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Consumer Behavior Report

By: Christa Mannoni

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Table of Contents

About Nordstrom and Recent News………………………………………………. 3

Strengths……………………………………………………...…………………….4

Weaknesses………………………………………..………………………………..5

Opportunities……………………………………………………………………….6

Threats…………………………………………………………………………...…6

Current Target Market...........………………………………………………………7

Environmental Factors:

Technology…………………………………………………………………..7

Competition…………………………………...……………………………..8

Regulatory……………………………………….…………………………..8

Economic……………………...…………………………………………….8

Socio-Cultural…………...…………………………………………………..8

Recommendations…………...…………………….……………………………….8

Sources…………………………………………………………………………….10

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ABOUT NORDSTROM AND RECENT NEWS:

Nordstrom is a family owned fashion retailer headquartered in Seattle, Washington that originally started out as a shoe company only. As of March 2018, they have 123 full-line stores, 235 off-price Nordstrom Rack stores and just recently opened up their first Nordstrom Local store. Nordstrom stores are the original full-line stores that carry designer brands such as Christian Louboutin, Gucci, Calvin Klein and other well-known luxury brands. Nordstrom Rack stores are the off-price version of the full-line stores and carry some of the same brands but at a lower price and also feature other designers that are less expensive than the one’s held at the full-line stores. The new Nordstrom local store is designed to be almost like an all-in-one experience to make retail shopping a more positive experience for the consumer.

After a labor suit in the late 90s, the Nordstrom mission statement was updated to: “provide a fabulous customer experience by empowering customers and the employees who serve them”. In recent news, Nordstrom has also been trying to take their company private. The family knows that the future of the retail industry is unclear and they want to be the ones who help shape what the future looks like. By going private, they believe they would have a lot more freedom to try out creative approaches. The Nordstrom family has been investing heavily in progams that they hope will help them stay relevant when a lot of department stores are falling behind. These programs include a “showroom store” that does not stock any clothes but has one of each item in every color and every size so that customers may come in and try on things and then buy them from their store online. Another strategy that they invested heavily in was buying out Haute Look and Trunk Club to help drive e-commerce sales.

Within the past month, they have also opened up the very first men-only Nordstrom department store in New York City with plans to open a womens-only store across the street in 2019. According to Blake Nordstrom, the family has wanted a store in Manhattan for a long time and when a retail space became available they seized the opportunity. Unfortunatley, the space is about 3 times smaller than a typical full-line Nordstrom store so they decided to make it a mens- focused space. The major advantage of this type of store is that they can market everything in store to a smaller segment than normal stores. Not only will every product in store be targeted toward men, they will also be able to take a break from shopping by getting their shoes shined, have their clothes tailored, or enjoy a drink at the bar. It is unclear whether this investment will pay off for Nordstrom but will be interesting to track and possibly duplicate in other places if it is successful.

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STRENGTHS:

The geographic placement of Nordstrom’s fulfillment and distribution centers allow for quick responses and getting the products to consumers as fast as possible. E-commerce sales have also been a top priority for Nordstrom (and almost all fashion retailers) in the past few years. Consumers are growing increasingly more interested in “the last mile” of the shopping experience. As you can see from Figure 1, currently, Nordstrom has six distribution centers and three fulfillment centers. The geographic location of these centers makes sense looking at Figure 1.2 which shows the location of all the physical Nordstrom locations. Having the distribution and fulfillment centers close to the retail locations and where demand is highest will help decrease the waiting time for the consumer in the last mile.

The Nordstrom Rewards loyalty program “rewards customers based on their level of spending and is one area that enables us to directly engage and strengthen relationships with customers while driving incremental sales and trips”. The loyalty card can also be used at all different Nordstrom locations such as the full-line stores, Rack stores, Trunk Club and HauteLook.

Having different branches that stem from the traditional Nordstrom, allows each branch to focus on different segment. This allows more people in the total target market but each branch to narrowly define their segment.

Increasing their touch points with consumers by opening up the very first Nordstrom Local in Los Angeles. This store is just one of the many examples of how Nordstrom is

FIGURE 2

= FULFILLMENT CENTERS = DISTRIBUTION CENTERS

FIGURE 1

FIGURE 1.2FIGURE 1.2FIGURE 1.2FIGURE 1.2FIGURE 1.2FIGURE 1.2

FIGURE 2FIGURE 2FIGURE 2FIGURE 2FIGURE 2

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spending money to try to increase touch points with customers and try to make the shopping process a pleasurable experience. At this location, consumers can get their clothes altered, pick up their orders (or request it be picked up with their curbside pickup so customers don’t even have to get out of their car), see a personal stylist, get their nails done, or just relax with a cold beer or juice at the café located there.

