Nordstrom, Inc. (JWN +0.00%) stock fell as much as 5.4% on Monday after the company said it would test a new store concept.
The department store chain plans to open a store with no dedicated inventory in West Hollywood, California. Dubbed Nordstrom Local, the "neighborhood hub" will give customers access to services like personal stylists, alterations and tailoring, in-store pickup, and manicures, Trunk Club services, and others.
Nordstrom Local will occupy a space of just 3,000 square feet, compared to the 140,000 square feet of a full-line Nordstrom store.
Image source: Nordstrom.
Shea Jensen, Nordstrom senior vice president of customer experience, explained the move, saying "as the retail landscape continues to transform at an unprecedented pace, the one thing we know that remains constant is that customers continue to value great service, speed and convenience."
It was unclear why the stock sold off the day the news came out, but there are a number of reasons why Nordstrom Local looks like a smart move.
Embracing the changing retail landscape
Department stores are slowly learning (perhaps too late) that stocking stores with merchandise the way they did a generation ago isn't enough to keep customers coming back in the door. Chains like J.C. Penney (JCP +0.00%) have leaned on in-person services like hair salons to bring in customers as competition from the likes of Amazon.com mean that stores are no longer necessary as a place to merely buy stuff.
Internet start-ups like Bonobos and Warby Parker understand this. When those companies opened stores, they used them more as fitting rooms rather than traditional stores. Bonobos, which sells inside Nordstrom, has a chain of Guideshops, which seem very similar to the Nordstrom Local concept. There, Bonobos' guides show the company's wares to customers and help them find the perfect fit. Once purchased, those clothes are delivered to the customer's home.
This sort of hybrid model between brick-and-mortar and e-commerce is becoming popular in supermarkets as Wal-Mart (WMT 0.60%), which now owns Bonobos, has 1,000 online grocery pickup kiosks at stores across the country, and Kroger has nearly that many. That model seems to be working better than grocery delivery, which suffers from the challenges of keeping food fresh.
Similarly, the biggest obstacle to buying clothes online is getting the right fit. Shipping fees add up for returned merchandise, so offering stores where customers can easily make returns, exchange items, or get alterations may be the best way to alleviate that problem.
No stranger to e-commerce
Compared to its department store peers, Nordstrom is further ahead on the curve in online sales. Through the first half of the year, 24% of its sales have come from the online channel, and that number is growing quickly.
Concepts like Nordstrom Local prepare the company for a future where a majority of its sales happen online, and the ones that do are most likely to survive.
Importantly, stores will be part of that mix, but the nature of stores will change as they become more about providing a service and creating a halo for the brand. That's part of the reason why Nordstrom is opening a flagship store in Manhattan. Those tourist-driven flagships are likely to become more important as retailers try to cater to an experience as well as sell merchandise. Apple (AAPL +0.93%), with its shrine-like stores, understands this better than anyone else, and perhaps then it's no surprise that the iPhone maker is tops among retailers in sales per square foot.
With just one store, Nordstrom Local isn't going to change the company's bottom line, but it's the latest example of why the department store is best in its class and shows why the company will continue to grow even in a difficult retail environment.
