NORDSTROM: A RETAIL SUPERSTAR

by Sarah Van Wagnen

Ever since I was a teenager and began to fall in love with shopping, my mom engrained in me which stores are really worth your time and money. Nordstrom has always been at the top of our list. Quality products, good prices, and customer service are driving forces behind retail sales. Nordstrom’s customer service is outstanding, and they know how to market to multiple different buyers. These may sound like obvious ways to increase sales, yet Nordstrom has continuously outperformed other retailers. Their secret lies within their corporate culture; the customer is the center of all decisions. Looking deep into the companies organizational structure reveals an extremely effective management style, and how Nordstrom continues to successfully adapt to the changing market.

Likert’s Management System is a scale that identifies four different types of management styles. These were developed based off of three decades worth of studies regarding management styles and patterns from over 200 different organizations (“Likert’s Management System”). The scale compares concern for the job vs. employees within the workplace and ranges from high to low.

System 1 is defined as Exploitative Authoritative, this is the most rigid form of management. Top-down communication is emphasized and threats/fear are used often. Superiors have very low trust in employees to get their job done well. Teamwork is almost non-existent and employees should not discuss their ideas with anyone above them. Decisions can be made quickly and easily by management but this can have a very negative impact on team morale.

System 2 is Benevolent Authoritative, communication is also mainly flowing from superiors to subordinates. Rewards are the primary basis for motivation and workers receive little freedom to voice their thoughts. Lower level employees often feel little responsibility and this can lead to poor work ethic that contrasts with the organization’s goals. Competition negatively affects employees because they feel like they are not an important part of the system.

System 3, Consultative, accepts input from employees however decisions are still primarily made by management. Superiors have decent confidence in their employees and there is a good amount of teamwork. Communication flows both vertically and horizontally. Motivation is achieved through rewards and job involvement.  Lower level employees are consulted about decisions and feel more involved, leader to higher satisfaction and production.

System 4, Participative, allows for a free flow of communication between employees and management. Responsibility for achieving organization goals is spread equally throughout positions. There is high trust in employees to be successful. Teamwork is valued and communication is greatly encouraged to benefit the entire organization. Employees have large levels of participation in decisions which allows creativity and innovation to thrive. There is a high level of responsibility for all employees to achieve the organization’s goals. This empowers employees and gives them high levels of satisfaction. Managers use monetary rewards and employee participation in goal setting to drive motivation.

Likert’s system is a sliding scale and many organizations may fall between two systems. The system, according to Likert, contains a profile of organizational characteristics composed of: Leadership processes, Motivational forces, Communication process, Interaction-influence process, Decision-making process, Goal-setting or ordering, and Control processes (“Likert’s Management System”). A questionnaire was distributed to multiple different organizations and differing levels of employees/managers to determine the effectiveness of each system. Systems 1 and 2 proved far less effective than 3 and 4. Systems 3 and 4 were much more productive and had a higher chance of long-term improvement, low costs, high profit, and lower staff turnover (“Likert’s Management System”).

By looking at Likert’s scale a better understanding of Nordstrom’s structure can be studied. Nordstrom was founded in 1901 originally as Wallin & Nordstrom and was a store specializing in shoes with the mission statement that the “customer is always right”(Spector & McCarthy, 1999). As the store turned into two the sons of Nordstrom bought out Wallin and renamed the stores Nordstrom. The brothers struggled through the Great Depression but managed to keep their stores open and grow significantly during the 50’s and into the decades after. By 1965 Nordstrom was selling both shoes and apparel in a wide range of sizes to make sure the customer always got what they needed. In 1968 the company went public by third-generation Nordstrom family members and within the year reach 60 million in sales per year. It is now 2016 and the company is still under some control by the original family. In the company’s 2015 annual report they reached a record of 14.1 billion in net company sales (“Nordstrom Company Review”). Nordstrom now has 347 stores in 40 states and Canada, as well as 215 Nordstrom rack locations, and 3 online websites available to 96 countries (“Nordstrom Company Review”).

