Customers increasingly expect a personalized experience that merges the richness of stores with the convenience of online.

—Blake Nordstrom

“Innovation is the act or process of introducing new ideas, devices, or methods. In Nordstrom's world, innovation is the value that guides the company to relentlessly seek processes and tools to better serve customers across all channels. Adaptation is the process of change by which an organism or species becomes better suited to its environment. No organization can sustain itself unless it is in a constant state of innovation and adaptation.

Most retailers view technology as the center point and are often enamored by the newest new thing. People get excited about the latest technology, but Nordstrom asks: “What problem is that technology solving for the customer?” At Nordstrom, technology is crucial to the business, but technology in and of itself is not the company's primary focus. Nordstrom believes that innovation is about solving customers' needs and enhancing every interaction the customers have with Nordstrom.

Customer Obsessed and Digitally Enabled

Innovation at Nordstrom is about being customer obsessed and digitally enabled—not the other way around. Again, technology is important, but Nordstrom wants customer obsession to drive all of its discussions.

“Customer obsession has been a thread all the way through, but how we deliver against that obsession has changed,” said chief innovation officer Geevy Thomas. “The customer is at the leading edge, not the technology. We always have to ask ourselves: ‘What service or experience does a customer need that they might not even know they need? How do we excite the customer? How do we honor the time and effort it takes to come to our location?’”

Nordstrom's singular focus on its customers keeps the company disciplined, yet daring, especially in difficult financial times.

Nordstrom is not the same company today that it was five years ago. It will be a different company five years from now. Nordstrom continues to be relevant by anticipating, studying, and adjusting to changes in the marketplace, which includes embracing technology in every way that has a positive impact on the customer. The Nordstrom approach is not just technology for its own sake, but technology that's inimitably intended to make it easier and more convenient for customers to shop Nordstrom and easier and more lucrative for its employees to sell more stuff.

To better serve the customers and themselves, salespeople have on either their in‐store terminals or mobile point‐of‐sale devices a single view of all of Nordstrom's inventory in their home store, other Nordstrom stores, Nordstrom.com, and in the distribution centers. Not only does everyone share one single electronic view of the chain's entire inventory, each salesperson has direct access to all of it in order to get it quickly to the customer.

Innovation comes in many forms, not just in technology. At Nordstrom, innovation lives with that one customer and that one salesperson at that moment of truth on the sales floor. One Nordstrom salesperson might do something for a customer in a way that is unique for the customer who may have a unique issue. That's where empowerment and good judgment come in.

A Legacy of Innovation and Adaptation

Ever since it began in 1901 as a single shoe store in downtown Seattle, Nordstrom has always been about innovation and adaptation. Slowly and carefully, the various generations of Nordstroms broadened their selections, added stores, introduced new lines, expanded geographically, and found new ways of generating business. For example, for many decades, Nordstrom ran dozens of leased shoe departments in department stores in the western United States and Hawaii.

Back in the 1930s, the second generation (Everett, Elmer, and Lloyd) introduced some “high tech” into the store experience with the Pedoscope, a shoe‐fitting fluoroscope x‐ray machine. The four‐foot‐high metal and walnut device, in the shape of short column, had an opening where a child or adult placed their feet, and looked through a porthole for an x‐ray view of their feet and shoes. Two other viewing portholes on either side enabled the parent and a salesperson to observe the child's toes being wiggled to show how much room for the toes there was inside the shoe. The bones of the feet were clearly visible, as was the outline of the shoe, including the stitching around the edges.

Bruce recalled that the fluoroscope x‐ray machine was his first memory, “of being connected in some funny way to a shoe store. Endlessly fascinating. Like countless numbers of American children, I used to love to spend all afternoon, wiggling my toes in those machines.” In later years, a historian wrote that fluoroscopes proved, “as attractive and exciting to little customers as free balloons and all‐day suckers, and they were a terrific help in fitting shoes.”

Fast‐forward to today, where Nordstrom worked with a Swedish‐based company called Volumental, which uses 3‐D technology to measure a shopper's most accurate shoe size. The customer steps on a platform that resembles a square‐shaped digital weight scale with 3‐D cameras on all four corners. This produces a volumetric scan of each foot, which measures arch length, ball, and in‐step. The 3‐D scan is then displayed on a tablet, which helps shoe salespeople find the ideal fit.

