Nordstrom Local Service Hubs Are Coming to NYC

Adam Levine-Weinberg, The Motley Fool

Updated Sun, May 5, 2019, 9:50 AM

2019 is set to be a big year for Nordstrom (NYSE: JWN). Seven years after announcing that it had found a location for a flagship store in Manhattan -- its first full-line store in New York City proper -- Nordstrom will finally open its highly anticipated main store this fall. A smaller men's store opened a block away last spring.

However, Nordstrom isn't pinning all of its hopes for growth in New York City on a single store. The upscale retailer recently announced that it will copy a strategy it has been implementing with great success in Los Angeles, its largest market, by opening two small service hubs elsewhere in Manhattan later this year.

Going small to gain market share

For many years, department stores have struggled to grow sales and protect their margins in the face of declining mall traffic. Nordstrom was particularly aggressive about pursuing growth through e-commerce. Its investments have paid off, as digital sales accounted for 30% of the company's total sales last year.

That said, some consumers want style advice; others like trying lots of options before deciding what to buy; some may need alterations; and many simply need a secure place to pick up items ordered online. All of those factors suggest that physical stores can add a lot of value for customers, compared to a pure e-commerce business model.

Nordstrom's solution is to open small "Nordstrom Local" stores in convenient locations. These stores don't carry inventory but offer a variety of services, including consultations with personal stylists, online order pickup (including curbside pickup), returns, alterations, and gift wrapping. The exact services offered differ from location to location. So far, there are three Nordstrom Local stores, all in the Los Angeles area.

Tables and a counter in a Nordstrom Local store

The first Nordstrom Local store opened in Los Angeles in late 2017. Image source: Nordstrom.

These small-format stores are just one piece of what Nordstrom calls its "local market strategy." The company is also making supply chain investments to enable next-day or even same-day deliveries to its Nordstrom Local locations, so customers can pick up or try on items not long after ordering them.

Nordstrom is still refining the Nordstrom Local concept, but management believes that the strategy is driving accelerated market share gains in Los Angeles. Customers who visit Nordstrom Local spend two and a half times as much as the average Nordstrom customer.

Nordstrom Local comes to New York

In recent months, Nordstrom's management has hinted that it would extend its local market strategy to New York City in conjunction with opening the flagship store there later this year. On Wednesday, the company confirmed that it will open two Nordstrom Local stores in New York City this September: one in Greenwich Village and one on the Upper East Side.

A rendering of the exterior of a Nordstrom Local store

Image source: Nordstrom.

Both Nordstrom Local sites are in high-income Manhattan neighborhoods that are somewhat distant from the new flagship store. Opening small-format stores there will create a more convenient shopping experience for residents of those areas.

Nordstrom also plans to solicit customers' opinions on what services should be offered in these new stores. The company stated, "To help further customize the NYC service hubs to best serve local customers, Nordstrom will partner with customers in each neighborhood to understand what they would value most when Nordstrom Local opens its doors."

A promising strategy

Nordstrom executives frequently say that having stores nearby boosts e-commerce sales. As a result, aside from the sales that will be generated by the new flagship store, management expects a big jump in e-commerce sales in New York City beginning this year.

Nordstrom has about half a dozen full-line stores in the New York metro area today, but none are particularly convenient for people who live within the city limits. By contrast, it has 16 full-line stores in the Greater Los Angeles region -- and still found a benefit to expanding its footprint there with the Nordstrom Local concept.

Thus, offering more points of presence in New York City should accelerate Nordstrom's market share growth there. If the Nordstrom Local concept continues to succeed, the company may look to add locations in the other boroughs: particularly heavily populated Brooklyn and Queens. This could quickly make Nordstrom a force to be reckoned with in the nation's largest city, putting pressure on competing upscale retailers.

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