Retail expert Robert Kozinets can give you all sorts of reasons to admire Nordstrom, the upscale Seattle-based department store empire. But in the end, it’s a story about his mother-in-law that offers the best one. She’d looked at some shoes at Nordstrom and had been disappointed that the store didn’t have them in her size. But the salesperson asked for her contact information and called the next day.
The woman still didn’t have the exact pair Kozinets’s mother-in-law was interested in, but she had several others in a similar style. “My mother-in-law said she couldn’t make it back to the store,” Kozinets says, “and the woman said, ‘I’ll bring them to you.’ And she did. I think my mother-in-law bought two pairs.”
Attention, Canadian retailers: The customer service bar has been raised. As Nordstrom advances into Canada, experts say its gobsmackingly extraordinary service will make it tough to beat in a looming battle of the posh department stores. “They’ve hammered that home and inculcated it into every aspect of their operations,” says Kozinets, who heads the global retail management specialization at the Schulich School of Business. “Nordstrom just goes above and beyond in a way that customers never forget. I mean, everybody has a Nordstrom story.”
He’s right. Anecdotes found online at first seem unbelievable: floor staff cheerfully accepting unabashedly damaged returns, no questions asked; Nordstrom employees helping mall shoppers carry purchases from other stores to their cars; and an often-repeated tale about a customer in Anchorage, Alaska, who returned a set of tires to a Nordstrom location—despite the fact that the chain doesn’t actually sell tires. Publicly, the company rarely discusses its commitment to pleasing customers, apart from suggesting it still has a lot to learn. In an interview with Canadian Business, Karen McKibbin, president of Nordstrom Canada, offers a response typical of her employer’s all-humble-no-brag messaging. “Please don’t think that we think we’re experts,” she says. “It’s something we work really hard at every day.”
But exceptional customer service isn’t the only reason Nordstrom’s arrival here should have Holt Renfrew, Harry Rosen and HBC-owned Saks Fifth Avenue worried as they gear up their own Canada-wide expansions. Nordstrom is a tech-savvy operator that is investing heavily in digital advancements (a recent Harvard Business Review piece bore the title, “Why Nordstrom’s Digital Strategy Works—And Yours Probably Doesn’t”). It’s also a shrewd PR generator that racked up net sales of US$12.2 billion in 2013 (up from US$10.5 billion two years earlier) by offering attention-getting in-store events like monthly shoe-tying lessons for kids. And then there’s its slow, steady approach to entering Canada. Unlike Target, which crashed and burned north of the border by going too big, too fast, Nordstrom is rolling out its Canadian presence at a glacial pace: six stores over three years. It opened its first location, in Calgary, last September. This month, it opens a second, in Ottawa.
With more than 280 stores across the United States—and, by the end of this year, three in Canada—the 114-year-old family-run business just might be the retail industry’s Holy Grail: a chain that does everything right.
The hole in the tuque was admittedly gaping—a two-inch circle ripped out of the side of the knitted hat. And the customer at the returns desk, a spy sent by Canadian Business to test Nordstrom’s legendary desire to please, didn’t even have a receipt. But she wanted a refund. The clerk at the Calgary location showed no sign of flinching as her finger poked through the hole. “Do you know how it happened?” she asked hopefully. No, she was told.
The question hardly mattered. The customer got her money back.
That’s the sort of experience Robert Spector hears all the time. The author of a book called The Nordstrom Way to Customer Service Excellence has studied the shop for decades and built a mini-industry of lectures and workshops that aim to help other businesses emulate its success (past clients have included TD Bank, BMO and the Cactus Club Cafe chain). One of the key lessons he shares in his presentations is how Nordstrom empowers its employees. New “Nordies” are presented with a card that outlines the only rule they’re told they must follow: “Use good judgment in all situations.” All employees are given an unusual degree of latitude to make their own calls about how to handle problems. “What it boils down to is we give employees complete freedom to take care of the customer,” McKibbin says. “And we say, if you’re going to make a mistake, let’s make sure you make it in the customer’s favour.”
Nordstrom lore is full of stories about security guards and housekeeping staff stepping in to help customers—even racing to the airport to deliver shopping bags to women before they board flights. “Everything is done with the customer in mind. If it doesn’t benefit the customer, it’s not customer service,” Spector says. It’s a demanding ethos that sometimes comes at a cost: Nordstrom has faced at least one class-action suit for allegedly pressuring salespeople not to charge their hourly wage for some customer-service-related work. And the service isn’t always perfect. “There are people who get bad service from Nordstrom—you’d be amazed at how many I hear about,” says Spector. “But I always tell them to send an email, and they always get a response. That’s what sets Nordstrom apart: It gets harder and harder to maintain that level of service as they grow, but it’s what they constantly strive for.”
Nordstrom’s savvy digital strategy (the one that’s way better than yours) is equally focused on enhancing consumer experience. The retailer has been pouring huge investments into technology and innovation—about 30% of its capital expenditures are earmarked for developing its Internet infrastructure—and until recently, it had a secret Innovation Lab that was meant to function as a lean startup within the company, developing groundbreaking tech innovations that could be pushed out chain-wide. It was disbanded in January (a spokesperson said innovation is “everybody’s responsibility” at the company), but Nordstrom isn’t showing any signs of backing away from pioneering tech that empowers employeesand enhances customer service. It has equipped floor staff with not just mobile checkout devices but also iPads capable of tracking chain-wide inventory, making it possible to find the last pair of size 6 Jimmy Choos, wherever it’s in stock. Nordstrom has teamed up with eBay to test drive a “fitting room of the future” (now at two U.S. stores) that turns a full-length mirror into an interactive touch screen that can be used to search for other items, scan product reviews or call for a sales associate.
