The two firms will become independent publicly traded companies in 2015. The move follows pressure from investor Carl Icahn to spin off the payments ...
Internet shopping has come a long way in a short time-from a great place to order books to a vast marketplace where big-ticket goods like computers and even cars are sold. But anyone who’s spent a day imprisoned by a new pair of ill-fitting shoes has to wonder whether the Web is suited to selling footwear.
Shoes are among the trickiest items to fit, and naysayers can’t imagine consumers buying online what they can’t try on first. What these critics can imagine are piles of returned loafers, Oxfords and pumps from shoppers brave enough to try.
Daniel Nordstrom, whose family built a reputation selling shoes before expanding to department stores, isn’t swayed by the naysayers. Nordstrom Inc. of Seattle has wagered some $26 million in startup funds, the bulk from venture capital firms, to launch nordstromshoes.com.
The site, which opened for business in November as an adjunct to Nordstrom.com, is an attempt to leverage the parent company’s expertise in upscale bricks-and-mortar shoe retailing into similar leadership online. Behind the serious money is a serious inventory of 30 million pairs of shoes. “Our vision,” says Nordstrom, “is that one day this site will be the place where you can go to buy from the most comprehensive selection of quality footwear anywhere in the world.”
Even a year ago, Nordstrom would have had the market to himself. But the coming months will change all that. Armed with new technology that aims to crack the nut of remote sizing-and eager to cash in on consumers’ growing acceptance of Web shopping-more shoe retailers are stepping out on the Internet. Online shoe sales totaled an estimated $121 million in 1999, and Forrester Research of Cambridge, Mass. projects they’ll more than double to $290 million this year.
“Interest in the Internet shoe market is exploding,” says Cynthia Milaly, vice president of the National Shoe Retailers Association, a trade group of independently owned shoe retailers. “We get calls every week from people inquiring about selling shoes on the Web, and a lot of them aren’t even brick and mortar retailers. They’re Internet-only companies.”
Given a likely stampede of cyber stores, Nordstrom will need all the marketing savvy and technology it can muster. The company has put both into an aggressive e-commerce strategy that includes a $15 million advertising blitz and policies that attempt to assure customers of the seamless shopping experience for which the department store is known. Shoes bought on the Web can be returned to any Nordstrom store or mailed back in a postage-paid envelope sent with every order. And Nordstrom is matching its liberal return policy with technology aimed at helping customers make sensible shoe choices.
Time will validate the retailer’s strategy-or not-but industry observers already give the company high marks for making the attempt. “Kudos to Nordstrom for going after the Internet instead of being an ostrich,” says Matthew Cutler, cofounder of netGenesis, a Cambridge, Mass. e-business consultancy. “The fact that they’re putting some serious money behind it is good, because some companies think they can do it on the cheap and fail miserably. It’s a big gamble. But the Internet is all about big gambles.”
Shoes and more
Like other brick-and-mortar retailers that have invested heavily in the Internet, Nordstrom is aiming high, and its goals for the Web reach beyond shoes. Nordstrom CEO John Whitacre says he’ll settle for nothing less than “becoming the leader in fashion-related e-commerce.” The company plans to make the shoe site a model for expanded offerings in apparel, accessories, jewelry and other categories expected to total billions in overall Internet sales over the next three years.
By opening a shoes-only site, Nordstrom is playing its trump card first. The retailer and shoes go all the way back to founder J.W. Nordstrom’s first store, opened 99 years ago.Thanks to a strong selection, shoes accounted for 30% of Web sales soon after nordstrom.com launched in October 1998. “It was great to see that our online customers felt just as strongly about shoes as our in-store customers,” says Colleen Chapman, marketing manager of Nordstrom.com. “So we took that shoe category and blew it out, making it its own shoe store and allowing for a lot of bells and whistles to make that shopping experience unique.”
First mover, fast mover
Not only did Nordstrom need to find the latest technology to pump up the shoe site and capture market share, but it needed to do so quickly. That’s not always an easy task when a company is accountable to shareholders. Big spending can add up to big losses-a risk that has kept other retailers from investing in the Web.
Nordstrom made two important moves. First, it teamed up with a Web-savvy venture capital partner outside retailing. Then it rolled the Internet and its catalog business into one subsidiary, Nordstrom.com. Besides making both operations more nimble, the maneuvers gave the Internet business better access to fulfillment services, and a 250-person call center already in place at the catalog division.
Benchmark Capital of Menlo Park, Calif., put $15 million into Nordstrom.com, one of its largest investments so far, in exchange for a 15% stake and a seat on the board. Madrona Investments Group gave the subsidiary another $1 million for a 1% stake. Though his firm is better known for backing Internet startups such as eBay, Benchmark partner Bill Gurley sees a critical advantage in Nordstrom’s retail history. “Any large, established company has a big plus in going to the Web,” he says, “but only to the extent they’re willing to exploit it by moving fast.”
The big-company advantage: supplier relationships. “Toys R Us theoretically could have killed eToys because it had a SKU count that eToys didn’t have,” explains Gurley. “But over time, this advantage deteriorates. The number of supplier relationships eToys has today is probably 300 times what is was two years ago.”