Product Diversification

In the 1960s, Everett, Elmer, and Lloyd wanted to create opportunities for the third generation—Bruce, John N., Jim, and son‐in‐law Jack McMillan—so that they would stay with the company. The brothers felt that they had to either open more shoe stores outside the Pacific Northwest (which they had outgrown) or diversify into another business. Lloyd wanted to move into women's apparel for a variety of reasons, including the fact that this new offering would perfectly complement their shoe business.

In 1963, they acquired Best's Apparel, Inc., a fashionable downtown Seattle retailer, which had a second store in downtown Portland, Oregon. The company later changed its corporate name for a few years to Nordstrom Best.

Everett, Elmer, and Lloyd believed that if you could run a shoe store, you could run any business. But their entry into apparel was initially greeted with skepticism by manufacturers who “weren't very enthused to see us on buying trips,” Elmer recalled, “but that only reminded us of our early days in shoes. It was like starting over in many ways, and that was exciting. No one really believed that shoe store owners could be successful in apparel. No one except us.”

Many of the new women's wear buyers and managers were [and are] women. Because the Nordstroms knew that they were lacking in knowledge about the women's apparel business, “they were very anxious to identify people who demonstrated a flair for women's apparel and move them along,” recalled Cynthia Paur, who began her career in 1968 doing stock work while still a college student. “There were many jobs available for women. It all depended on what career path you wanted to take, whether it was on the merchant side or the store management side. I always felt that any job I wanted was open to me.”

The apparel industry's reservations about Nordstrom continued for almost a decade. The company had a difficult time securing a lot of the hot lines that they wanted to buy. But the Nordstroms pressed on. They added men's suits and sportswear in 1968. When they eventually proved themselves, they were able to get the goods they needed in order to attract the fashion‐conscious baby boom generation of consumers that helped the company grow. Today, of course, virtually every apparel and footwear vendor would kill to be on display in a Nordstrom store.

What's Next?

Nordstrom management has always asked itself, “What's next?” That's how you stay relevant. Trial and error are a part of the Nordstrom DNA—knowing that some initiatives will succeed and some will fail. Nordstrom in the early 1990s experimented with home shopping as a way to expand its sales base by providing customers with more options to buy Nordstrom products. In June 1993, Nordstrom joined with Bloomingdale's in a closed‐circuit home shopping show, originating from Bloomington, Minnesota's Mall of America, where both retailers have anchor stores. The one‐hour Mall of America show (produced by the National Broadcasting Company's NBC Direct subsidiary) was staged in the actual stores, and goods were ordered with a toll‐free telephone number. Results were underwhelming. But you'll never know if you don't try.

Around that same time, the company introduced its Direct Sales Division, which included mail order catalogs as well as experimental forays into interactive television shopping. Nordstrom later launched its own short‐lived e‐mail shopping service called Nordstrom Personal Touch America, which was a collaboration with a long‐distance phone carrier and a software communications company. At the time in the mid‐1990s, it was revolutionary for a customer to communicate with a salesperson via e‐mail. Nordstrom also explored a system that would enable airline passengers to order goods from built‐in computers on the aircraft. Other companies were offering interactive shopping systems via personal computers that read CD‐ROM discs, which served as electronic catalogs for merchants to display items. As we wrote in the original 1995 version of The Nordstrom Way, “Whatever system Nordstrom ultimately uses, the personal touch of customer service has to be a part of it.” That was one prediction that proved prescient.

Nordstrom has always been aware of what was going at Amazon.com, whose headquarters in high‐tech savvy Seattle are within a few blocks of Nordstrom headquarters. When Amazon successfully launched its website in July of 1995, retail changed forever. Amazon proved that people would make purchases online, even when the Internet was in its most primitive stages, and customers worried whether their credit cards were secure.

