Nordstrom is banking on cooler brands to defy the department-store curse

  • Nordstrom is expanding its partnerships with so-called "strategic" brands such as Reformation, Allbirds, and Bonobos to drive traffic to its stores and set it apart from rivals. 
  • These direct-to-consumer brands now make up 40% of overall revenue at Nordstrom's full-price stores. 
  • Co-president Erik Nordstrom told investors at the company's annual Investor Day this week that these partnerships not only help drive traffic to stores, but are also less vulnerable to promotions. The goal is to reverse the headwinds that department stores as a whole have faced in recent years.

Today's shoppers don't want to be dressed head to toe in Gucci (if that's an option), but they also don't want to shop only at fast-fashion stores. Increasingly, consumers are mixing up the brands that they wear and incorporating high-end, vintage, and low-cost brands into every outfit. 

In an effort to react to this shift, Nordstrom has broadened its assortment in some stores by partnering with a selection of so-called "strategic" or aspirational brands such as Allbirds, Everlane, and most recently, Reformation.

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During its annual Investor Day presentation this week, Co-president Erik Nordstrom told investors that Nordstrom has become a "partner of choice" for these direct-to-consumer brands. 

These brands now represent around 40% of revenue at Nordstrom's full-price stores, the company said. This is expected to rise to 50% by 2020, according to BloombergSales of these brands are growing 30% faster than others, and they're delivering higher profit margins, according to Nordstrom, as reported by Fashionista.

It's a stroke of genius for a business in a sector that is coming under intense pressure to compete with trendy e-commerce and Instagram-popular brands. The rise of e-commerce, declining foot traffic to malls, and a higher demand for off-price products have caused department stores as a whole to suffer

Stocking strategic labels helps drive traffic to stores and make Nordstrom's offering more unique.

Most of these labels have a limited store presence in the United States, so the partnership also works in their favor as it enables them to expand their reach. And for Nordstrom, it's a way to attract a new set of customers. 

"This partnership means more people can get their Reformation fix in real life and more importantly, we can bring sustainable fashion to a new (and much bigger) group of customers and closets that don't know us yet," Reformation said in a press release in June, after it announced it would be launching pop-ups at 20 Nordstrom locations, Racked reported.

But perhaps most importantly, these products are also less vulnerable to discounts, which is one of the biggest obstacles that traditional brick-and-mortar retailers face. 

"The more ubiquitous a product or brand is out there, the more pressure there is on pricing [which leads to] promotion," Erik Nordstrom said at Investor Day. "Having strategic relationships — sometimes they're exclusive; they don't always have to be exclusive but need to have limited distribution there — that helps us a lot."

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