Those Wonderful Nordstrom Multichannel Customers

The pundits love to talk-up the merits of a healthy, happy base of multichannel shoppers.

So why don't we dissect some information from today's Nordstrom 2nd Quarter Conference Call.

Think about these metrics for a moment:

• Comp Store sales decreased 6% vs. last year.
• Profit at the low range of expectations and sub-par vs. last year.
  
• Nordstrom Direct had a 15% increase in sales vs. last year.
• Multichannel Customers, those precious customers the pundits tell us we have to have, increased by 7% vs. last year, and now account for 32% of the total sales volume, vs. 28% of the total sales volume last year.

Ok folks, what does this tell you? Multichannel customers up, direct sales up, retail sales down, total sales down, total profit down, stock price down. Hmmmmm.

Nordstrom, by all accounts, achieved the lofty objective that the pundits demand of us. And yet, SALES AND PROFIT DECREASED!!!!

In other words, sales from infrequent and single-channel customers might be in the negative double-digit range, if there were significant increases in the number of and percentage of volume from multichannel customers.

I'm not saying it is wrong to be "mutlichannel". It is right. But I want for you to think about something.

What happens if you dive head-first into this goofy multichannel thing, doing everything possible to make the experience great for multichannel customers, or for your best customers --- but in the process, you alienate a bunch of single channel, infrequent shoppers, driving down comp store sales in the process? And don't give me that pap about the economy being lousy, if it is so lousy, Zappos should be in the tank, right? Or Amazon? Or Costco? Or Wal-Mart? Or Aeropostale? Or Abercrombie & Fitch? Or Urban Outfitters, up 30% this year? I mean, didn't the government throw freshly printed silly money at customers in the 2nd quarter? How could that hurt comp store sales?

We need to talk about serving ALL customers, not best customers, not multichannel customers. This is a great lesson --- treating best customers the best, while the rest fail to pay the freight, resulting in poor results.

Think about your own family. Say you have four children. One child earns grades of "A" in school, while the others earn "C"s. Would you focus all of your energy around the child earning an "A", hoping the C students would aspire to be like the A student, or would you do everything possible to make sure that all four children had the opportunity to succeed, based on the unique gifts each child possess?

This multichannel thing, if not executed properly, has the potential to send us down a rathole. We have an opportunity to please all of our customers. Sure, it is good to focus on customers we believe are best. We also need to focus on every customer. No sale is unimportant!

This isn't a criticism of Nordstrom. This is a direct criticism of all of us --- those of us who listened to the message, and those of us who published research reports or sold software, hardware or consulting services. We all drank the kool-aid without thinking whether it might rot our teeth.

Nordstrom (JWN) Stock Price

On January 8, 2001, I began my employment stint at Nordstrom as Vice President of Direct Marketing. The stock price was $8.33.

On March 9, 2007, I completed my employment tenure at Nordstrom. The stock price was $50.63.

On July 11, 2007, the stock price is $27.38.

How much of the stock price is due to my brilliant shepherding of the Database Marketing function at Nordstrom?

$0.

This is one of the challenges we face when evaluating talent.

Leaders are caught in updrafts and downturns. How the leader deals with updrafts and downturns manifest itself in the profit and loss statement. And during a time when Nordstrom stock declined by thirty percent (fiscal year ending 2/2008) Nordstrom actually posted a year of record profits.

Nordstrom: Buy Online, Pickup In Stores

Multichannel advocates across the globe raise a glass of champagne, in honor of Nordstrom and their new strategy.

I am waiting for my local dentist to offer a "Buy A Root Canal Online, Pickup In Stores" option. Maybe universal health care will bring dentistry into the multichannel fold.

Your Company's Multichannel DNA

Here's what I did. I scanned the 2007 10-K statements of five publicly traded companies:

• Nordstrom (JWN).
• J.C. Penney (JCP).
• Williams Sonoma (WSM).
• J. Crew (JCG).
• Coldwater Creek (CWTR).

Within each document, I scanned terms, like STORES, RETAIL, MULTI-CHANNEL, CATALOG, ONLINE, INTERNET, WEB, MAIL ORDER, CUSTOMER, CONSUMER, E-COMMERCE, E-MAIL, and DATABASE.

After tabulating the results, I was able to rank each of the five brands on the basis of how often these terms were used. The terms reflect how the management team of each company views the world. Let's take a peek at the findings.


Stores / Retail: The results aren't surprising, with Nordstrom and J.C. Penney skewing heaviest to these terms. Clearly, these brands view themselves as retailers, not so much as direct marketers.

• Nordstrom = 68.1%
• J.C. Penney = 67.3%
• J. Crew = 56.4%
• Coldwater Creek = 53.3%
• Williams Sonoma = 51.5%

Catalog: Guess which companies used this term most often? Sure, the ones with a catalog heritage (though JCP shows how they changed over time).

• Williams Sonoma = 14.9%
• Coldwater Creek = 12.5%
• J. Crew = 10.6%
• J.C. Penney = 5.6%.
• Nordstrom = 4.7%.

Internet: This one is a bit murkier to interpret. I'll leave it up to you!

