Alli Gross's Design Thinking: Blog 4: Business Model Analysis of Nordstrom

In today’s fast-paced, entrepreneurial world, it’s often a rare instance to find a business celebrating its 114^th birthday and still thriving in the marketplace. Since Nordstrom was founded in 1901, the company has evolved into a major specialty retailer that continues to grow their revenues while gaining market share. Nordstrom can be described as an American upscale fashion retailer existing in the services sector within the apparel retail industry. Within this arena, Nordstrom is positioned as high-end, yet affordable with a strong focus on excellent, top-notch customer service. Relative to its competitors, Nordstrom is positioned as more luxurious and high-end than Dillard’s, yet more affordable and attainable than Saks Fifth Avenue or Barney’s.

In regards to business operations, Nordstrom has two segments: Retail and Credit. Its credit segment includes the company-owned federal savings bank, called Nordstrom fsb, through which Nordstrom provides a private label credit card, two Nordstrom credit cards, and one debit card. Within its retail segment, Nordstrom operates through five main retail channels:

Department stores under the “Nordstrom” name
Discount stores under the “Nordstrom Rack” name
E-Commerce through the Nordstrom.com website
Online private sales through the HauteLook brand
Four individual free-standing boutique stores under the names Jeffrey, treasure&bond, and Last Chance.

Nordstrom currently operates in 34 states across the United States, servicing customers through 117 Nordstrom stores and 132 Nordstrom Rack stores. These numbers have positioned Nordstrom with the largest number of store locations and the largest geographic footprint of all its major competitors in the U.S., including Bloomingdales, Neiman Marcus, Lord & Taylor, and Saks Fifth Avenue. Through its multiple retail channels, Nordstrom serves its customers with a wide variety of product categories. The categories of products sold by Nordstrom are listed in the chart below.

For me personally, Nordstrom has always fascinated me for a wide variety of reasons. First and foremost, I have always been incredibly interested in the world of retail, particularly in fashion and beauty retail. Prior to beginning my junior year at UT, I spent the summer of 2012 abroad in Florence, Italy. While abroad, I took courses in Retail Marketing and Fashion Merchandising and spent much of my time analyzing retail operations and strategies. My time in Florence fostered a deep interest in both fashion and retail. When the time came to embark upon a new journey during the summer of 2013, I moved to New York City to work an internship for the major beauty retailer L’Oreal. Through this internship, I garnered knowledge and experience that deepened my understanding of and interest in the retail industry. Because I worked within L’Oreal’s Luxury Products Division, Nordstrom was one of the key retailers we worked with to distribute our more high-end product lines. Nordstrom interests me because they have managed to do what few other luxury retailers have done by creating brand subsidiaries that widen their customer base. Through their mix of products and mix in price points across different retail store types, Nordstrom has successfully appealed to a wide-range of customers. This is far unlike many other luxury retailers, who predominantly cater only to a wealthier, upper-class audience. As a millennial myself, I am particularly interested in companies that have a strong digital presence. Nordstrom has excelled in creating a seamless user experience that is in line with the traditional Nordstrom brand. Furthermore, they have also been an industry leader in E-Commerce through their use of real-time inventory updates and mobile and tablet platforms. Lastly, my interest in Nordstrom has also stemmed from the way the company carried itself through the economic recession in 2008. Unlike many major retailers that are still struggling to regain strength in a post-recession world, Nordstrom took major strides to adapt to the economic recession by updating their product mix to include more affordable options. I continue to love the experiences I have during my own personal time shopping at Nordstrom, and my interest in the company is fastened deeply in a respect for the company’s wide customer base, strong digital presence, and economic adaptability.

As stated in the above paragraph, one of the things I love most about Nordstrom is the ability to appeal to a wide-range of customers. That being said, Nordstrom has a large variety of customer segments that are crucial to the store’s success. For my business model analysis report, I hope to dive deeper into the customer segments that I believe are most in line with Nordstrom’s major streams of revenue. The customer segments I plan to analyze are:

Women, ages 30-40, mothers in the middle-to-upper class:

These women are the matriarchs of the household and are likely the major buyers of apparel for their families. These women are incredibly busy raising their children while balancing work and social obligations. That being said, the value proposition for this customer segment is that of time. They desire stores that will allow them to shop for items quickly in an environment that is easy to navigate and never chaotic. In addition, these women also value affordability and reasonable prices. Although they may be in the middle to upper class, they still have a need to ensure they are spending within reason due to the multiple expenses associated with raising children.

Men, ages 25-35, young professionals:

Based on past financial reports, sales from men’s clothes typically account for 18-20% of Nordstrom’s revenues. This is a large portion of the overall revenues for the Nordstrom stores, which means that men are an incredibly valuable customer segment for the company. Men between the ages of 25 and 35 are likely to have just recently begun to shop with more discerning tastes. As young professionals, they desire to look clean-cut and professional in order to present themselves well to others. Because of this, these customers value high quality. If they are willing to pay higher prices, they want to be guaranteed that they will receive high quality in return. Much like the segment of young mothers, these men also care about prices, as they cannot afford to be too outrageous in their spending. They want to shop in a comfortable environment that is easy to navigate and that is unpretentious while still offering high quality products.

Women, ages 55-65, upper-class women no longer working:

Women in this customer segment have led successful lives and are enjoying retirement. Time is no longer a main concern for them, as their schedules allow for a greater amount of discretionary time. Rather, these women are concerned with quality and customer service. Much like the men described above, these women desire quality items that are luxurious and high-end because they have now attained financial security in their later years of life. Moreover, they desire a positive customer experience. They want to feel like their money is well spent, which means they value a shopping experience that features impeccable customer service and positive interactions with employees.