According to an annual retail study performed by Market Force Information (results from 2016 shown in Figure 2) where over 10,000 consumers were polled and asked their favorite fashion retailer. Nordstrom ranked number one in the nation for the fifth time in a row. One important note to consider as far as the study is concerned, the survey respondents represented “a cross-section of the four U.S. census regions, and reflected a broad spectrum of income levels, with 67% reporting household incomes of more than $50,000 a year. Respondents’ ages ranged from 19 to over 65. Approximately 57% were women and 44% were men”. In this same study, Nordstrom also ranked highest in the categories of store atmosphere, value for money spent and ease of finding what was needed.

WEAKNESSES:

Big seasonal sales fluctuations cause for unsteady revenue streams as shown in Figure 3. Historically, their largest revenue is received in the second and fourth quarter.

Lack of promotions throughout all branches but especially at Nordstrom Rack. Besides the annual sale in July and clearance items, there is a lack of promotions and discounts offered to consumers.

Very high number of seasonal employees causes a lot of turnover each year. With such a large number of turnover, it can be hard to make sure each employee is exemplifying the brand’s mission when they know they will only be working there for a few months.

While loyalty cards can be used at all different locations, including Trunk Club and HauteLook, to keep gaining rewards for purchases made in-store and online, the rewards consumers build up (called Nordstrom notes) cannot be redeemed with Trunk Club purchases. This is a major weakness because most of Trunk Club’s target market will exclusively shop there instead of going in-store to other locations so the rewards they rack up will not be able to be used in their primary store of choice.

OPPORTUNITIES:

Because of their lack of promotions currently provided at Nordstrom Rack locations, there is a serious opportunity to gain more interest and drive more store visits by offering

FIGURE 3FIGURE 3FIGURE 3FIGURE 3FIGURE 3FIGURE 3

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promos and discounts occasionally to their target market of more price sensitive customers. These offers do not need to be made at the regular Nordstrom since their target market already has a high disposable income and offering discounts could make the product seem less exclusive

Assuming that Nordstrom Local is a successful investment, a major opportunity for Nordstrom would be to open up more of these stores in very high metropolitan areas such as New York City. This type of store could be very advantageous for someone living in a major city given the all- in-one nature. Since a significant amount of people living in big cities live in apartment buildings, having a place where your packages will be held safe until you pick them up could be a major game changer from a competitive standpoint.

Advertising the use of Trunk Club more. With Trunk Club, consumers get to talk to a personal stylist either on the phone or through an app where they can talk about their style and what they like and dislike. Then the stylist will come up with 6-10 items that match the customer’s style preferences and send them to the customer for review. They can approve or disapprove of whatever they want and then have those items shipped. Upon arrival of the products, customers can still return whatever they do not want to any Nordstrom location. I believe this is a great service for the target market of Nordstrom and believe it should be advertised more heavily.

Increase influencer marketing to appeal to younger consumers and show how products can be used or styled from someone the consumers already follow on social media.

THREATS:

Each branch of Nordstom also has their own competitors. For example, the full-line Nordstrom stores compete with brands like Neiman Marcus, Saks Fifth Avenue and Bloomingdales. Nordstrom Rack stores, on the other hand, compete with stores like Ross and other TJX companies.

Economic downturns that effect consumer’s discretionary income threaten their ability to shop at full-line stores.

CURRENT TARGET MARKET

Nordstrom has created many different branches from their retail store, allowing them to target more concentrated segments. The two main branches are the full-line stores (the traditional Nordstrom store) and the off-price stores (Nordstrom Rack). Both types of stores are targeted towards men and women living in densely populated areas. Their target market also has a significant disposable income and is fashion conscious. Nordstrom allows themselves to further target their market by targeting (in the traditional stores, where designer brands are sold for full price) people in the upper class, some Gen Z but mainly millennials, both women and men. Nordstrom Rack targets more price conscious consumers who are middle to upper class, also living in densely populated areas. Nordstrom local, only having one store as of right now, has mostly the same target audience as the full-line stores but obviously concentrated toward men and women living in the Los Angeles area.

