped guide the second generation of Nordstrom salesmen was their passion for entrepreneurial thinking and their immense dedication to providing outstanding customer service and repeat customer satisfaction. Nordstrom's constant focus on serving their customer's needs instilled a solid reputation across the retail environment for providing exceptional service that differentiated them from the competition.

The corporate imperative to maintain a competitive pricing structure across all merchandise categories and geographic regions was a key strategy that further deterred regional department stores, who faced more complex pricing structures based on moving large volumes of inventory, from directly competing with Nordstrom based on a particular price point. Nordstrom also focused their buying strategies on providing more specialized, private label clothing lines and fashion accessories with limited mainstream apparel that was a stark contrast to the extensive mainstream clothing labels and product lines of their competition, which also included home dйcor and electronics. Nordstrom created additional distinction from their competition by cross training their salespeople on all product lines as opposed to other department stores where the salesperson was restricted to selling a particular brand or type of product. This increased product knowledge allowed a Nordstrom salesperson to effectively manage a customer's needs and provide a high touch customer experience across the entire store and breadth of merchandise.

The entrepreneurial motivation within the organization later led to the decentralization of the pay and incentive structures for all aspects of the retail merchandising environment. A buyer's overall compensation was directly tied to the yearly sales performance within their assigned merchandise category and allowed them to coordinate vendor contracts based on what the customers were demanding and empowered them to openly communicate with the salespeople who better understood the customer's needs. In order to enable the front line salespeople to attain their full sales potential and provide exceptional customer service, they were encouraged by their management to utilize a unique approach to better serve each customer. To further support their sales associates, the Nordstrom organization was structured to resemble an inverted pyramid that elevated all employees that directly interacted with customers to the top of the pyramid and all other levels were there to support and enable the further development of lasting customer relationships. As Nordstrom evolved over the last decade, they began to realize that the entrepreneurial spirit that once embodied all employees was actually more of a hindrance to some of the core back office operations and did not provide the level of benefit to the organization as it did on the sales floor. Nordstrom developed their support functions and core business operations around standardized processes and best practice activities, saving valuable time and resources that increased profitability and information management while improving customer focus and attention.

These corporate strategies based on providing exceptional customer service through an entrepreneurial approach to customer relationship management are the core value proposition for Nordstrom and the driving force to a sustainable competitive advantage. The customer had always been the most important aspect of the Nordstrom business model and success as an organization. Their reputation had been built upon providing exceptional customer service; however, they were failing to effectively meet the needs of their core customer base on a consistent basis. Nordstrom initially lacked the focused determination on efficient execution that was required to maintain a strong relationship with their customers, yet they were able to able to turn things around by going back to the basics. Nordstrom can sustain these competitive advantages by continuing to nurture and grow the entrepreneurial instinct within their salespeople and further build on their strong customer relationship initiatives. In the highly competitive retail marketplace, where products are homogeneous and low cost pricing strategies limit profitability, firms need to build their organizations around more intangible aspects that are hard to duplicate and difficult to imitate. For Nordstrom, their intangible assets of their entrepreneurial spirit that is infused throughout their selling process and their unwavering dedication to their customer will continue to set them apart as a niche clothing and fashion retailer.

Factors that led to the turnaround

Once the shareholders and Wall Street analysts started seeing Nordstrom as too complex and not scalable, they began to lose confidence in the company. By August 2000 it had became apparent that major changes were needed, and the CEO was asked to step down. There were several key factors that led to this change in top management and contributed to the need of a turnaround. While the second generation of Nordstroms unselfishly spent their relatively modest salaries expanding the business, when they were ready to retire, the next generation did not have sufficient capital to purchase the business outright. So rather than let their fathers sell the company to a competitor, the decision was made to take the company public. The result was that for the first time in the history of the company, there was not a Nordstrom in control of the organization.

In addition, the breadth of the organization grew too large to continue their "Nordstrom in every store" policy. The executive's informal and casual presence on the store floor was a significant motivator for the sales force that made them feel like part of the Nordstrom family. Due to this style of management the company became very much decentralized. The management had come to rely too much on established processes - a "cookie-cutter way of doing things" - rather than thinking innovatively. They eventually started replicating

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