Retail Insights

Seattle: America’s Capital of Retail

The Robin Report - Seattle Americas Capital of RetailWhat do Nordstrom, Starbucks, Amazon, Costco, and Recreational Equipment, Inc. (REI) have in common?

They are all world-class retailers based in Seattle.

And don’t forget 103-year-old Ben Bridge Jeweler (a division of Berkshire Hathaway, with 75 stores in 11 states), 95-year-old Eddie Bauer, and ecommerce sites Blue Nile and Zulily (just acquired by QVC for $2.6 billion). According to the most recent American Customer Satisfaction Index, Nordstrom was tops in the Department and Discount category; Amazon was the leader in the Internet category, and Costco was the pacesetter in the Specialty category.

Among Fortune Magazine’s “World’s Most Admired Companies,” Amazon was fourth, Starbucks fifth, Nordstrom fourteenth, and Costco sixteenth. Again, each led its particular retail category. No other region had such a retail presence.

So, what’s in the Puget Sound water?

Very simply, it’s an approach to retail that offers customers a unique customer-centric experience (whether online or in-store) and a value proposition that is not strictly about price. On the surface, all of these companies are markedly different from one another. “When you come to Costco, you don’t expect a Nordstrom experience. When you come to Starbucks, you don’t expect a Costco experience,” said Jeff Brotman, founder and chairman of Costco. “Customers come to Costco because they can get the most popular versions of high-quality goods at a decent price.”

A Tradition of Customer Service

Seattle retail is built around taking care of the customer. In Seattle’s historically egalitarian culture, providing outstanding service is a noble calling. “We were raised kneeling in front of the customer—literally and figuratively,” says chairman emeritus Bruce Nordstrom, who began working for the company when it sold only shoes (and who still describes himself as an “old shoe dog.”) “You’re down on your hands and knees, waiting on customers, which I find an appropriate position for our level of service.” Nordstrom, of course, is internationally famous for its customer service, but I believe the Seattle tradition started with Frederick & Nelson, the grand dame of department stores, which opened for business in 1891—11 years before Bruce’s grandfather John W. opened his little shoe store in downtown Seattle. F&N, which was sold to Marshall Field & Co. in 1929, created Frango Chocolates almost a century ago.

After going through a series of ownership changes (BATUS Retail Group, then local investors), F&N went out of business in 1992, leaving an 850,000-square-foot hole in downtown Seattle. Six years later, Nordstrom’s moved its flagship store into the renovated Frederick’s building. It was as much an emotional decision as it was a business decision. “I was raised doing my back-to-school shopping with my mother at Frederick’s,” Bruce Nordstrom told me. “So that building has a very important place in our hearts.”

The best customer service story I ever heard came from F&N: In the late 1940s, a customer named Katheryn Kavanaugh took her first trip in 20 years to her birthplace in Ireland. She shot several rolls of film of her family in County Cork. When she returned to Seattle, she brought the film to F&N to be processed. (This was the era when department stores had lots of departments including photography.) Somewhere along the line, the film was lost. A tearful, distraught Mrs. Kavanaugh called William Street, president of Frederick’s, with her tale of woe. Street asked her to send him a list and description of the photographs she had taken. Then he cabled the list to the Marshall Field buying office in London. The London office hired a UK-based photographer from Fairchild News Service to retrace Mrs. Kavanaugh’s route and duplicate the pictures she had taken of her relatives. After the developed pictures arrived safely in Seattle, F&N organized a special public ceremony, where Bill Street presented photographs to an appreciative Mrs. Kavanaugh. Now that’s customer service, Seattle style.

No-questions-asked Return Policies

As a New York transplant who’s been in Seattle for almost four decades, I’ve witnessed and written about a level of expectation about customer service and politeness in Seattle that you will not find anywhere else. Customers expect retailers to be nice, knowledgeable, and helpful. They want you to be friendly, but not too friendly. This is an approach that I call “superficial intimacy.” As a salesperson, I may know a lot about you: name, occupation, style, tastes, previous purchases, fluctuations in weight, etc. Nevertheless, we aren’t friends. We don’t go bowling together. We’re affable commercial acquaintances. That’s a winning approach to effective customer service

When I interviewed Eddie Bauer himself in 1982, he told me that he was most proud of his guarantee that “Every item we sell will give you complete satisfaction or you may return it for a full refund.” Eddie knew that some people would abuse this guarantee, but he felt that it was worth it to burnish the company’s reputation. And he was right.

Everett, Elmer and Lloyd Nordstrom established their generous return policy in the 1930s, when they were running a two-store shoe operation. The brothers (who were admittedly mediocre salespeople themselves) dreaded having to deal with obviously outrageous or unreasonable returns. “We decided to let the clerks make the adjustments, so they would be the fair-haired boys,” recalled Elmer in a privately published memoir. “We told them, ‘If the customer is not pleased, she can come to us and we’ll give her what she wants anyway.’”