“The day l understood that people would be shopping electronically is when I knew we needed a website,” said Dan Nordstrom in our 2002 book Anytime, Anywhere, which predicted the importance of multichannel service. At that time, Dan was president of Nordstrom.com. “It was apparent that the Internet would become what interactive TV had wanted to be,” Dan said.

Nordstrom.com debuted for the 1998 holiday shopping season. The company developed its own website in‐house, at a time when most other retailers such as Walmart and Barnes & Noble were contracting with third‐party companies to sell their goods online or totally separating their online and brick‐and‐mortar businesses. Other retailers ignored online shopping altogether. By 2000, Nordstrom.com was selected as having the best online experience, according to Forrester Research's PowerRankings. The company continues to work on improving the online experience in the spirit of being customer obsessed and digitally enabled.

Amazon has changed the perception of how the customer wants to be served. It used to be good enough for Nordstrom to have the best selection in a geographic selection. Today, because people can buy anything in the world at their computer, Nordstrom has to be very smart in its in‐store selection, which will bring people in.

Nordstrom executives challenge themselves every day by asking if each initiative they make is truly customer‐focused. They question whether they are doing something because they've always done it that way or because it makes life easier for the company. Is it customer‐centric or Nordstrom‐centric or salesperson‐centric?

At our company, RSi, we are constantly challenging our consulting clients to ask themselves this one crucial question: “In whatever I do, am I enhancing the customer experience?”

Role of Stores

Stores aren't going away. People, product, and place will always drive the brick‐and‐mortar world, but the role of physical stores is changing. The physical store is here to stay, because it's becoming more connected, mobile‐enabled, and smarter.

In most shopping experiences, the physical store—where the tactile and sensory experiences come together—is where the ultimate buying decision is made. According to software company iQmetrix, 85 percent of consumers prefer to shop at physical stores, and 90 percent were more likely to buy when helped by a knowledgeable salesperson. Another study, by IBM and the National Retail Federation, found that 67 percent of Generation Z, also known as post‐millennials (born in the mid‐1990s through early 2000s) generally prefer shopping in brick‐and‐mortar stores; another 31 percent occasionally shop in a store. Even though this generation has grown up in the digital age, most of them still want the tactile experience that can be had only in a physical store—but only if the retailer provides a compelling in‐store shopping experience where shoppers can conveniently see, feel, and try out products and immediately take them home. Instant gratification.

“The way customers are choosing to shop in a more digitally connected world continues to change, and we know we need to find ways for our stores to evolve with them,” Erik said. “We have a tremendous opportunity to leverage our stores in ways that will allow us to serve customers into the future better than anyone else.”

“We need to think differently about how to serve the customer,” said Blake. “This is why we believe the customer remains the best filter we have when it comes to every decision we make as a business.”

The Physical Store Is Digitized

The physical store is not dead; it's digitized. Stores must now encompass both worlds—the sensory experience of the physical store and the personalization and convenience of online shopping. The most successful retailers seamlessly blend both.

As John Zissimos, chief creative officer at Salesforce.com, has said, “We are now in the fourth industrial revolution, a blurring of the physical and digital worlds—with customers at its center.”

Nordstrom strives to digitally connect with customers, to understand their buying history and to suggest personalized offers—all in a secure environment to safeguard personal data. “Our future is going to allow us to leverage our history but not be held prisoner by it,” said chief innovation officer Geevy Thomas. “How do you leverage the newest technology to make retail more relevant, more fun, more connected from a social perspective?”

Nordstrom has evolved from being a curator of products to being a curator of service and experience, supported by product. That transition requires Nordstrom to continually find ways to add value to the store experience in order to attract the customer.

When it comes to innovation and adaptation to keep the in‐store experience fresh for the customer, Olivia Kim, vice president of special projects, has been a prime mover. Kim creates impermanent pop‐up shops and stores within stores for a variety of reasons: to appeal to a certain customer segment, to drive traffic to particular brands, or just to show what's new. Pop‐ups create unique experiences and are relatively inexpensive because the spaces are usually smaller and temporary. They give retailers flexibility to feature certain products at certain times. Another concept called “Space” sets aside an area of the store with new, cutting‐edge designer brands. That space is visually distinguished from other parts of the store by using distinctive merchandising and décor.