Analyzing Nordstrom’s work management and policies reveals why they are now one of the most profitable and loved retailers in the country. Nordstrom has continually strived to be nothing less than number 1 in customer service. The foundation for how they do this includes; empowered employees, employees who act like business owners, a supportive management structure, and a mystique for heroic acts (Spector & McCarthy, 1999). Employees are actually fully entitled to do whatever it takes to have a satisfied customer. The fact that each employee has authorization to do this is comparable to going into a small business, you don’t have to jump through hoops to talk to who is in charge if you aren’t satisfied. Each store has a wide range of sizes to make it easier for the sales team to have a happy customer and find what they need. Managers ensure their team is fully equipped with merchandise. When an employee shows an incredible act of customer service they are rewarded and encouraged by their managers.

It is rumored that Nordstrom’s employee handbook is only one sentence long, but is that true? The answer is mostly; when an employee is hired they are given a card that reads:

nordstroms-employee-handbook-1

However, even though it is true they hand these out to new employees, any company has a multitude of legal rules they must abide by. When it comes to their employees on the other hand, they really do give them great trust. Their goal is to hire nice, capable people and empower them to use their judgement (Solomon, 2014). By doing this they allow their employees to use their power to treat customers in the best way possible.

NordstroNordstromInvertedPyramid-BoostBusiness-CustomerService-JasonForrest.pngm actually has the complete opposite structure of most traditional companies. They use an inverted pyramid company structure with customers and sales people at the top and the executive team at the bottom. Every decision made by upper level employees is to support the sales staff and satisfy the customer. Nordstrom has an incredible return policy and any employee can give full refunds with no questions asked (“Nordstrom Customer Service”). Anyone on the sales floor can also help any customer, even if they are shopping in a different department. All managers must start on the sales floor so they know what the customer firsthand, Nordstrom only promotes from within (Spector & McCarthy, 1999). Buying is also focused around specific tastes of the customers, within each region there is a buyer who concentrates on a few stores to reflect the style of the area (Spector & McCarthy, 1999). Not only does Nordstrom love their customers, but they respect their employees.

As an organization Nordstrom would most directly fall into Likert’s system 4 Participative style of management. Communication flows freely between employees and managers, top advisors frequently ask the sales staff for recommendations. Usually most of the responsibility is on higher up employees but Nordstrom is true to the participative style of management and actually gives a lot of trust to their sales teams since they work most directly with customers. When it comes to customers, employees are always allowed to get innovative with making decisions when it comes to an unhappy customer. That could simply be a refund, finding something new for them, or going above and beyond to fix the problem to make sure they will shop at Nordstrom again. Nordstrom also uses monetary rewards and goal setting to create happy employees. They offer a merchandise discount ranging from 20-33%, medical coverage, an employee-matched retirement plan, and more (Nordstrom). Sales associates are paid by commission so that they can earn more the better they are with customers. Even though it is commission based the retirement plan is profit-sharing revenue which progresses over the employee’s first 7 years and encourages loyalty and motivation (Spector & McCarthy, 1999).  Goals are set frequently and the best sales associates receive the 33% discount by having great customer service and exceeding their goals.

Nordstrom does an outstanding job of applying participative management. There’s a reason Nordstrom is killing it at the retail game. For one part their customer service is outstanding, and they know it is thanks to their employees. They are picky about hiring nice people and have no problem doing what it takes to have a happy customer, and that’s what keeps people coming back (Lutz, 2014). The Ellen show proved this with a hilarious prank where Ellen had a customer have a secret camera and video tape the sales associate while Ellen had the customer say and do a bunch of weird things. The employee took it in full stride and laughed with the crazy customer while remaining nice and helpful the entire time, she even enjoyed herself (“Ellen’s Hidden Camera’s”). Nordstrom has been dedicated to making service one of their greatest selling points, and it won’t change anytime soon (Shoultz, 2015). By empowering their front-line employees to give feedback on what customers want the entire organization stays on top. It takes no special skills to have the lowest prices but the companies that are thriving make decisions about how they want to run their business and then perform them everyday (Shoultz, 2015).

