Opening Case Competitive Advantage at Nordstrom Nordstrom is one of Americans most successful fashion retailers. John Nordstrom, a Swedish immigrant, established the company in 1901 with a single shoe store in Seattle. From the start, Nordstroms approach to business was to provide exceptional customer service, selection, quality, and value. This approach remains Nordstroms hallmark today. The modern Nordstrom is a fashion specialty chain with 365 stores in 40 states. Nordstrom generated almost $15 billion in sales in 2017 and makes consistently higher-than-average returns on invested capital. Its return on invested capital (ROIC) has consistently been in the mid-teens and was 13.5% in 2017strong performance for a retailer. The company has outperformed its rivals in the department store business, growing revenues at 3% per annum between 2013 and 2017, compared to 1% comparable sales growth at Macys and a 1% annual decline at Kohls. Nordstrom is a niche company. It focuses on a relatively affluent customer base that is looking for affordable luxury. The stores, located in upscale areas, have expensive fittings and fixtures that convey an impression of luxury. The stores invite browsing. Touches such as live music played on a grand piano help create an appealing atmosphere. The merchandise is fashionable and of high quality. What truly differentiates Nordstrom from many of its rivals, however, is its legendary excellence in customer service. Nordstroms salespeople are typically well groomed and dressed, polite and helpful, and known for their attention to detail. They are selected for their ability to interact with customers in a positive way. During the interview process for new employees, one of the most important questions asked of candidates is their definition of good customer service. Thank-you cards, home deliveries, personal appointments, and access to personal shoppers are the norm at Nordstrom. There is a no-questions-asked returns policy, with no receipt required. Nordstroms philosophy is that the customer is always right. The companys salespeople are well compensated, with good benefits and commissions on sales that range from 6.75% to 10% depending on the department. Top salespeople at Nordstrom have the ability to earn over $100,000 a year, mostly in commissions. The customer service ethos is central to the culture and organization of Nordstrom. The organization chart is an inverted pyramid, with salespeople on the top and executive management at the bottom. According to copresident Blake Nordstrom, this is because I work for them. My job is to make them as successful as possible. Management constantly shares anecdotes emphasizing the primacy of customer service at Nordstrom in order to reinforce the culture. One story relates that when a customer in Fairbanks, Alaska, wanted to return two tires (which Nordstrom does not sell), bought some time ago from another store once on the same site, a sales clerk looked up their price and gave him his money back! Despite its emphasis on quality and luxury, Nordstrom has not neglected operating efficiency. Sales per square foot are around $400 despite the large, open-plan nature of the stores, and inventory turns exceed 5 times per year, up from 3.5 times a decade ago. These are good figures for a high-end department store (by comparison inventory turns at Macys and Kohls are around 3 times per year). Management constantly seeks ways to improve efficiency and customer service. For example, recently it has put mobile checkout devices into the hands of 5,000 salespeople, eliminating the need for customers to wait in a checkout line. E-Commerce sales have also been growing at a rapid clip, and now stand at 30% of the total, up from 14% in 2012, as Nordstrom leverages its brand to boost online sales. The physical stores play an important role in online sales, acting as a display site for items that can be ordered online, a pickup location for customers, and perhaps most importantly, a location where customers can return merchandise purchased online.

Read the brief case at the start of chapter 3, Competitive Advantage at Nordstrom. Nordstrom is well-known for customer service in the retail industry. Why does this offer them a distinct competitive advantage in the marketplace? What might other retailers learn from the Nordstrom way of doing business?