By supporting these new designers, Nordstrom is able to both bring in new talent to its stores and also give back to the fashion industry through supporting young artists.

Many tech companies have redefined the customer experience to be the linear acquisition of a thing and to make that transaction as fast as possible. Nordstrom, on the other hand, believes that a shopping experience in a store should have social and emotional components. Nordstrom is always looking for ways to highlight the journey of the shopping experience to appeal to the customer's senses beyond a linear transaction.

Many of its stores have phone‐charging stations and a “Men's Clubhouse,” which features flat‐screen TVs, locally brewed beer, and free one‐on‐one styling. You can get your leather handbag embossed at a personalization stand in the accessories area, and there's a cocktail bar and restaurant inside the store, in addition to a candy boutique from Los Angeles‐based company Sugarfina. Its downtown format of stores—in Seattle, San Francisco, Chicago, Toronto, Vancouver, and New York—has a wide variety of features, including a 24‐hour concierge service for late‐night fashion emergencies; an extra‐spacious “girlfriend” fitting room to accommodate groups of women who shop together; and a children's shoe department that hosts monthly shoe‐tying classes.

In preparing for its first store in Manhattan, Jamie Nordstrom said, “We don't want to just be the best store in New York. We want to be the store [about which] somebody who travels to New York from Istanbul says, ‘When I visit in New York, I've got to go see the Statue of Liberty, a Broadway show, and Nordstrom.’”

Channel Agnostic

Today's customers can shop at virtually any store, from any place, at any time, using a wide variety of tools. Customers respond favorably to retailers that are mobile, connected, convenient to shop with, and know them regardless of channel. They are empowered with product information, buying recommendations, product ratings, and price comparisons. Whether the shopping experience is in the store, online, or on the phone, customers expect a service experience that lives up to their expectations. They demand customer service that is integrated across all channels. Customers choose the channel in which they want to shop. And the retailers that do the best job of being there for them are the ones who are going to reap the rewards.

Nordstrom's leaders firmly believe that customers start with a need and then seek ways to solve that need. Customers don't think in terms of what buying channel they will use—website, store, text, or telephone—but rather what kind of experience they may desire at that moment. Consequently, Nordstrom doesn't care what channel a customer wants to use in order to buy an item. It just wants to be the customer's first choice and to serve that particular customer's needs at that moment.

The way customers use its website influences how Nordstrom shapes its multichannel strategy, which is an important tool for acquiring—and keeping—customers. Nearly one third of Nordstrom's sales come from multichannel shoppers, who like to go online and also visit the stores. The company wants to continue to increase the number of people who shop at Nordstrom through more than one channel, because those customers spend four times as much as a one‐channel shopper spends, according to the company.

When it comes to serving the end customer, Nordstrom is channel agnostic (see Figure 8.1).

“We don't have online customers or store customers. They're just customers,” said Jamie. “When a customer shops with us, they don't see a difference between a Nordstrom store or Nordstrom.com. To them, it's just Nordstrom, and they want a service experience that lives up to their expectations. We work to make shopping easier for our customers by breaking down the barriers between our stores, our website, and our catalogs.”

Nordstrom's focus is not on how much business it wants to do on its website, but how well the company serves its full‐price customers across all channels to give customers the kinds of experiences that they can't get anywhere else.

“The focus of what we do is always the customer,” said Erik. “That may sound obvious, but it is harder than that sounds. The boundaries between physical stores and Internet shopping are less and less relevant. Customers—even in the same buying journey—are combining online elements and offline elements. Wherever she shops with Nordstrom, we want the experience to be meaningful, relevant, and current.”

Convenience/Time

“Customer service is not defined by us based on our legacy practices; it's defined by customers,” says Pete. “Fifteen years ago, few people would define a great customer service experience as being convenient. Convenience mattered, but it was not top of mind. It was about a high‐touch, person‐to‐person relationship. Now, it's got to be convenient and personal.”

In that spirit, Nordstrom created an in‐house “Convenience Center” to research how to support the retail needs of time‐starved and self‐directed shoppers at any touchpoint of their shopping journey. The company brings in customers and employees to the Convenience Center lab to test and provide feedback on initiatives intended to enhance personal communication between customers and salespeople.

