Just the Tip of the Iceberg

The Nordstroms do not accept compliments easily. And when they do, (as Blake Nordstrom did for a cover article I wrote over a year ago), it was with a shrug, and a quiet “thanks, but hey, we’re just blocking and tackling.” The humble response, which implies they are simply employing common-sense tactics, belies the fact that they are really great strategists with a vision of how Nordstrom must evolve to succeed in this intensely complicated and competitive 21st century.

Nordstrom’s latest move is an exclusive partnership with the J. Crew brand, (select items of which will be sold in 16 of 121 full-line Nordstrom stores and petites only online). It was likely spurred by the success of J. Crew’s sister brand, Madewell, recently expanded from 56 Nordstrom locations to 76. The partnership is not a reactive tactic. It is the latest initiative of an enlightened and necessary proactive strategy.

Preceded by other collaborations and/or acquisitions with the likes of Topshop, Beyoncé’s Ivy Park activewear, the Charlotte Tilbury beauty brand, Brooks Brothers, Bonobos, Shoes of Prey, Trunk Club, and HauteLook, indicates very clearly that the Nordstroms understand the epic transformation that the old world department store model must make, or else it will wither away. And that imperative ushers in the destruction of the past retail/wholesale process and structure. The language and definition of retail should change: Get rid of the terms “department store,” “retail,” “wholesale” and all old world monikers.

Mickey Drexler, CEO of the J. Crew Group, gets it. When asked in a “WWD” interview if he was moving into a wholesale business model, he replied, “…it doesn’t at all suggest wholesaling.” If I were to complete the thought for Mr. Drexler, I would say that he understands distribution in the 21st century, and he simply envisions placing his brands on as many distribution platforms that are compatible with the consumer positioning of those brands, and where the brands will have access to new consumer traffic that is shopping on those platforms.

Whoa! My ears are ringing with those of you who are screaming Mickey is doing this because he desperately needs growth. That he does, but my message is about a long-term strategic distribution perspective relevant to the entire industry. Whether or not J. Crew gets turned around, Drexler demonstrates through his actions that he understands the long-term dynamics of strategic distribution.

So back to the Nordstroms. If I were to be a bit presumptive and clarify their strategic vision, it would not be described as an expansion of its retail/wholesale structure and process. Rather, Nordstrom can be defined as a branded distribution platform. This may sound a little “consulteze,” but this is what Nordstrom is becoming. In my opinion, with this strategy, Nordstrom will grow even faster as the destination brand it already is into what I would describe as a Nordstrom omnichannel “marketplace” where consumers will find many other powerful brands including some that may even be competitors, some of Nordstrom’s own private and/or exclusive brands, and an entertaining shopping experience.

And, by the way, just as J. Crew gains access to Nordstrom shoppers they otherwise would not have, so too, Nordstrom will be able to tap into J. Crew consumers coming to its stores. It’s a synergy “win-win.”

So, its arrangement with J. Crew along with the other brands mentioned is not only just the tip of the iceberg for Nordstrom but also a bellwether for the rest of the industry. At least it better be for those who don’t want to go the way of the “buggy whip.”

Helloooo…It’s the Distribution Century

I’ve written about this before in It’s the Distribution Century and Macy’s Gets It and Keep Your Friends Close and Your Enemies Closer, The Godfather Strategy – but it’s timely to revisit this transformation from the retail/wholesale model, to branded distribution platforms or marketplaces, because the pace is accelerating. For those who don’t understand the imperative to change their old models, you better wake up. Terry Lundgren, CEO of Macy’s gets it, as does his successor, Jeff Gennette. Marvin Ellison, CEO of JC Penney, also gets it, as he invites other strong destination brands like Empire Today flooring and Samsung, GE and other appliance brands onto the JC Penney distribution platform-as-marketplace. The Sephora “shop” is already a great success there.

Let me continue this mini-lecture by reminding us of Harvard Business Review editor, Ted Leavitt, who in 1960, put forth the thesis about “marketing myopia,” hammering on the railroads’ confining definition of the business they were in as being, well…the railroad business. His point: if they had defined their industry as being in the transportation business, the Rock Island Railroad could have become the Rock Island transportation company, including planes, trains, car rentals, and perhaps Uber, and many other forms of transportation.

So right up front, it’s important to redefine the business you are in. I say you are in the branded distribution and/or marketplace business. Others might say you’re in the entertainment business. While you certainly need to provide some forms of entertainment, food offerings, etc. to compel consumers into your marketplace, to just say that you are in the entertainment business is too myopic.

If you can’t get retail/wholesale out of your mind to create this new model, you are “dead men walking.” Amazon probably led the way, but I believe some of the legacy distributors I just mentioned also understood it early on. But let me clarify for those who are struggling with this Ted “Leavitt-ation.”

You hear the word retail and what is your first mental impression? You think of a store and stuff in it. Oh yes, and now a website. That is myopic thinking. If you are in the distribution business, a limitless universe of distribution points and platforms to distribute your value will literally explode across the strategic part of your brain.

The most powerful links in the entire value chain for brands, products, services, communications, information, entertainment and literally all consumer-facing businesses, are the points of distribution: where, how and to whom the value is being distributed. It is the final link in the chain which touches the consumer. It’s where shoppers trigger the distribution process by making the purchase.

With the dynamics of the meteoric growth of e-commerce and mobile device usage, along with consumers’ behavioral shifts in an over-stored and stuffed marketplace, store and mall closings and the shrinkage of physical space are accelerating. And as it does, real estate firms, mall developers, brands and retailers are looking for ways to replace the vacated space with meaningful, traffic building concepts.

However, instead of viewing the situation as a defensive and reactive move if you adopt the non-myopic, more expansive definition of your business, this transformational period represents a great opportunity for developing a proactive distribution strategy for growth, such as the J. Crew/Nordstrom model.

By the way, even though Amazon may have led the way, they are actually lagging behind the legacy omnichannel players due to the fact that they have yet to open physical stores as another distribution platform. This is also the case for all e-commerce-only players. Omnichannel works both ways. By definition, it is the distribution of value from all relevant platforms or channels.

From Structured to Fluid, From Reactive to Proactive

To make the mental leap from the antiquated retail/wholesale distribution structure and process to a fluid, more flexible and responsive process designed to proactively seek out the best opportunistic distribution platforms and delivery systems will require an organizational transformation (if not a transplant). This might suggest a new department or division for both brands and (legacy) retailers that might be called Strategic Distribution, headed by a visionary CDO (Chief Distribution Officer) who understands 21st-century distribution, the enormous potential for accelerated growth, and who will develop an entirely new operational mission and comprehensive strategic plan.

Nordstrom, J. Crew, Macy’s, JC Penney and others are doing it. But if they have been tactically reacting to one-off opportunities, it’s time to proactively formalize it strategically. Those who do will win big. Those who do not will follow the Rock Island Railroad into history.