Industry Commentary: Nordstrom
Greg Portell, lead partner in the retail practice of A.T. Kearney, a global strategy and management consulting firm, answers a few questions regarding the news that Nordstrom may go private.
What does this move mean for Nordstrom — how might it play out?
For investors, it will be great, because they’re going to get a premium on their investment. But from Nordstrom’s standpoint, there’s no doubt that retail will be undergoing dramatic transformation in the near future. It’s not unlike being an awkward teenager — no one enjoys their teenage years, because everything is changing, and to do that in the public eye is very difficult and in many ways counterproductive.
Given the types of changes that retailers have to go through, the ability to take a company private and get out of the limelight of the public market has a lot of appeal — it’s very difficult to do in a publicly traded environment.
Consequently, Nordstrom is taking a business that is profitable now and for the foreseeable future, and putting themselves in an environment where they can make the changes and types of investments that are needed to be successful five, six and seven years out.
Is Nordstrom’s escape hatch an exit available to others?
The appeal of a family connection to the stock is definitely hard to overestimate. In the cases of Dillard’s and Nordstrom, those families have a clear connection to the businesses they’re looking to go in and create the exit hatch for. For some specialty retailers, you could probably find connections, but to find specialty retailers that have that much investment capital behind them, or have the ability to borrow that much investment capital — I’d imagine you’d get a thin list pretty fast.
The private equity model in retail has struggled because those are bankers buying retailers. Here you have retail buying retail. This is a retailer who has an investment creating a unique and sustainable retail experience that now will have the freedom to do that. It’s a much different situation than a banker buyer a retailer and trying to manage it as an asset.
What might Nordstrom might do, away from the glare of the public markets?
The biggest unique challenge they face is taking their high-service, high-touch retail experience from the physical to the digital. This will require some experimentation—the luxury to make bets that may or may not work. That concept that no one likes to talk about — fail fast — is a lot easier to execute under the private eyes than in the public glare.
I would expect them to experiment more, to take more mobile and digital risks than they probably would in a public environment, to play more with their in-store retail concept, knowing it may not work.
What about the Nordstrom family as retailers?
Their commitment to a quality retail experience is admirable. It’s something that’s sorely missing in much of retail today. If you were to bet on a team of owners who were out to reimagine a positive retail experience, the Nordstroms would be high on the list of names that you’d place that bet on. You could go through the owners of large department stores and come up with exactly the opposite profile pretty fast.
Department store giant announces big job cuts as part of major restructuring
Hudson's Bay Co., whose banners include Saks Fifth Avenue and Lord & Taylor, has lowered the ax.
The retailer has made good on a plan, announced in February 2017, to reduce expenses by "rationalizing" its corporate functions and overhead across North America." On Thursday, Hudson's Bay announced a "transformation plan" that includes cutting approximately 2,000 positions as it looks to "flatten the organization by removing layers to make HBC more nimble and streamline the decision making process."
The company said it anticipates realizing more than $350 million in annual savings when the plan is fully implemented by the end of fiscal 2018, including the anticipated $75 million in savings previously announced in February
“Through bold, decisive actions we are creating a more agile organization that will align our cost base with the all-channel environment that we are operating in," said Jerry Storch, CEO, Hudson's Bay. "Our Transformation Plan, the result of our six-month operational review in North America, is designed to realign the company and position HBC as the retailer of the future. These changes will enable us to react faster to the ever-changing environment and evolving customer preferences to get ahead of industry developments."
The plan includes creating two distinct leadership teams, one focused on Hudson’s Bay and one dedicated to Lord & Taylor, to drive market-specific strategies. It also involves splitting digital into separate marketing and operations functions.
In addition, marketing support functions at HBC, including digital marketing, have been centralized to allow for cohesive all-channel marketing development across all of HBC’s banners. The new department, or "Marketing Center of Excellence," will operate like an in-house agency, supporting the execution of each banners’ distinct marketing strategy with comprehensive media, creative and marketing support. An interim head has been appointed while HBC searches for a chief marketing officer to lead the new function.
Over the next 12 months, the retailer expects to identify opportunities to leverage the size and scale of its business to generate significant savings. This includes aligning purchasing contracts across banners, decreasing the number of vendors, and consolidating purchases in areas like media, services and supply chain.
Here are some of the key changes:
•Alison Coville has been named president of Hudson’s Bay and will have end-to-end responsibility for the Canadian banners. She was most recently senior VP and general merchandise manager for DSG.
• Liz Rodbell, who has served as president of Hudson’s Bay and Lord & Taylor for the past three years, will continue in her role as president of Lord & Taylor. She will now be fully focused on leading that U.S. banner, together with a dedicated leadership team. The new streamlined organization, coupled with changes at the store operations level, will allow Lord & Taylor to accelerate all-channel strategies designed to drive the banner’s digital opportunities while operating its stores more efficiently, the company said.
• Digital marketing is now part of the company’s marketing center.
• Digital operations is now part of the new "Logistics and Supply Chain Center of Excellence," which is expected to increase efficiencies and leverage HBC’s scale to generate cost savings.
• Store operations across all of HBC’s North American banners will be centralized so that best practices and processes are shared across all stores.
• In-store sales coverage across the company's North American banners is being realigned to better serve its customers, including implementing additional training for its store-based associates in order to enhance customer interactions. Currently, these new programs have been successfully piloted in 10 stores, and HBC expects to roll out these changes to the rest of its store network in North America over the coming year.
The attached infographic outlines the company’s streamlined operations structure.
For expert commentary on Nordstrom’s announcement, click here.
Amazon lends more than $3 billion to third-party sellers
Amazon’s lending program has hit epic proportions, with one-third of loans being granted in the last year, alone.
The online giant’s Amazon Lending program has surpassed $3 billion in loans to small businesses since the service launched in 2011. Specifically, Amazon has lent more than $1 billion to small businesses in the last 12 months, and more than 20,000 small businesses have received a loan from Amazon.
The Amazon Lending program offers short-term business loans, for up to 12 months, to invited micro, small and medium businesses selling on Amazon. Invited small businesses can apply for loans ranging from $1,000 to $750,000. The program’s goal? To help Amazon’s third party companies to grow their business.
Half of the items sold on Amazon worldwide are from small businesses that offer their products through Amazon Marketplace, giving Amazon a ripe customer base. Besides giving these companies the capital needed to boost sales, and increase shopper loyalty and repeat visits, increased sales among its third-party merchants also benefits Amazon, which takes a cut of all transactions processed on its site.
“We created Amazon Lending to make it simple for up-and-coming small businesses to efficiently get a business loan, because we know that an infusion of capital at the right moment can put a small business on the path to even greater success,” said Peeyush Nahar, VP for Amazon Market-place.
“Small businesses are in our DNA. Amazon is providing capital to small businesses to help them expand inventory and operations at a critical period of their growth,” Nahar added. “We understand that a small loan can go a long way.”
Small businesses and entrepreneurs selling on Amazon also come from every state in the United States, and from more than 130 different countries around the world. Since its introduction, Amazon has issued loans to small businesses across the U.S., U.K., and Japan. More than 50% of the small businesses Amazon lends to take a second loan from Amazon, the company added.
The company said it is considering expanding the program to other countries where it operates marketplaces, such as Canada, France and China. However, there are no solid plans regarding the rollout's timing, according to CNBC.