Birthday parties. Vacations. Your daily commute. Everything, including a trip to the store, changed completely in 2020. City and state governments, along with some of the biggest companies on the planet are all rethinking budgets and resource allocation.
Many retailers are doing the same with highly public restructuring moves. Historically, restructuring (read: closing stores, cutting costs and laying off people) was often a retailer’s last gasp effort to stay alive before shutting down permanently, and for good reason. A struggling retailer typically faces multiple strategic challenges brought on by larger changes in the world. Some retailers anticipate that change and thrive. Others get blindsided and declare Chapter 11.
Today we look at two retailers who announced plans to restructure during the pandemic: Nordstrom and Office Depot. Nordstrom is closing 16 stores. This move brings their total store count down to 100. They’re also making major changes to regional management, support roles, and the overall corporate organization. Office Depot is closing both stores and distribution centers and laying off 13,100 employees. Thankfully, both retailers have well thought out plans that make it clear they’re looking to do way more than simply tread water.
Changes Afoot
Management at Nordstrom and Office Depot both saw big changes in the way people shop. In Nordstrom’s case, the changes are taking down one department store after another. As Madelion Ashby put it in The Atlantic, “To study the decline of department-store retail is to study the erosion of the middle class.” Ashby attributes much of the decline of department stores to an over-reliance on one narrow segment of the middle class: “women with enough time and money to shop on weekdays.”
For the upper echelon shoppers, fond memories of Barneys and Neiman weren’t enough to save stores. Simultaneously, lower tier department stores like JC Penney got flanked by TJ Maxx, Ross and Marshalls. After five consecutive years of double digit decline in the department store sector, it’s clear that a vast network of stores carrying tons of merchandise across multiple categories is no longer a draw. Both department stores and the malls in which they’re situated are both struggling to survive as a format.
In the world of office supplies, Office Depot stock lost 76% of its value in the last five years. Stop me if you’ve heard this before: Amazon is stealing their customers. It’s hard to justify going out of your way or putting on pants to buy office staples when Amazon can prime them to your door in two days. To compete, Office Depot realized they had to think beyond the office.
Initial Response
In response to these industry-shifting changes, both retailers are pivoting from their core business models. Office Depot is transitioning from office supply retailer to full-service B2B solutions provider. Businesses still buy office supplies and hardware from Office Depot, but many more now rely on Office Depot for advice on business strategy, marketing, and staffing.
For those who missed it, Office Depot committed to this strategy three years ago when they acquired IT provider, Compucom, for $1B in 2017. To get an idea of how radical a transformation this is, let’s look at the numbers. In Q2 of 2019, B2B business generated over 60 percent of Office Depot’s total revenue. Today, it might be fair to say that Office Depot is a B2B service provider with a retail division.
One of the smartest takes on this move comes from Andrew Lipsman, e-commerce and retail analyst at eMarketer, who told Digiday that Office Depot is leveraging distinct advantages against Amazon in both the retail and B2B arms of their business.“Human capital and adjacent services are absolutely a differentiator against Amazon,” he said. “On the consumer side, it’s one of the ways a retailer like Best Buy is succeeding despite selling the same SKUs as Amazon. Customers want to be well-informed on buying decisions and feel like they’re being taken care of.”Nearly 60 percent of small business owners in the US can drive less than 3 miles to an Office Depot and get face to face, personalized advice. That’s something that Amazon can’t match (yet).
Like Office Depot, Nordstrom is using stores, services and a human touch as an edge against online-only retailers. And they’re doing it with a radically different concept. In December 2019, Retail Dive honored Nordstrom Local as “the Store Concept of the Year”. Nordstrom Local is a small, merchandise-free showroom in which shoppers can get style advice, pick up/return online orders and get tailoring services on site. Some locations offer manicures, in-store bars and unique services like baby stroller-cleaning. Nordstrom reports that in Los Angeles, Nordstrom Local shoppers spend 2.5 times more than shoppers at traditional Nordstrom and and account for 30 percent of online order pick-up
No wonder company president Erik Nordstrom calls the concept Nordstrom’s “model for the future.” However, look closer and you’ll see that this is really a return to Nordstrom’s core value: service.
How Covid Changes the Conversation
Looking at the history of both Nordstrom and Office Depot, the recent restructuring moves are merely aftershocks following seismic shifts years in the making. Nordstrom was already investing in a future with a much smaller footprint. Office Depot was already moving away from retail and towards business services. The pandemic simply accelerated the timing of inevitable store closures, layoffs and cost-cutting moves.
The jury is still out on Nordstrom and Office Depots’ new strategies. What’s clear is that both retailers have a much brighter future with their current plans. If Nordstrom goes down (like their department store peers), they’ll go down swinging, having given themselves a fighting chance with Nordstrom Local.
Ditto for Office Depot and their B2B service pivot. It’s worth noting that the other big player in the space, Staples, also saw the writing on the wall and responded with a strategic shift of their own. Staples is reinventing their stores to offer co-working spaces with podcast studios and events like workshops on mindful organizing. Clearly smart minds in office supply retail decided that continuing with business as usual was not an option.
If these new business models work, as always, copycat competitors will emerge. If and when they do, we look forward to seeing whether Nordstrom and Office Depot will be able to execute better and remain relevant.
—
To learn how retailers are using CB4 AI to stay on top of changing consumer demand, watch this video.
