CHICAGO – After a disappointing start to 2016, Nordstrom is growing its off-price business and trying to woo shoppers with a more inclusive loyalty program.
Nordstrom customers no longer need one of its store credit or debit cards to earn points redeemable for $20 “Nordstrom Notes” through its Nordstrom Rewards loyalty program, the company announced in a news release last week. Members with Nordstrom cards still earn those points faster and get exclusive perks including private shopping parties and early access to sales.
A more inclusive loyalty program is a smart strategy for a company that’s seeing much of its growth come from its off-price business, which tends to attract younger customers who are wary of store credit cards, said Melissa Fruend, partner at LoyaltyOne Consulting.
Overall, Nordstrom’s comparable-store sales fell 1.7 percent compared with the first quarter of 2015. But while Nordstrom, Nordstrom.com and Trunk Club were down 4.3 percent, Nordstrom Rack and sale website HauteLook were up 4.6 percent.
The company has 121 full-line stores compared with 201 off-price and clearance stores and continues to add more Nordstrom Rack locations than Nordstroms.
Twenty-one new Nordstrom Rack locations are expected to open this year. Only three new Nordstrom openings are expected this year.
Investing too heavily in off-price risks diminishing Nordstrom’s cachet if customers start having more interactions with Nordstrom Rack than the full-line department stores or Nordstrom.com, said Craig Johnson, a retail analyst and president of Customer Growth Partners.
But if the retailer gets the balance right, a more inclusive loyalty program could help keep customers in the Nordstrom family of stores when they have a growing number of upscale and off-price options, he said.
“If part of the theory is that you’re trying to introduce people to the brand and over time graduate them to full-line, if you can get them in the loyalty program, track their purchases and stay in touch, you have a much better chance of keeping them,” Johnson said.
But requiring loyalty program members to have a Nordstrom credit or debit card was likely a turnoff for many younger shoppers, Fruend said.
“This is a generation that has a fear of being in debt,” Fruend said. “They keep an arm’s length of store credit cards unless it’s just overwhelmingly compelling.”
They do, however, care about loyalty programs, said Christa Hart, senior managing director with FTI Consulting’s retail and consumer products practice.
About half of shoppers said loyalty programs were very or extremely influential in their purchase decisions, according to an April survey by FTI Consulting. Among people under 35, that figure rose to 58 percent, while only 13 percent of all shoppers said rewards had no effect on their spending, Hart said.
“The sweet spot for loyalty is the younger customer,” Hart said.
Nordstrom aims to add 5 million customers to its loyalty program in the next year, Co-president Blake Nordstrom said during a call with analysts discussing Nordstrom’s first-quarter financial results earlier this month.
“This will drive more sales and trips, and more importantly, it will enable us to better engage with our customers,” he said.
Loyalty program members tend to be better customers than nonmembers. Only about 20 percent of Nordstrom’s customers are loyalty program members, but they account for about 40 percent of the company’s sales, Blake Nordstrom said.
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