nordstrom app case study

Nordstrom’s Innovation Lab – Sunglasses iPad app case study

By applying a healthy dose of Lean and Agile methodologies to projects, the waterfall model of software development has been replaced leading to rapid innovation and learning.

It’s one thing to talk about ‘rapid experimentation’ and ‘validated learning’ as abstract concepts. It’s quite another to see them in action, in a real-world setting. —Eric Ries, Startup Lessons Learned

Nordstrom has put Eric Reis’ statement into practice by creating an ‘innovation lab’. The following video is an interesting case study on Lean UX and what Nordstrom are doing to embrace innovation.

https://www.youtube.com/watch?v=JG-pmctxlLs

Here are some of the highlights from the video:

• One week experiments. Innovation and agility is notoriously difficult for large organisations such as Nordstrom, but by working in one week iterations, the lab is able to break from the usual corporate slowness. In the video above, the team creates a usable product in one week.
• Simple and rapid experimentation. By having two iPads, the team were able to use one for testing, while another was loaded with the latest version of the software, cutting down the time needed to deploy each release.
• Innovation on the shop floor. By being on the shop floor, the lab is able to rapidly prototype and test their ideas with real users: the salespeople and customers. This also allows them to identify an opportunity and execute it extremely quickly. An example is when the team discover iPad screens can’t be seen in portrait when wearing polaroid sunglasses.

Arguably, innovation should flow through the veins of everyone in the company, but where that is unrealistic, or impossible, ‘innovation labs’ such as Nordstrom’s, are helping to extol the virtues of the Lean movement.

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How Nordstrom's 'Flash Mob' Software Team Built An App At Its Flagship Store

Nordstrom is a Fortune 500 that brings in around $9 billion annually, but it knows that it has to act like a startup to stay competitive. So it created an "innovation lab," comprising of a small team under the corporate umbrella charged with creating disruptive products. 

Eric Ries, who just published " The Lean Start-Up ," profiles Nordstrom's lab as a case study on his blog, Startup Lessons Learned . He says the innovation lab classifies as a lean startup because it focuses on developing rapid prototypes while working with customers in real time — in other words, it conducts one big experiment after another. In this case, the lab created an iPad app (to help customers select sunglasses) throughout the course of a week while working on the ground at the Nordstrom flagship store in Seattle. (The innovation lab's lead developer called it "the world's first 'flash build,' or a flash mob where a software team shows up and builds an app in a surprise location.") 

Ries says the Nordstrom team was successful because it pulled this off in a week, embraced "genchi gemutsu" — a concept of the Toyota Production System that translates to "go see for yourself," or "get out of the building" (and go interact with customers), and it did a bunch of "simple, rapid experiments" to develop for iOS. In other words, it acted like a startup, not a Fortune 500 with long product-development cycles. 

Creating an innovation lab is a smart move on Nordstrom's part, as it faces more competition from start-ups and other department stores around the world. 

Check out the video of the Nordstrom innovation team here: 

• Main content

Digital Innovation and Transformation

Mba student perspectives.

• Assignments
• Assignment: Data-driven Value Creation, Value…

Nordstrom Innovation Lab: Rethinking How You Shop

Nordstrom’s Innovation Lab, based in Seattle has been tasked with the job of mining data gathered from Facebook, Pinterest, Twitter and its loyalty card to create curated experiences for customers based off of their preferences and in-store shopping activity.

