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Alan Kohler is one of Australia’s most experienced commentators and journalists. Alan is the founder of Eureka Report, Australia’s most successful investment newsletter, and Business Spectator, a 24-hour free business news and commentary website. He also hosts Inside Business, a half-hour Sunday programme on the ABC, is the finance presenter on the ABC News - and producer of the nightly graph (or two).
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RICH PICKINGS: Four secrets from retail royalty

James Thomson16 Nov 2012, 5:15 PM

Iconic Nordstrom has staged an impressive retail recovery that has helped create a new billionaire. It comes down to one key element – know what your customer wants.

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It’s the retail miracle before Christmas.

While Gerry Harvey and Myer’s Bernie Brookes are bracing for another tough holiday trading period – and watching their share prices bounce along near record lows – on the other side of the Pacific one American retailer has seen its share price jump more than 16 per cent since the start of June.

And perhaps more impressively, the stock’s rise has helped create a new retail billionaire.

According to Bloomberg, the surge in the share price of iconic US department store operator Nordstrom means 76-year old Anne Gittinger is now a billionaire.

Gittinger is the company’s second largest shareholder behind her brother Bruce Nordstrom; Bloomberg says the pair’s combined stake is now worth $US2.5 billion.

Bruce and Anne are part of the third generation of the Nordstrom family. The pair’s grandfather, John Nordstrom, was a Swedish immigrant who decided to go into retail to invest the fortune he has made in the Alaskan gold rush.

In 1928, John and his business partner, Carl Wallin, sold their stakes in the businesses to John’s sons, Everett and Elmer. Everett would eventually pass on his stake to his children, Anne and Bruce.

Anne Gittinger remains active in the business and runs Nordstrom’s philanthropic efforts as director of corporate contributions.

Gittinger’s rise to the billionaire’s club would appear to make a mockery of the old saying that the first generation makes the fortune, the second generation starts it and the third generation squanders it.

But in the case of the Nordstrom family, the saying almost rang true. When Bruce Nordstrom retired in 1995 he handed control to the first non-family executive team in the history of the business, and the company lost its way.

But in 2000, Bruce’s sons Blake, Erik and Peter took executive control of the business, putting it back in Nordstrom family hands.

And so began an impressive retail recovery which has seen Nordstrom become on the most envied (and imitated) retailers in America and around the world.

The company’s most recent profit result, for the September quarter, saw profit rise 15 per cent, with same-store sales up 10.7 per cent. What Bernie Brookes wouldn’t do for those kinds of numbers.

But the secrets of the Nodstrom’s family success aren’t just for retailers – they are an example of how a business can thrive if it understands exactly what its customers want.

Here are four secrets:

Technology that helps you say "yes” more often

Australia’s department stores might finally be dipping their toe into the world of online retail, but Blake, Erik and Peter Nordstrom have bet their entire company on technology.

A highly successful online sales offering (online sales leapt 38 per cent in the third quarter) backed by a free shipping and free returns is one thing, but the really important investment has been in an inventory management system that lets every sales person in every channel see every piece of stock across the entire business.

Say an online shopper wants a specific pair of Jimmy Choo shoes. There might be 17 pairs in stores nearby and these can be reserved and collected in-store. Or there might be none in the online warehouse, but there is a pair in a store in Ohio. The Nordstrom system doesn’t worry the customer with this – the shoes are taken off the floor of the store and sent out.

Jamie Nordstrom, a second cousin of the brothers who runs the online store, told Businessweek last year: "We hadn’t added inventory, but we had a lot more sizes. You are saying ‘yes’ to a customer more often.”

Understanding your customers’ lives

Like any department store, Nordstrom’s range is spread across a range of categories – from shoes and dresses to ties and kids clothes. But consider for a moment the names of the departments in women’s apparel.

There’s Savvy ("Edgy, of-the-moment looks for the confident, fashion-forward woman”); t.b.d ("Your destination for the best on-trend styles of the season”); Individualist ("A collection of the most sought-after styles that take you from desk to dinner with ease”; Narrative ("Polished, put-together looks to keep your wardrobe current”); and Encore ("Up-to-the-minute fashion in plus sizes for the style-conscious woman”).

This is not the ordinary way to divide up different types of clothes. What Nordstrom is trying to do is to match their range to the lifestyles of their customers, in the way that an art gallery or even a media company tries to curate its content to give customers the best experience possible. It’s a smart point of difference.

Building four types of loyalty

Nordstrom has only a few big sales a year, so it needs to find other ways to keep customers coming into its stores. Part of the secret of this is its four-tier loyalty program which was tweaked earlier this year to allow more customers to join.

At the lowest level of the program – for customers spending $1 to $1,999 a year, customers are able to access $100 worth of tailoring and get access to early deals at annual sales. At level three – $5,000 to $9,999 – customers can access special "style experiences” like a tour of Vera Wang’s New York workshop. Level four customers can host private shopping parties at their favourite store – providing they spend over $10,000 a year.

Like all loyalty programs, Fashion Rewards gives Nordstrom extraordinary levels of data about shopper buying habits. These are clearly put to good use – members tend to shop with Nordstrom twice as often and spend three times more than other customers. In total, members account for 30 per cent of all sales.

These programs have a price, and the opening up of the program to more people has seen Nordstrom’s margins fall this year. But having an army of rusted-on, aspirational customers is crucial in retail.

Be nice

Blake Nordstrom’s time in the shoe departments of the family business clearly made an impression on his view of customer service. "Selling shoes – retailing – is getting on your hands and knees and listening to the customer to try to fit them and to try [to make a sale],” he said in 2010.

There’s a lovely line in last year’s Businessweek profile of the Nordstrom that tells the story of Blake addressing the shoe department at a new store and giving them the message that to "err on the side of tolerance”.

Blake then related the story of how he unknowingly refused a string of returns from the wife of a famous rock star. When the star came in to complain, Blake learned he only had half the story – she was spending tens of thousands of dollars at other stores and returning a fraction of that to Blake’s stores.

The message of tolerance spreads beyond the shop floor, however. Last month, Blake wrote to employees urging them to support a bill to legalise gay marriage in the state of Washington. The company already offers partnership benefits to employees in same-sex relationships.

"It is our belief that our gay and lesbian employees are entitled to the same rights and protections marriage provides as all our employees," the memo said. "We feel the next step in this journey is to now support freedom to marry, also called marriage equality. We gave this thoughtful consideration and felt the time was right to come out in support of this civil rights issue.”

The referendum was approved. Another small victory for a retail family whose success is built on a pretty simple idea: The customer deserves everything.

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