Nordstrom (NYSE:JWN) has been a strong performer in the challenging department store space. It continues to innovate by focusing on what's important to customers. While competitors such as Macy's and J.C. Penney struggle with ongoing same-store sales declines, Nordstrom's fiscal third-quarter earnings easily beat consensus estimates, helped by solid results from its anniversary sales event and an improvement in promotions. Shares are up 28% in the last six months.

Customer experience and service has always been at the core of Nordstrom's strengths, but the consumer discretionary company also offers newness and brand discovery thanks to its partnerships with strategic brands, many of which are digitally native and direct-to-consumer. This helps differentiate it from its department store peers. Working with small brands that have little brick-and-mortar presence creates an incentive for consumers to visit their nearest Nordstrom in order to experience those products in person. The strategy has also helped transform Nordstrom's image from an average upscale department store to one that offers sought-after brands that aren't widely available.

Advertising images from Glossier

IMAGE SOURCE: NORDSTROM.

Recent partnerships

Examples of strategic partners include Topshop, Allbirds, Greats, and Reformation. More recently, Nordstrom has hosted "pop-up" shops featuring jewelry brand Stella and Dot and cult beauty company Glossier. All of these brands sell through few or no other retailers.

Nordstrom has bolstered these efforts by giving partners creative flexibility and sharing data with them. Many brands that gained popularity through carefully cultivated connections with customers do not want their image or presentation altered by an outside company.

There are seven Nordstrom locations that began hosting Glossier's temporary pop-up shops that sell its popular Glossier You fragrance. It's also the beauty brand's largest retail collaboration thus far. Emily Weiss, founder of Glossier, spoke of not wanting to give up control over how Glossier would be sold as a reason for not partnering with large retailers until now. Emma Grede, co-founder of Good American, another Nordstrom partner, said she only works with retail partners that share customer information with the brand.

Glossier was a wise choice for a partnership as the brand is known for driving impressive foot traffic. When Glossier opened a showroom in 2016, lines formed down the street, and more than half a million customers visited.

And in November, Nordstrom launched a partnership with direct-to-consumer brand Stella and Dot. This is Stella and Dot's entry into traditional retail. Founder Jessica Herrin said of the launch, "We saw the importance of finding new ways for the customer to experience the brand in real life, to touch and feel our product and experience the quality."

Looking ahead

Overall, Nordstrom has managed to grow its appeal with customers and drive sales growth by working with these direct-to-consumer brands. In addition to helping boost store traffic, these partnerships have also been a driver of sales, in that they grow 30% faster than non-strategic brands and deliver better margins. By 2022, Nordstrom plans to have strategic brands comprise about 50% of full-price sales -- having these exclusive offerings also helps cut down on promotional pricing.

"Nordstrom has given the customer what it wants, and what the customer wants is what they don't see in other department stores. They're going after brands with a story to balance out brands with heritage," said Ed Gribbin, CEO of apparel consultancy Gribbin Strategic. In a challenging and competitive retail landscape, capturing distribution agreements with these sought-after names helps Nordstrom stay a step ahead of competitors.