Friday, April 22, 2016

Listen: Obey Your Customers

Anonymous, the most prolific commenter on my site pointed out this article, along with his concerns:
Nordstrom is one of my target specialty retailers, should we specialty product entrepreneurs be worried?
The only worry we should ever have is we get slack on listening to customers.  Should Nordstrom begin to go under, as your question implies, part of listening is comparing their ideas to those of your thriving customers.  You'll hear whether theya re in trouble or not, from what they say.

And by the way, the word obedient comes from Latin, to listen.  You stay out of trouble by listening, obeying, your customers.

As to the article itself, it suggests the 2008 repeat crash we've been expecting has happened, just our attention is on the stock market and not that we are being burned on gas, medicine, food, etc.  What jumped to my mind reading the article is the build-up of the wrong inventory at retail (and how I need a couple of things, so I'll be stopping in to Nordstroms to see what I can find at a good price.)  Also, the Nordstrom outlet just offered lawn furniture on sale...  well, it's been no secret their outlet has been flogging product not their own for a while, but this suggests they are scouring for profits.

But back to the article, I think the writer got it backwards.  It is not buyers demanding discounts, it's buyer not wanting to pay top dollar for product not quite right.  In 2009 as I wrote back then, the store shelves and the pipeline were groaning with products designed for a real estate boom milieu.  That ended.  The shelves remained stacked and the pipeline clogged.  Prices were slashed to clear the shelves, it was slow for the product mix did not match the demand of the new milieu.  Happily for zombie retailers, the taxpayer bailed big business out so they could borrow their way through this.  Mom had to eat Alpo, but hip young things could get cool T shirts and jeans to wear from Nordstroms again.

Here is the money quote in the article:
Restoration Hardware, which also caters to high-end customers, has said that discounts of 20% to 75% off everything in the store have been failing to boost sales as much as in previous years.
"Our attempt to drive incremental revenue through increased promotional activity in the fourth quarter was less successful than in prior periods, signaling a further pullback by the high-end consumer," Restoration Hardware CEO Gary Friedman wrote in a letter to shareholders last month.
Perzactly!  The first part of the story should have been the second:
Nordstrom said on Monday that it was slashing 400 jobs at its corporate headquarters.The move comes two months after the department store chain reported a 3% drop in comparable sales for its fourth quarter, and forecast that profit per share would fall 30% in the first half of this year.The cuts confirm a terrifying new reality for high-end retailers: Wealthy shoppers are reining in spending and — along with the rest of American consumers — refusing to pay full price for anything.
Well when you see what is passe on the shelves, you know it is going to be discounted soon if not very soon.  Why buy it now?

Why not wait until the things you want, given the new milieu, start showing up   (And that is our job.)

Circa 1984 Nordstrom became a billion dollar company, and the CEO at the time was giving a talk to a small group at UW, noting his company was the largest specialty retailer in the world (at the time).

Well, like everyone else that got big, Nordstrom complied with the federal government policy of get big or get out, and borrowed massive amounts of credit to grow.  They killed off people who did not want to get monstrous, like I Magnin in Seattle.

Forty years after that game began, 30 years after Nordstrom got to huge, that game is over.  What will become of Nordstrom?  Doesn't matter.  What matters who who grows in this new milieu.  Our job is to constantly test and search out customers.  It's what I teach, have always taught, that does not change.

At the same time Kevin sends me an article where Costco is financing start-up organic farms to meet the demand in their stores.  Customer financing instead of Vendor financing?  Wow.

Sure, lettuce is easier to call than chemise, but it is clear Costco listens what little they must. (Costco also sells ghastly farmed salmon, and because of demand, lots of it.)  That's a hint of who will survive.  The vacuum created by the dying dinosaurs who took advantage of the malcredit available to those who bought into the USA federal policy of Get Big or Get Out for the last forty years is now creating interesting reactions.

To win you have to get in the game.

Feel free to forward this by email to three of your friends.


Anonymous said...

I had no idea that Nordstrom sold lawn furniture. That would have been scandalous in the 90's. I think there's a perfect storm happening where, among other factors like the ones you have pointed out, the Chinese economy is now hitting the brakes. According to investor George Soros in a recent Bloomberg article: What’s happening in China "eerily resembles what happened during the financial crisis in the U.S. in 2007-08, which was similarly fueled by credit growth," Soros said. "Most of the money that banks are supplying is needed to keep bad debts and loss-making enterprises alive."*
I think that the nouveau riche foreign Chinese may be starting to cut back on luxury goods and these big high-end department stores are now feeling the pinch. Just my thought.