Since 2014, Nordstrom has offered salespeople and customers the tools for their smartphones to communicate and make transactions via a secure one‐to‐one texting service. Customers who opt in are able to receive from a salesperson or personal stylist private text messages that contain a description or photo of one or more items. If the customer likes any of the items recommended by the salesperson, she can make the purchase by replying “buy” and using a unique code. Purchases are completed through the individual's Nordstrom.com account and are shipped directly using the retailer's free standard delivery. Text messaging enables salespeople to provide a personalized styling experience for their customers.

Customers can use their smartphone to scan any item, see the price, decide what size and color they want, and then have their purchases delivered to their home, office, or hotel anywhere in North America. Again, we're talking about convenience.

One typical scenario: A customer texts her Nordstrom salesperson that she is looking for a pair of pumps. The salesperson sends the customer a selection of pictures and descriptions of a variety of pumps. Once the customer finds the shoes that she wants to purchase, she simply taps “buy” and then gets a return text that confirms the transaction. Salespeople can earn commissions when they directly influence a customer's online purchase through an e‐mail or text recommendation.

Tools like that help Nordstrom serve the customers on their terms. But what sets Nordstrom apart from many retailers is that Nordstrom uses the technology to help frontline people to better serve the customer, instead of using technology to replace frontline people.

One‐third of all new Nordstrom customers come through its website. More than 25 percent of Nordstrom.com orders are fulfilled in the stores. Essentially all of the stores serve as warehouses for the online business.

Reserve & Try in Store

As we have shown, Nordstrom is constantly finding ways to make life easier for customers because customers want to shop on their own terms. Part of that strategy is to leverage its brick‐and‐mortar assets with e‐commerce assets.

The number one question received at Nordstrom's call center is: “Can I find the item that I'm looking at online at my local Nordstrom store?'”

Because return rates are higher on online purchases, Nordstrom created Reserve & Try, which enables a customer to search and discover products online and then to quickly go to a nearby Nordstrom store to touch, feel, and try on items before buying. Reserve & Try enables customers to best utilize their own time (their most valuable resource) and helps to make the shopping experience easier.

With Reserve & Try, customers shop online and reserve items in their digital closet. Customers then fill in their contact information and confirm a reservation in the store closest to them. Users can select up to 10 things, which are held until the store closes the next day. There is no payment up front. Within two hours or less (during store hours), the store notifies customers via text message when the items can be available to be tried on. In the store, customers visit a designated department called Order Pickup for online orders and reservations. They find their name on the door of a preset fitting room, and inside are the items selected on Reserve & Try. Customers do not have to talk to a salesperson if they choose not to. They can try on the items, decide what they want to buy, and be out of the store in minutes. If customers choose to interact with a salesperson, that opens up the possibility of selling more items to them that go with their purchases.

Reserve & Try combines the convenience of online shopping with the sensory gratification of in‐store shopping to create a compelling, more seamless experience across stores and online.

“The more we can focus on the customer's needs and get them done in 5 or 10 minutes—instead of 20 minutes—[the more] they're going to say, ‘Hey, you gave me back 15 minutes of my life. I'll look around the store,’” said Ken Worzel, President of Nordstrom.com.

Giving the customer some unexpected extra time is a perfect example of customer obsession, which will eventually lead to good things happening.

Nordstrom also offers other time‐saving conveniences such as “hems while you wait,” rush alterations, drop boxes for returns, and free two‐hour delivery service within a specific geographic radius. Many items can be purchased online for curbside pickup at a nearby Nordstrom store. Orders placed online are typically ready for pickup within an hour. Customers receive an e‐mail letting them know when their order is ready. When arriving at the store, they call or text the number they've been given and receive delivery right in their car.

Rack

Nordstrom extends its values of adaptation and innovation to its Nordstrom Rack clearance stores, which sell Nordstrom's usual name brands at 30 to 70 percent discounts. The Rack is very efficient at selling off the odds and ends that are a natural part of the retail business. Nordstrom sends five deliveries of fresh, new merchandise a week to the Rack, which keeps bargain hunters coming back for their prey. That's a different kind of in‐store experience.