Nordstrom’s Innovation Lab, based in Seattle has been tasked with the job of mining data gathered from Facebook, Pinterest, Twitter and its loyalty card to create curated experiences for customers based off of their preferences and in-store shopping activity. For example, trending and popular products online can be displayed more prominently in-store to encourage purchases. It gives consumers the benefit of convenience and having their voice heard and ensures that the product that they see is more closely linked to what they actually want. The Innovation Lab is also focused on lean start-up fundamentals by quickly testing products and scraping them if thye are not successful. For example, the Innovation Squad began building a sunglass buying iPad app in their flagship Seattle store where they tested different features with customers that included the ability to take pictures and compare side-by-side photos to decide which pair to buy. They spent over a week in the store building the app and testing each additional feature with customers and sales people to continue iterating based upon feedback. However, in the end they decided the app was not as helpful as they wanted and it was never rolled out across stores. Nordstrom’s approach is interesting because it continually pushes for innovation while not becoming wedded to ideas and instead focusing on creating new apps and options that consumers actually love. The concepts of design thinking, ideation, and pivoting quickly are all on display here.

  Value Creation

Value is created in this model by providing customers with easier ways to interact with and find products that are meaningful to them. It also adds a convenience factor by creating solutions that do not even require customers to be in store. Consumers can also pick and choose which technological innovations are most helpful to them and can opt in to whichever services they find most compelling.  

Value Capture

Nordstrom has been heavily incentivizing consumers to use their Nordstrom credit card so they can better capture who is buying what and in what quantities. They are also able to use technology like WiFi signals to see where people are traveling in the store and how long they are staying. This is a good metric to use as a proxy for what products may be most engaging and which displays may need to be fixed or updated. Another unique value capture play is their texting app, TextStyle. This app allows personal shoppers at Nordstrom to text customers who opt into the program with ideas on what to purchase based on their likes and previous buys. Customers can then purchase the product right then and there by texting back a unique code, thus bypassing lengthy financial input processes since that information is already on file in the store. This allows Nordstrom to capture data from its various technological and personal interactions to up-sell customers and give them opportunities to buy product even when they are not in the store. It will also encourage consumer’s to have higher conversion to purchase ratios because the recommendations are based off of personalized data. Another similar option was PocketStyle where customers could ask personal shoppers questions about anything from makeup tips to fashion dos and don’ts. This is another option that helps consumers find the products they need will also increasing loyalty to the Nordstrom brand due to the personalized aspect of their interaction with store personnel.

Pathways to a Just Digital Future

PocketStyle

http://blogs.wsj.com/cio/2015/05/28/nordstroms-innovation-revamp-leads-to-e-commerce-texting-app/

https://www.umbel.com/blog/retail/13-retail-companies-already-using-data-revolutionize-shopping-experiences/

Student comments on Nordstrom Innovation Lab: Rethinking How You Shop

How does the wifi technology work? Does a customer need to have the app installed and open for Nordstrom to be able to track their movements in the store?

The underlying question on this for me is where leveraging data and technology is actually creating value to customers? or is this being digital for being digital’s sake? Is it actually keeping its clients coming back ?

hey! thanks for the comment. referencing the value creation section above, i think the value to consumers is having 1) curated experiences that leverages past buying data and social media likes and 2) the convenience afforded to customers not having to enter brick and mortar stores to find clothes and accessories. not every technological innovation is going to be a hit, as is seen with the sunglasses app that was never launched, but I do think Nordstrom is at the forefront of trying to test new innovations to see what consumers like and see where the most potential value is created and captured. i would argue that it keeps clients coming back since the data that Nordstrom is able to collect via these avenues makes it so that any future advice / buying suggestions are based upon a heavily data mined list that makes it so it is more likely that that suggestion is in line with the customer’s preferences. this type of knowledge will keep that customer buying at Nordstrom and at the same time allow Nordstrom to keep collecting valuable data.

I don’t know that Nordstrom has really found the true captured value through their apps as they stand. How is what they are doing in terms of tracking loyalty card purchases and page click views very different than other retailers?