And it’s blurring the lines between the virtual world and its bricks-and-mortar stores: Shoppers can buy items they see on Pinterest and Instagram with just a couple of taps on their phones, via apps such as Like2Buy. When they visit Nordstrom locations, they’ll see items that proved popular on Pinterest prominently displayed, sometimes with a distinctive red Pinterest tag. The digital tweaks all amount to a repositioning that could help the retailer attract younger shoppers—and keep them as they get older and wealthier.
Overall, the company has begun “skewing young,” says Dick Outcalt, a Seattle-based consultant with Outcalt & Johnson retail strategists. And that just might be another reason for the Canadian expansion. In the U.S., the typical Nordstrom customer isn’t your average Instagram user. In Canada, and anywhere else the chain may want to take its brand, it could be. “By entering a new market, they’ve got an opportunity to focus on the younger shopper,” says Outcalt,“without being burdened by the legacy of three generations of shoppers who haven’t experienced Nordstrom this way.
“What they’re saying is, ‘This isn’t a store for your mother. This is a store for you.’”
Can the perfect store thrive in a crowded market? It’s hard to say exactly how many tony department stores the Canadian market can sustain, but the answer is probably not as many as it’s about to get.
The luxury segment has been largely underserved in Canada—until recently, Holt Renfrew’s smattering of stores (currently eight across Canada) constituted most of the high-end retail footprint in Canada. But that footprint is about to become double extra wide. Holt’s is spending $300 million to open two additional stores (in Montreal and Mississauga, Ont.) and expand three of its existing stores over the next two years.
Montreal-based Simons, which mixes affordable Canadian creations with pricey designer labels like Vivienne Westwood and Paul Smith, plans to open five new stores by 2017. Upscale menswear chain Harry Rosen is moving many of its 17 stores into bigger, more expansive locations; And Hudson’s Bay Company owner Richard Baker is rolling out the chi-chi Saks Fifth Avenue brand in Canada. Up to seven Saks stores are expected, the first in 2016. Meanwhile, even discount retailers like Costco are grabbing chunks of the luxury market, particularly jewelry. (If you’ve got $19,799 and a Costco card, you can pick up a diamond “eternity necklace” next time you’re shopping for a gallon jar of dill pickles.)
That’s a lot of players swimming in what many describe as a shallow pool of big spenders. One recently published estimate put Canada’s luxury apparel market at about $1.6 billion—6% of overall retail apparel sales—but that’s a relatively small segment. In the U.S., which has more high-income earners, luxury represents 12% of overall sales.
So while there’s likely room for expansion at the top end of the retail spectrum, there won’t be room for everyone. Kersi Antia, a marketing professor at Ivey School of Business, says the American chains, which have an entrenched history of success at the high end, will likely be the winners. In the luxury market, there’s no real hometown advantage, he says. “Luxury consumers aren’t really patriotic. It’s more, ‘What can you do for me?’” And from what he’s seen so far, Nordstrom appears to be making smart moves as it expands north. “They’re doing the un-Target,” Antia says, citing the chain’s slow creep into Canada. “This is their first international foray, and they aren’t taking anything for granted. They’re taking time to get to know the market, and they’re being careful to manage expectations.”
McKibbin practically promised Nordstrom would make mistakes here: “We are going to stub our toe,” she said in an interview with the Globe and Mail before the first Nordstrom store opened at Calgary’s Chinook Centre last fall. But to ensure it’s got plenty of domestic expertise to draw from, the chain hired 28 Canadian managers and sent them to Seattle for eight weeks of training to prepare for the expansion. And it’s tweaking its merchandise mix to include plenty of Canadian designs and product lines (at a February fashion show in Ottawa, in advance of the Rideau Centre opening, visiting Nordstrom executives made a point of wearing homegrown Manitobah Mukluks).
It’s a strategy employed at every one of its locations, according to McKibbin, who says no two Nordstroms are exactly the same. Local tastes even shape menu choices at its in-store restaurants. The Calgary one serves poutine, she says, “and a maple apple crumble that’s absolutely to die for.” Pat Johnson, of Outcalt & Johnson, estimates that about 20% of the merchandise mix is selected by individual store buyers. “You can recognize the difference when you go into two stores in a metropolitan area. You don’t see exactly the same things. They respect the difference in customers.”
Investment adviser Nicholas Mushaike, writing for the online site Seeking Alpha, is one of the only market watchers to raise concerns about Nordstrom’s Canadian plans. Mushaike points out that in the U.S., the chain is focusing on growing its Nordstrom Rack franchise—discount locations that sell many of the same name-brand products but at steep reductions. While sales at full-line stores have been relatively flat in the U.S. over the past couple of years, they’ve surged at Rack outlets. That’s partly because Nordstrom has opened about 60 since 2011, but also because sales average about US$550 per square foot compared to about US$370 at full-line stores. Developing costly department stores could drain the chain’s revenue, Mushaike suggests. “Nordstrom would be better off to first saturate the U.S. market until it attains steady state (maturity) before going international.”
The chain’s initial plans for Canada had actually included Nordstrom Rack, but after Target melted down, it decided to delay opening any of its discount outlets until it was better established in the Canadian market. Eventually, McKibbin says, it hopes to open at least 20 Rack locations.
“They’re putting their best foot forward,” says Ivey’s Antia. “Then when they’ve done a great job with the full-line department stores, they’ll move downstream.” The chain’s flagship at Toronto’s Eaton Centre, meanwhile, scheduled to open in 2017 following a $400-million investment in the complex, is expected to be decidedly upstream. “They’re sending a very strong shot across the bow to their competitors with the stores they’re opening,” says Antia. “They’re saying, ‘We’re not dabblers. We’re all in.’”
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