This week Nordstrom announced it will open its first "Nordstrom Local" in West Hollywood, California. The new venture is noteworthy on several dimensions. First, at 3,000 square feet, the pilot concept is dramatically smaller than a typical Nordstrom full-line department store. Second, it won't stock any of the items that Nordy's is best known for, such as shoes, clothing, cosmetics and accessories. Third, the focus will be on services: tailoring, manicures, style advice and cocktails.
Nordstrom joins a growing number of brands shrinking their footprints and once online only brands delving into the physical realm with small box stores. Of course, the reasons for the big guys going small and the little online brands getting into brick and mortar vary. The downsizing of traditional formats is often driven by a typically vain attempt to optimize productivity. With more business being done online the thought is that less square footage is needed to take care of the customer. The problem is that shrinking to prosperity rarely works.
Another big driver of smaller formats being promulgated by major retailers is the desire to get closer to the customer. Smaller versions of traditional format stores like Target's urban concept allow the company to open many new more convenient locations at acceptable economics.
Most interesting--and probably the leading indicator of what's to come--are the new brick-and-mortar "micro-concepts" that are designed from a customer point of view and rooted in the understanding of the interplay of online and offline. In announcing the Nordstrom Local test Nordstrom's co-president Eric Nordstrom says it best: "There aren’t store customers or online customers—there are just customers who are more empowered than ever to shop on their terms.” What Nordstrom has understood for a long time--and what helps explain much of their success during the past decade--is that physical stores drive online and online drives stores. Ultimately, the retail brands that win create a highly remarkable and relevant experience that meets the customer where they are.
Digitally native brands that move into physical retail apply this thinking as well. While brands such as Bonobos, Warby Parker and many others initially believed they could build successful enterprises without pesky brick-and-mortar locations, they've come to realize that not only do many customers prefer to shop in actual stores, but also that physical locations bring many important economic advantages. The beauty of these brands starting with a blank sheet of paper when it comes to designing stores is that they can pick the best locations and create a highly experiential and remarkable shopping experience that leverages the best of online and offline into a more relevant and harmonious whole.
Clearly, the jury is still out on most of what's in market today. Whether the movement of pure-play brands into physical retail will pan out remains to be seen as virtually all of these brands are hemorrhaging cash and reports of high sales productivity out of a few choice locations do not necessarily indicate profitable scalability. Nascent micro-concepts like Bodega are far from proven winners. And with Nordstrom Local it will clearly take some time to know whether it turns out to be a noble experiment or something that can be rolled out to a substantial number of locations.
While we are early in the move to micro-concepts I expect to see three things happen over the next year or two. First, is a dramatic uptick in new concept testing from both start-ups and traditional players. Small enables greater customer reach. Small makes more interesting site locations possible. Small lowers breakeven sales volumes. Small blends the best of online and offline. Second, will be the dramatic expansion of a few powerful formats where dozens, if not hundreds, of locations can be opened. Lastly, we are also likely to see some big flame-outs, particularly among the online only players that never had a viable business model in the first place.
Regardless of how this all ultimately plays out, from where I sit, Nordstrom is to be applauded for their willingness to take risks and to experiment. Many more retailers would be wise to follow their example.
