Electronic retailing, in the age of the Internet, has proven to be a dynamic and lucrative investment. Online marketing is considered a defensive business model, as retailers are looking to renovate their marketing strategy by offering e-commerce services. In 2016, The Wall Street Journal reported that Nordstrom, an international, luxury department chain was 1.01% down in stocks due to the high costs of its e-commerce investments. According to the Seattle-native retailer, the high cost of investing in its market share online and competing with major e-commerce retailers, such as Amazon and eBay, is significantly affecting its overall profit.
Some of the pricey expenses that Nordstrom has undertaken includes more-generous buying services such as free shipping, in-store pickup, and constantly updated the inventory of in-store product. One competitive attack that Nordstrom has committed to is the frontal attack. In which, the frontal attack challenges competitor’s product, price, and promotion activities by releasing similar-quality products at a reduced price. Nordstrom undertakes a frontal attack in the e-commerce business. The e-commerce department is especially business savvy in setting up club systems that promote rebate shopping for every product bought. Furthermore, Nordstrom invests in its e-commerce business by providing full access to the retailer’s annual anniversary sales and offering a full inventory of Nordstrom’s discounted product, as it offers products of similar quality, that is 10-15% cheaper than full-price. Nordstrom also offers a competitive price-matching system on its e-commerce business thus, allowing itself to always remain competitive to its rivaling retailers.
However, as of the last quarterly report of 2016, the cost of marketing online sales has taken a toll on the annual profits of Nordstrom. In its fourth quarter, Nordstrom reports a profit drop of 17%, cutting revenue down to $600 million, while raising expenses by 10 percent. Nordstrom strategies to offer an ‘Omni-channel’ shopping service through their online channel to fend off major online retailers such as Amazon Inc. However, in making significant investments to provide seamless shopping for clients, Nordstrom has utilized much of its profit without seeing enough return thus far. Nordstrom’s chief financial officer suggests that the business model is especially high-cost, as it is considered an ongoing technology investment. To combat these extra expenses, Nordstrom executives continue to expand their online inventory to encompass all of Nordstrom’s in-store products. Thus, its inventories have grown over 12% since its last report. While sales have been subpar, executives believe that the e-commerce cannot grow unless it is providing a translucent view of its entire department store.
In 2017, Nordstrom has experienced improvement from its bottom line, in which its Investment in technology is finally paying off. Credit analysts suggest that stocks on Nordstrom Inc. (JWN) will experience stabilization of its overall margins as the online platform begins to compensate for a lack of in-store shopping, with it three major platforms: Nordstrom.com, Nordstromwrack.com, and HauteLook. In comparison to its competitors, Nordstrom remains competitively stronger due to its use of technology and physical in-store ambiance to produce a seamless shopping experience. In terms of the online website, Nordstrom outperforms its competitors by offering it in-store products to be conveniently bought online. This is an innovative way to attract a younger clientele to purchase luxury brands, as younger consumers would often shop online for sales, rather than in department stores. Nordstrom also remains stronger than its competitors due to its information filing system. The extra effort placed in information filing also helps the seamless in-store and online shopping experience as consumers receive a wide range of unique shopping experiences when visiting the department store both in physical form and the online sphere. A customer online profile is equipped with personal, company-wide directory on customer data, sales, preference, and contact list.
- Chao, L. (2016). Nordstrom’s High Cost for Online Sales. The Wall Street Journal. Retrieved from https://www.wsj.com/articles/nordstroms-high-cost-for-online-sales-1456174730
- Garnick, C. (2017). Nordstrom’s e-commerce investment is on the verge of paying off, analysts say. Puget Sound Business Journal. Retrieved from https://www.bizjournals.com/seattle/news/2017/04/05/analysts-nordstrom-e-commerce-near-paying-off.html
- Hart, S. (1999). E-Retailing — Trends and Opportunities. The Journal of Private Equity, 3(1), pp. 67-79. DOI: 10.3905/jpe.1999.319941