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Why Brands Like Madewell and Reformation Are Driving Growth for Nordstrom

The department store chain has become a go-to retail partner for direct-to-consumer brands and explained why during its latest Investor Day.
Photo: @reformation/Instagram

Photo: @reformation/Instagram

On Tuesday morning in the ballroom of West Hollywood's London Hotel — a space that is clean, well-lit and contemporary in a very Nordstrom way — analysts and shareholders in the Seattle-based retail chain gathered for its annual Investor Day. Nordstrom eschewed its Northwestern home base for sunny Los Angeles for the event not because of weather (Seattle is actually lovely this time of year), but to symbolize its recent efforts to majorly invest in the LA market (its largest). They include recently-announced plans to open more locations of its innovative, inventory-free Nordstrom Local concepts in the area, as well as a new distribution center.

It's hard to even know where to begin when talking about the ways in which Nordstrom has differentiated itself from other department stores recently, and executives at the family-owned business spent much of the three-hour presentation ensuring attendees understood just how much it stands apart from its competition. We already knew about its famous in-store customer service, but other examples include: the ways in which it's translating that to the digital realm (like with its Style Boards), the fact that its store footprint isn't excessive (so it doesn't need to close them), its leadership in online off-price with Nordstrom Rack and Haute Look, its diversification into tech with Trunk Club and, perhaps most importantly, its product.

Nordstrom's high-low assortment is unique, and aside from its growing stable of in-house brands and traditional wholesale brands, Nordstrom has become a go-to — or "partner of choice" as Co-President Erik Nordstrom put it during the presentation — for buzzy, affordable brands who distribute through a few or no other retailers. This roster of "strategic brands" as he called them began with Madewell back in 2015 and has grown to include Topshop, Allbirds, Sézane, Greats and, most recently, LA-based Reformation

Strategic brands now represent 40 percent of Nordstrom's overall full-price revenue, and their sales are growing 30 percent faster than those of "non-strategic" brands while also delivering higher profit margins. This is true for a few reasons: For one, they set Nordstrom apart from its competitors who do not offer these brands and they make Nordstrom a rare touchpoint for customers who don't live near one of the brand's stores or, in the case of those without physical stores, want to experience it IRL. 

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They also help to create an overall assortment that better reflects how people actually shop, which is by not only buying designers brands or contemporary brands or direct-to-consumer brands or fast-fashion brands, but by mixing them all together. "Our customer puts these items together, our customer does not settle on one brand," Erik explained.  Lastly, it helps Nordstrom avoid the department store's greatest nemesis: promotions, thanks to the lack of competition. "The more ubiquitous a product or brand is out there, the more pressure there is on pricing [which leads to] promotion," said Erik. "Having strategic relationships — sometimes they're exclusive; they don't always have to be exclusive but need to have limited distribution there — that helps us a lot."

So why do these brands want to be at Nordstrom, specifically? Erik cited the fact that Nordstrom isn't very price-promotional as one big draw, as well as the fact that, for direct-to-consumer businesses, Nordstrom has just the right number of locations. "I think it's true that brands don't need as many retail partners as they used to, but they need at least one, and increasingly we are that partner of choice," he said. "Brands don’t need 800 locations, but they need more than 20. One hundred and twenty-two stores (Nordstrom's current count) is about the right number and is very appealing to brands."

Nordstrom had even filmed video interviews with representatives from Allbirds, Madewell and Reformation all singing Nordstrom's praises, which aired during the presentation. Reformation founder Yael Aflalo called Nordstrom "leaders in innovation" among U.S. retailers.

While the video was not exactly the pinnacle of journalistic objectivity, Aflalo's statement wasn't untrue. And when presented in conjunction with lots and lots of numbers and financial transparency around its current market share and plans to gain more of it, we can't imagine Nordstrom's shareholders didn't leave the event (or its webcast) feeling pretty happy about the company's direction (even if its executives may not be super happy about the fact that Nordstrom is still a public company, but that's another story).

As direct-to-consumer brands continue to pop up on a near-weekly basis, it feels safe to predict that Nordstrom will continue to be their partner of choice, at least for brick-and-mortar retail. On the e-commerce front, Net-a-Porter has also become a popular choice, and probably Nordstrom's biggest competitor when it comes to digital commerce. But judging by Nordstrom execs' repeated declaration that the company intends to become the "best fashion retailer in a digital world," they're likely after some of that market share as well.

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