Nordstrom was hit harder than most retailers by the pandemic. Its product assortment has traditionally been skewed toward fashion apparel and footwear, but with offices closing and major events such as weddings and galas canceled, demand for these merchandise categories has plummeted.
Nordstrom, fortunately, entered 2020 with a relatively strong balance sheet, allowing it to survive and continue investing in its business. Many of its competitors were not so fortunate, and were forced to declare bankruptcy and close stores. With the economy expected to reopen in 2021, Nordstrom is stepping up its efforts to become an even more compelling retail destination, including the launch of a slew of new brand partnerships.
Nordstrom’s DNA includes collaborations with emerging brands. As a fashion retailer, the chain cannot afford to become complacent in relying on the same brands to drive sales year after year. Some brands will inevitably become more powerful over time, while others will lose their competitive advantage. As a result, it is critical to work continuously to identify new brands that can drive growth and replace sales from declining brands.
Nordstrom collaborates with certain brands on a one-time basis for short-term pop-ups. In other cases, the upscale department store has established long-term relationships with emerging brands. Nordstrom, for example, invested in Bonobos nearly a decade ago and quickly became the start-most up’s profitable sales channel, helping to offset losses in the company’s e-commerce business.
Many other digitally native brands, such as upscale luggage brand Away and shapewear brand Skims, have followed Bonobos’ lead by partnering with Nordstrom for a physical retail presence in recent years. Nordstrom appears to be doubling down on such collaborations.
Late last year, Nordstrom began selling Casper mattresses in 31 stores and on Nordstrom.com, making it one of the first major new brand launches following the pandemic. For Nordstrom, this was significant because it helps diversify the retailer into the fast-growing home market, where it has historically been a minor player. Nordstrom added 50-square-foot displays for Tonal home fitness machines to 40 stores in March. This partnership, like the Casper deal, gives it a foothold in a new high-growth market.
With its new partnerships, the company has recently shifted back toward a focus on fashion, as it sees a rebound in demand for dressy apparel. Last week, Nordstrom announced a long-term partnership with Indochino to open custom men’s apparel shops in 21 stores, all of which will be open by the end of this week. In recent months, Nordstrom has also added a number of new apparel and footwear brands, ranging from emerging designers to niche categories such as hijabs. Some of these new brands will be available indefinitely, while others will only be available for a limited time.
Over the next few years, investors should expect to see many more brand introductions at Nordstrom. For starters, the retailer intends to reduce its reliance on the traditional wholesale model, in which it purchases inventory from brands and has complete control over pricing, merchandising, and inventory management. It will support alternative concession and revenue-sharing arrangements that give brands more control, allowing it to work with companies that have been hesitant to enter traditional wholesale relationships.
Indeed, Nordstrom stated at its investor day earlier this year that it expects “partner owned” and “shared ownership” models to account for 30% of its sales in the future, up from 5% today.
Furthermore, many direct-to-consumer brands are realizing that high customer acquisition costs and shipping costs make it difficult to turn a profit while relying solely on e-commerce. This has piqued their interest in forming retail partnerships. Collaboration with Nordstrom, the only upscale department store with a national presence, makes perfect sense.
For the time being, Nordstrom has a lot of work ahead of it just to regain its pre-pandemic size. However, if it can capitalize on its growing popularity as a partner to emerging brands, it may emerge from the pandemic stronger than ever.