The company has had the off‐price concept since 1973, when the Nordstrom family opened a clearance section in the basement of the downtown Seattle store. They called the section the Rack because clearance shoes were displayed on fixtures called racks. Nordstrom initially expanded the Rack slowly and steadily, but it wasn't until after the recession of 2008 and 2009 that Nordstrom aggressively expanded this off‐price business. The number of Rack stores has nearly tripled since 2010, from 86 to 215. Nordstrom expects to have 300 Nordstrom Racks by 2020.

Unlike the full‐line‐store customer, the Rack customer is not interested in paying full price. Nevertheless, Racks have a profound positive impact on sales at nearby full‐line stores. That's why the company strategically puts Nordstrom Rack stores as close as possible to full‐line Nordstrom stores—unlike other department stores that locate their clearance operations far away from their full‐line stores. In downtown Seattle, Nordstrom has a Rack store directly across the street from the flagship store. The first day that Rack opened, Nordstrom's flagship had it biggest increase—pretty impressive for what was already the company's number one full‐line store.

“One of the key advantages we have at Rack is our ability to leverage our relationship with the full‐line stores,” said chief innovation officer Geevy Thomas, who formerly ran the Rack division. “Our merchants at full‐line stores have long‐lasting relationships with our vendors. When a vendor has extra merchandise, Nordstrom Rack is the first place they call.” This close, trusting, respectful, communicative relationship with vendors is a continuation of the Nordstrom tradition that dates back to the second generation of Everett, Elmer, and Lloyd.

Nordstrom management is very sensitive to the balance between the Rack and its full‐line stores.

“We discovered from listening to customers, opening stores, and testing some different ideas, that there is a great synergy to having the Rack as part of our business,” said Erik. “The Rack enhances our brand. There's a customer synergy. There are many customers who are introduced to our company through our Rack stores and introduced to the brands we carry. Forty‐eight out of our top 50 vendors in our full‐line stores are carried in the Rack. Although they are off‐price at the Rack, there is a quality level that goes with those brands. The customers become fans of those brands, which eventually translates to the full‐line stores.”

A typical Rack store does approximately $500 to $550 per square foot in sales in locations approximately 35,000 square feet in size, in comparison to other off‐price retailers that do approximately $200 per square foot. Several other department stores have expanded this off‐price concept with mixed results.

“We execute it better than those guys,” Jamie stated. “To them, it's an afterthought. It's the 5 percent of business that they never really pay much attention to. For us, it's a priority.” The sweet spot for loyalty is the younger customer, whom Nordstrom first attracts through its Nordstrom Rack stores and who then become “aspirational” customers for the full‐line stores. “We acquire a ton of customers through those Rack stores who migrate into full price.”

Being customer obsessed and digitally enabled, Nordstrom has found—and will continue to find—ways to innovate and adapt that delight the customer and motivate employees to enhance the customer experience, create loyalty among customers, and contribute to the bottom line.

What Is the Value of a Values‐Driven Culture?

Now that you are on the road to transitioning to a values‐based culture, your destination is not complete until you have added the twin values of Have Fun and Give Back in your relationships with colleagues, customers, and community.

Giving back to the community can also be called “selfless service” or seva in Sanskrit, which is a service performed to benefit other human beings or society, without any expectation of result or award for performing it.

Nordstrom employees show up virtually every day with the desire to have fun with their customers and coworkers, because working at Nordstrom provides countless opportunities to start relationships that might last a lifetime. Of course Nordstrom employees want to make sales, but they also want to have fun, solve problems, and make someone smile.

Here's one of many examples. This is an example of how one Nordstrom employee points out the selfless service of one of her colleagues, a department manager named Jane:

That's having fun and giving back.

By operating through the lens of these values, you'll want to hire only people who live these values. By doing so, you will create an environment that fosters selfless service and fun, which create a superior customer experience.

At Nordstrom, it's fun to give back and give selfless service in order to enhance our communities and our environment. Turn the page and see how they do it.