SYNOPSIS: Known for extraordinary customer service, Nordstrom made its reputation as one of the great retailing companies of the twentieth century. In the 1990s, the company began a long slide and took a dramatic downturn in 2000, with same-store sales actually declining. From 2000 to 2006, Nordstrom strongly recovered when fourth-generation family member Blake Nordstrom assumed leadership and refocused on the primary flywheel that had made the company great in the first place—the customer-service, professional-sales flywheel—while substantially improving background systems, such as inventory controls.275
I’ve outlined Nordstrom’s recovery through the lens of the good-to-great concepts below. (For an explanation of these concepts, see Appendix 7.)
LEVEL 5 LEADERSHIP: Blake Nordstrom answered his own phone, as had been Nordstrom family custom. He reestablished the inverted-pyramid structure that placed executives at the bottom, and customers and front-line salespeople at the top. He accepted responsibility for the company’s problems: “It was evident to my cousins and me that [our fall] was our fault—not the culture’s fault, but us personally.”276
FIRST WHO, THEN WHAT: Nordstrom’s transition began with significant changes in the leadership team—including the CEO, CIO, CFO, and president of full-line stores. The Nordstrom team re-embraced the idea of hiring based on values and character, not skills—“We can hire nice people and teach them to sell, but we can’t hire salespeople and teach them to be nice.” They returned to the rigor of having the right people in key seats. As one Nordstrom leader put it, “I would rather we lost lawsuits from time to time than keep employees that are not up to our standards. Because a weak employee will make the others around him weak, and drag them down.”277
CONFRONT THE BRUTAL FACTS: Blake Nordstrom confronted the fact that Nordstrom had strayed from its obsessive culture of customer service and that it badly needed to upgrade its basic systems, in particular through tying inventory systems to point-of-sale systems. He put $200 million into a new perpetual-inventory system so that Nordstrom could both reduce inventory costs and increase the chances that a salesperson could easily locate the exact item a customer desired.278
HEDGEHOG CONCEPT: The Nordstrom team rediscovered the company’s core concept, that it could be the best department store chain in the world in creating a relationship between the salesperson and the customer. The recovery was based on a simple, elegant idea: get back to building lasting relationships with customers by supporting individual sales professionals with vastly improved background systems (especially inventory systems) and thereby improve core economics measured by return on invested capital. They gained deeper understanding that economic returns were driven by margin dollars divided by average inventory.279
CULTURE OF DISCIPLINE: The Nordstrom team returned to the primary approach that had made Nordstrom great in the first place—getting passionate sales professionals, setting very high performance and customer-service expectations, and giving them the freedom to make decisions that would best serve the customer. They retained the Nordstrom rule book, which specified that the only rule is to use good judgment in all situations. “Perhaps the biggest accomplishment,” wrote Blake Nordstrom in the 2003 annual report, “is that we are becoming more disciplined as a company.”280
FLYWHEEL, NOT DOOM LOOP: Blake Nordstrom focused on “small but meaningful steps,” not big, dramatic moves. He confronted the failure of the $40 million “Reinvent yourself” campaign: “[It] was an attempt to do something different, and we lost sight of what we are. The customers obviously didn’t want to reinvent themselves and didn’t want our company to reinvent ourselves.” In 2004, Blake Nordstrom wrote, “Success for our company is not going to take a new strategy or an entirely new business model. Instead it’s taking what we already do well and continuing to execute those strengths.”281
CLOCK BUILDING, NOT TIME TELLING: Blake Nordstrom focused on building the culture and supporting systems to enhance the culture so that Nordstrom’s recovery would not depend on the presence of any particular leader. He rebuilt his executive team so that the leadership of the company would not depend entirely upon him; if he were to step away, the success of the turnaround would likely continue. At the time of this writing, Blake Nordstrom remains president.282
PRESERVE THE CORE/STIMULATE PROGRESS: Blake Nordstrom emphasized reigniting enduring Nordstrom core values (service to the customer above all else, a passion for improvement, entrepreneurial work ethic, excellence in reputation) yet made dramatic changes in the systems and practices required to actualize those values—new systems, shared best practices, more disciplined buying practices.283