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With the acquisition of Trunk Club and HauteLook, Nordstrom has allowed themselves to keep targeting small segments of the market while not being exclusively tied to the Nordstrom name. Trunk Club will target similar consumers to the Nordstrom full-line stores but can also more narrowly define their target as consumers who work often, have an extremely high discretionary income, are fashion conscious but do not enjoy the retail experience. These consumers will benefit from having a personal stylist sending them full outfits as often as they want. HauteLook, on the other hand, will target similar consumers to those who shop at Nordstrom Rack but can also more narrowly define their market as even more price conscious consumers who are looking for high-end products for even cheaper than what they are sold at Nordstrom Rack.

ENVIRONMENTAL FACTORS:

TECHNOLOGY:

Technology factors can help or hurt a business depending on the situation. Because the retail industry is changing so quickly, Nordstrom wants to be on the forefront of how the industry evolves. One of the ways they are doing this is by investing in new technology to make shopping more of an experience. The first technology company they acquired is called BevyUp. This app is essentially Pinterest except everything shown will be a product sold at Nordstrom. The app will allow employees to create “Style Boards” that consumers can look at and purchase those products directly. Since the app has not come out yet, there are still a few features that have been talked about but have not been confirmed that will also be accessible in the app. This includes a version of the app for employees that will allow them to not only post to the Style Boards but also communicate to each other within the app.

The other technology company Nordstrom has acquired recently is called Message Yes. This will allow Nordstrom to “send personalized text messages and notification that consumers can easily make purchases from”. By doing this, Nordstrom will make the shopping experience feel more personable and customized for consumers. Both apps will help drive e-commerce sales. BevyUp will help them interact with the consumer even when they are not in store and Message Yes will help Nordstrom gain more data points on consumers and their likes/ dislikes.

COMPETITION

As mentioned above in the threats section, each branch of Nordstrom has its own competitors and having these multiple branches of stores with different target market causes even more competition than one store normally would.

REGULATORY

Being a publicly traded company, Nordstrom is subject to SEC rules and must comply with them at all times. They also must comply with other government regulations set by the Federal Trade Commission and Department of Labor. Being an international company, Nordstrom also has to pay taxes in several different countries.

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ECONOMIC

Like most retail stores, Nordstrom is subject to economic factors like inflation and interest rates, labor costs, exchange rates and many more. Being positioned as a more luxury retail store, they run the risk of consumer’s discretionary income decreasing consequently driving down sales in store and online. This is also another reason for Nordstrom to consider more promotional efforts so that during economic hardships, consumers still have incentive to shop there.

SOCIO-CULTURAL

Socio-cultural factors are extremely important to Nordstrom in order to keep up with trends and understand the consumer and produce products they desire. In an increasingly sensitive political climate, it is also important to understand how different messages could be perceived to different audiences.

RECOMMENDATIONS:

My first recommendation for Nordstrom is to increase promotions at Rack locations only during their slower times of the season. As of right now, they see big spikes in their revenues due to the holiday season and their annual sale. However, I believe if they offer more promotions or even consider doing semi-annual sales, they can capitalize on an opportunity to appeal to their price conscious consumers. It could also be advantageous for Nordstrom to offer online only promotional codes that will help promote e-commerce sales. With so much money being invested in their brick and mortar stores, it’s important to keep appealing to consumers who are looking for the most convenient option or those who do not live in an area close to a Nordstrom location.

While I really love the idea of the Trunk Club service Nordstrom has implemented, there are still a lot of issues that need to be addressed sooner rather than later if it is going to turn into a profitable service. The whole concept of sending a consumer 6-10 high-priced items tailored to their personal style without ever meeting them in person, is already a risky investment. The biggest complaint of Trunk Club is that stylists do not listen to the feedback consumers provide. It is really a hit or miss service for some people, with misses to be expected. However, the target Trunk Club consumers are most likely very busy so having to return all the items that they did not like (within 10 days) is probably not the most appealing concept to those consumers. One recommendation I have is to allow an option for consumers to choose as many (or as little) items they want and then have their stylist find items that would also go with them. Consumers would still be able to approve or disapprove of the choices the stylist presents before shipment but I believe this option would cut down on cognitive dissonance after purchases because consumers will feel like they picked out or at least helped pick out their outfit. It would also help give stylists more of an idea of what the consumer is looking for.