Seattle companies influence each other When I asked Jeff Brotman why Seattle has so many world-class retailers, he said, “Nordstrom has set a very high bar. If you’re a retailer here you have to give great customer service. If you’re doing anything less, you’re not doing it right. That became part of the Seattle cultural landscape, and then we rolled it out at Costco. It’s not just cultural; it’s really good business.”

Jeff Bezos, who arrived in Seattle from New York in 1994, has often said that he wanted to make Amazon.com “the most customer-centric” company in history. He took notice of how Nordstrom was doing business. Even before he launched the website in July 1995, he made customer service his top priority because he knew that positive word-of-mouth buzz would have a greater impact on consumer perception than any kind of paid advertising. (Anyway, in 1995, he couldn’t afford to spend money on advertising.) “It was seeing how successful word-of-mouth was in that first year that really led us on this path of being obsessively, compulsively, anal-retentively focused on customer service,” said Bezos. Bezos also noticed that Costco, with its narrow margins, made a lot of money on its annual membership fees—$55 for Business Membership, $110 for Executive Membership. Costco’s approach was part of Amazon’s inspiration for creating Amazon Prime (initially $79, now $99) for free two-day delivery.

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REI as a cooperative also profits from member fees. For a one-time fee of $20, REI’s two million members receive a 10 percent rebate at the end of the year.

Witnessing the rise of Amazon.com firsthand in the mid-to-late 1990s, the traditional brick-and-mortar Seattle retailers were quick to understand the power (and threat) of the internet. Unlike many other retailers in other parts of the country that took an arms-length approach to ecommerce, Seattle companies embraced this new channel. In 1996, REI, which at that time sold its outdoor-focused products through stores and mail order catalogues, assembled a team of people from every department—marketing, merchandising, information services, adventure travel, retail, real estate, accounting and public affairs—to promote buy-in to the new channel and figure out the best approach to developing it. At a time when most brick-and-mortar companies (Walmart and Barnes & Noble, among others) outsourced their websites, REI developed everything in-house.

In my 2002 book Anytime, Anywhere: How the Best Bricks-and-Clicks Businesses Deliver Seamless Service to Their Customers, I quote Matt Hyde, the vice president of merchandising and logistics who oversaw the building of REI.com, as saying that the internet “must be a core competency, just like service. You don’t outsource service. Online stores are not a project; they are a business.” From the beginning, REI.com was treated “as a profit center, rather than a marketing expense, which was highly unusual at that time.” Today, almost twenty years later, REI is one of the top omnichannel retailers in the United States. The internet accounts for almost 25 percent of REI’s $2.2 billion sales; the rest is generated at the cooperative’s 140 stores in 33 states.

Nordstrom’s website is one of the company’s roaring engines. A good number of people who work for Nordstrom.com once worked a few blocks away at Amazon.com.

Strong leadership and empowering corporate culture Brotman, The Nordstrom brothers, Jeff Bezos, and Howard Schultz need no introduction to the retail industry or even the general public. They are acknowledged as strong, visionary leaders. Although REI CEO Jerry Stritzke is not a household name, he did build his career at Victoria’s Secret and Coach. Stritzke succeeded Sally Jewel, who is the current Secretary of the Interior. Nordstrom, Starbucks, Costco and REI all believe that the employee experience determines the customer experience. Therefore, they don’t want “clerks”; they want happy, empowered employees (with product knowledge) who want to help the customer feel welcome and in the mood to make a purchase. Seattle companies generally prefer growing their own managers and executives. They are in the business of grooming people to succeed within their culture.

At Costco, everyone starts in the warehouse, and, if he or she so chooses, an employee might one day manage a store.

Nordstrom encourages its employees to act as if their name is on the door, and empowers them to own the customer experience.

Starbucks’s baristas are treated as “partners.” They are well trained, and are given a pay package that includes compensation, stock, benefits and savings.

REI employees live the brand. They all participate in outdoor activities and they use and know the benefits of the products they sell.

Every one of these companies is constantly asking itself what’s next. Amazon, of course, is always reinventing itself and moving into new areas. Although Amazon is not a warm-and-fuzzy Seattle company, it is certainly the leader in adaptation and innovation. Describing what Amazon is has always been a moving target.

Nordstrom has embraced social media and has made key purchases to diversify, including Trunk Club and Haute Look. The company recently introduced TextStyle, a shopping-via-text message service that allows customers to purchase merchandise recommended by their salesperson or personal stylist through text messaging. Next opt-in leverages TextStyle by enabling a customer to use her smartphone to secure one-on-one service with a Nordstrom salesperson. Like2Buy allows customers to buy merchandise displayed on the Nordstrom Instagram page.

Starbucks is experimenting with various food selections and formats, and has made a concerted effort to enhance its digital offerings. (A footnote: Adam Brotman, chief digital officer for Starbucks, is the nephew of Jeff Brotman.)

In the end, it all comes down to the customer making a purchase. A few Christmases ago, I was in the downtown Nordstrom flagship store, where I ran into Bruce Nordstrom, who said to me with a grin: “Don’t just stand there. Buy something.”

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