Autonomy and standards with employees creates “customer service magic” (Solomon, 2014). Through the freedom to act alone employees are empowered to benefit the customer because they have the ability to actually help them. By training all Nordstrom employees with the standards that the customer always comes first, the company reaps the benefits. Nordstrom Rack was created to satisfy customers who could not always afford top of the line prices but still loved Nordstrom’s quality. They reached out to a whole new consumer including mainly young people who will hopefully grow into shopping at Nordstrom stores instead of just Nordstrom Rack. Nordstrom is also at the forefront of e-commerce, with 3 billion in sales and a 21% increase over the past year (“Nordstrom Company Review”). Workers even use the Nordstrom pinterest page to merchandise their stores, and it is even now possible to buy items featured on their instagram (Lutz,2014).

For companies moving into the future, the most successful will be customer-led (Swerdlow, 2015). Going forward all retailers must organize operations around a customer based philosophy if they wish to grow, like Nordstrom already has. Many companies have announced going “omnichannel”, a multichannel approach to sales, (such as Nordstrom) which is very important to today’s consumer. Everything is moving online to a multitude of channels and companies have to keep up. With so many options for today’s consumer, customer satisfaction is a huge differentiator for where people will shop, because if they have a bad experience they can always go somewhere else.

Other organizations could learn a lot from Nordstrom’s management and leadership style. They allow their employees to act in the best interest of the consumer and therefore the company. Nordstrom’s founding principle is to put customers first, and when employee’s are trusted to do this they feel empowered. Front-line workers are the one’s closest to the customer and that is why Nordstrom uses the inverted pyramid structure, to put the focus on helping employees satisfy the consumer. When companies allow employees to participate and feel important this will transfer directly to making the customer feel important, which is the driving force behind the survival of the company. In today’s society organizations have to evolve to fit the changing needs of the consumer, from online shopping experiences to how they feel when they walk in the store. For Nordstrom, the number 1 goal is capturing the consumer’s attention within 13 seconds, and keeping it with outstanding customer service. Having happy employees and customers will not only create a better working world, but a better future for any company.

 

 

References

Ellen’s Hidden Cameras at Nordstrom! [Video file]. (2014, October 13). Retrieved                    from https://www.youtube.com/watch?v=IV90Q_b7v-k

Likert’s Management System. (2016). Retrieved from                                                                https://managementstudyguide.com/likerts-management-system.htm

Lutz, A. (2014, October 8). Nordstrom’s simple strategy for beating everyone else                 in … Retrieved from http://www.businessinsider.com/nordstroms-business-            strategy-2014-10/comments.rss

Nordstrom Company Review & Annual Report. (2015). Retrieved from                                               http://shop.nordstrom.com/c/nordstrom-company-review

Nordstrom Customer Service. (2016). Retrieved from                                                                http://shop.nordstrom.com/c/customer-service

Schoultz, M. (2015, December 11). What makes Nordstrom’s marketing strategy                  different? Retrieved from http://www.sailthru.com/marketing-blog/written-nordstrom-marketing-strategy-their-difference-maker/

Solomon, M. (2014, March 15). Take These Two Steps To Rival Nordstrom’s                           Customer Service Experience. Retrieved from                                                                  http://www.forbes.com/sites/micahsolomon/2014/03/15/the-nordstrom- two-part-customer-experience-formula-lessons-for-your-business/#610ccf9e2335

Spector, R., & McCarthy, P. (1999). The Nordstrom way [PDF]. Ej4.

Swerdlow, F. (2013, October 24). Building the retail organization of 2023. Retrieved                        from https://nrf.com/news/building-the-retail-organization-of-2023

 

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