• Williams Sonoma = 11.6%
• J. Crew = 11.5%
• Nordstrom = 9.7%
• J.C. Penney = 8.1%
• Coldwater Creek = 7.8%

E-Mail: Do these companies care about e-mail marketing enough to say something about it? Nope. E-Mail marketers appear to have work to do to prove the viability of this channel to Sr. Management.

• Coldwater Creek = 3.0%.
• J. Crew = 0.9%
• Nordstrom = 0.0%
• J.C. Penney = 0.0%
• Williams Sonoma = 0.0%

Multichannel: We hear the buzzword over and over and over from the vendor community. Do the management of these brands talk about it publicly? Not really.

• Nordstrom = 2.9%
• Coldwater Creek = 1.8%
• Williams Sonoma = 0.4%
• J.C. Penney = 0.3%
• J. Crew = 0.3%

Customer: Often mentioned in context with the direct channel, this illustrates how often these brands talk about serving customers, vs. managing stores. Notice the inverse relationship with retail focus.

• Williams Sonoma = 21.4%
• Coldwater Creek = 20.3%
• J. Crew = 19.8%
• J.C. Penney = 18.8%
• Nordstrom = 14.7%

Database: Does anybody mention metrics from the customer or e-mail database? Nope! A tip of the hat to Coldwater Creek for at least having a bit of database information available.

• Coldwater Creek = 1.3%
• J. Crew = 0.6%
• Nordstrom = 0.0%
• J.C. Penney = 0.0%
• Williams Sonoma = 0.0%

Does Any Of This Mean Anything? Yes!

The management teams of each company speak publicly, in an official manner, once a year. When they speak, they signal to the public what they care about.

Nordstrom and J.C. Penney care about retail, though Nordstrom talks more about being multichannel than anybody else. Clearly, Nordstrom wants to use the direct channel to inspire retail growth, given that they don't talk about their catalog or online channels much.

Williams Sonoma management discussions are skewed toward catalog. Williams Sonoma speaks about the online channel more than anybody else as well. The DNA of this company is all about direct marketing. Even though this company has a veritable plethora of retail locations compared with somebody like Nordstrom, the way this company views the world is fundamentally different.

J. Crew has a direct marketing skew, though the skew is focused online. The web means something more to J. Crew management than to the companies that have a catalog focus.

Coldwater Creek has the most unusual DNA of the companies listed. Management appears to view channels from a marketing standpoint, mentioning catalog marketing, e-mail marketing, and the customer database more often than the rest.


The data qualitatively illustrate that the management teams, and in all likelihood the culture of each company, have a DNA that determines "who they are".

This view of "who they are" may determine how each company approaches the future. Companies with a catalog heritage will believe in catalog marketing as a solution. Companies that view the web as an integral tool will use it to drive future business. Companies that view stores as the core part of the business might use direct marketing to improve comps.

What is the DNA of the company you work for? How does your DNA shape how your company views the future?

Incremental Online Sales: Nordstrom

Click on the image to enlarge it.

Earlier, we reviewed financial results at Williams Sonoma. The data clearly indicated how important catalog is to the growth of the direct channel.

Nordstrom is a highly profitable multichannel retailer, one that took a very different approach to catalog.

In 2005, the brand decided to eliminate $36,000,000 of ad-spend on a targeted direct-to-consumer catalog business that featured merchandise for a niche of women's apparel consumers. (FYI, data in the table above are freely available via Nordstrom 10-K annual reports).

Had this happened at a company like Williams Sonoma, where catalog items ARE the brand, a catastrophe would have occurred.

But at Nordstrom, where the catalog items were a subset of all items offered in stores and on the website, something different happened.

The catalog strategy was discontinued on June 30, 2005. Notice that catalog + internet sales in 2005 only grew by one percent. Yet, in 2006, even though half the year was comped against a prior year that had a significant catalog investment, catalog + internet sales grew dramatically. Nordstrom Direct management figured out how to leverage the marketing tools and merchandise assortment available to them to grow the business, in spite of the dramatic loss of catalog advertising.

Furthermore, we are all aware that Nordstrom retail comps were spectacular during this time period, opposite of what industry experts might suggest would happen if $36,000,000 of catalog advertising were removed from the multichannel ecosystem.

This leads me to my point. At Williams Sonoma, catalogs ARE the store, the website, the brand. Catalog marketing is critical to the success of this multi-brand organization.

At Nordstrom, however, traditional catalog marketing was discontinued. After a brief blip, business came roaring back.

This is why I advocate that catalog marketers have an "open mind". You may desperately need catalog advertising to grow your online business. Or, like Nordstrom, you may not need catalog advertising to grow your online business, you may be able to cross the digital divide, and utilize online and multichannel retail marketing to fuel your online business.

Listening to pundits leads you to the conclusion that you have no choice but to maximize your catalog advertising efforts. Instead, listen to your own business instinct, and the needs of your customer base, and chart a course of your own. Industry experts are only experts to the extent that they have seen various business models succeed. The Nordstrom example runs counter to what most industry experts are used to seeing.