My next recommendation would be to open another Nordstrom Local store in a major metropolitan area such as New York. Nordstrom has been shifting their focus to redefining the retail industry and shopping experience and with a few more Nordstrom Local locations will

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allow consumers in different parts of the country to experience shopping differently. It will also shift their view of Nordstrom just being a retail location to a multi-functional service where they can relax. In the consumer’s mind, the store isn’t just to purchase Nordstrom products but to have one place where they can get several things done conveniently. From a marketing perspective, this type of store not only increases interaction with consumers but keeps the brand name fresh in the minds of the consumers and creates positive experiences associated with it. There should be enough Nordstrom Local stores open to create a buzz but still few enough that they are somewhat rare, Nordstrom can also create places people will go out of their way to travel and visit.

My last recommendation is to increase spending on influencer marketing to appeal to younger consumers, specifically millennials. Data from MuseFind shows that 92% of consumers trust influencers more than an advertisement or a celebrity endorsement. Another study performed by Collective Bias and Inmar focused on how social content affects in-store sales. They found that 48% of their participants who were exposed to influencer content visited that retailer within four days of seeing an ad for it whereas only 29% of the control group who were not exposed to the content visited the store. With the amount of trust and influence, for lack of a better word, influencers have on consumers, it would be smart for Nordstrom to invest in these types of marketing tactics. By providing consumers with direct links to items, e-commerce sales could also see a spike. The greatest advantage of this strategy is that you can choose your content and your influencer to specifically target your audience.

Overall, I believe Nordstrom has some great ideas of how to shape the future of the retail industry. I would caution them against shifting too much of their attention to the brick and mortar stores and to continue focusing on improving e-commerce sales. Most of their new investments in their brick and mortar locations and their new technology acquisitions are too new to truly see how profitable and successful they are. However, their proactive approach to the product, price, place and promotion strategy is something that will benefit them in the future.

SOURCES:

“About.” HauteLook, www.hautelook.com/.

Bailey, Sharon. “Nordstrom's Target Customers.” Yahoo Finance, 19 Feb. 2015, www.finance.yahoo.com/news/nordstrom-target-customers-140545216.html.

Hanbury, Mary. “Nordstrom’s New Men’s-Only Store Could Be One of Its Best Weapons to Defeat the Department-Store Curse- but It May Be the Only One of Its Kind.” Business Insider, Insider Inc, 18 Apr. 2018, www.businessinsider.com/nordstrom-men-store-model-solve-department-store-problems-2018-4.

Kestenbaum, Richard. “What Happens Now That Nordstrom Isn’t Going Private.” Forbes, 20 Mar. 2018, www.forbes.com/sites/richardkestenbaum/2018/03/20/what-happens-now-that-nordstrom-isnt-going-private/#18e9156d5a88.

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Keyes, Daniel. “Nordstrom Acquires Two Retail Technology Companies.” Business Insider, Insider Inc., 12 Mar. 2018, www.businessinsider.com/nordstrom-acquires-two-retail-technology-companies-2018-3.

Main, Sami. “This Report Shows Just How Effective Influencer Marketing Can Be for Brands” AdWeek, 27 Apr. 2017, www.adweek.com

“Marketing Theories- PESTEL Analysis.” Professional Academy, www.professionalacademy.com/blogs-and-advice/marketing-theories---pestel-analysis.

“New Market Force Information Study Reveals Nordstrom is the Nation’s Favorite Fashion Retailer.” Market Force Information, Market Force Information, LLC, 16 Feb. 2016, www.marketforce.com/2016 Market Force Study Nordstrom is Favorite Fashion Retailer.

“Nordstrom Local.” Nordstrom, shop.nordstrom.com/c/nordstrom-local?origin=leftnav&cm_sp=Left Navigation-_-Nordstrom Local.

“Nordstrom Reports Fourth Quarter and Fiscal 2017 Earnings.” Nordstrom, Nordstrom, Inc., 1 Mar. 2018, press.nordstrom.com/phoenix.zhtml?c=211996&p=irol-newsarticle&ID=2335749.

“Trunk Club for Women.” Trunk Club: A Nordstrom Company, www.trunckclub.com/womens.

Weinswig, Deborah. “Influencers Are the New Brands.” Forbes, 5 Oct. 2016, www.forbes.com/sites/forbes-finds/2018/05/05