Hi Grace, I don’t agree with the premise that this is the same as other retailers are doing given the fact Nordstrom has created an entire Innovation Lab to use that content to create end products for consumers. It is one thing to track data and completely another to use that to attempt to disrupt how you serve consumers. Using the principles of lean startup technology companies, they are continually testing new applications and features to increase convenience and personalization for consumers. Not all of the technology is eventually rolled out because heavy testing may show it is not a hit with consumers, but the underlying difference is that they are constantly innovating and pivoting to create new consumer experiences. It may still be in the early processes at this juncture, however they have clearly shown a commitment to both collecting ever more data about consumers and using it in a unique way. For example, with TextStyle you are increasing consumer engagement while collecting additional information above and beyond anything you would have been able to collect with simply a loyalty card.

You bring up a good point. I think Nordstrom (like most traditional retailers) is in a tricky position-since they are not really ‘redesigning’ and ‘innovating’ on the fashion product itself (that is the job of the manufacturer). They have to come up with ways to ‘innovate’ the in-store experience. I like your points about out-of-store experiences, such as TestStyle and PocketStyle. While I could see these potentially helping to create a customer profile and understanding of ‘who’ their customers are, I wonder how successful the tools are? For the example above, such as makeup, I would think that is a pretty personal decision–to match colors to skin tone, etc. It would be very interesting to track returns and customer satisfaction on orders suggested through these new tools.

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In Retail, Personalized and Connected Experiences Are the Future

Retail giants like Nordstrom are tapping engineers and data scientists to connect web, mobile and in-store experiences.

With a smartphone in every pocket, we’re able to do a lot from just about anywhere. Work, communicate, manage finances, access humanity’s collective knowledge — and shop, shop, shop. That accessibility means traditional retailers, long accustomed to serving people in-store and advertising sales through TV ads, have had to adapt to this new shop-from-anywhere culture or drift into obscurity. 

Take Nordstrom .  The company operates 380 stores, ranging from its high-fashion department stores to styling services and off-price outlets. In recent years, the company’s made big investments in its online presence to complement innovations in how it thinks about the physical store experience. 

4 Ways Retailers Are Changing With the Times

• Gap, Nordstrom, JCPenney and Macy’s resell second-hand clothing
• Macy’s, JCPenney and Sears have closed large department stores in favor of smaller locations and online sales
• Adidas and Nike have used AR to launch new products
• Some brands are creating stylist consultation locations — like Nordstrom Local, which comes complete with wine, manicures, coffee and online pickup services

“One of the things that I find interesting is the bridge between the physical — where we’re delivering products to customers — and the digital,” said Jacob Ulrich, a software engineer supporting the Seattle retailer’s iOS app. “It’s not just about solving an app problem — it goes much deeper. You’ve got to consider distribution and inventory counts, for example.”

Nordstrom engineers have shipped a number of digital products over the years, including an app feature that alerts customers when an item in their wish list is restocked or marked down. Ulrich spent the last six months working on that project. Meanwhile, veteran developer Shangfan Tu worked as an engineering manager on the team that put together Nordstrom’s “Looks” feature, which combines stylists’ expertise with customer preferences to create complete outfits digitally. Together, the two projects offer a glimpse into how traditional retailers like Nordstrom are embracing tech and the role engineers play in the process.  

Creating the Looks product meant blending the expert eye of Nordstrom’s stylists with the individual preferences of its customers. In this process, stylists use software to design various outfits for casual, formal and other occasions. Within the framework of a given look, customer preferences and inventory availability dictate individual variations. 

“For example, we have some looks that include T-shirts,” Tu said. “But if that particular shirt is sold out and we want to maintain the look, we use visual similarity defined by computer vision to find and substitute similar products.”

Users provide input by viewing, liking and interacting with different looks, which Nordstrom follows using streaming platforms. 

“When they add an item to their cart and make the purchase, we are actively listening to those activities online,” Tu said. “Then those activities sync to our machine learning algorithms to help train them and optimize those recommendations.”

While individual customer preferences and underlying technology plays an important role in this feature, Tu pointed out that it mainly relies on Nordstrom’s stylists to guide its recommendations. The company has a fleet of fashionistas on staff, and building a product around their experience plays to the retailer’s strengths.

“We have a lot of human expertise to leverage,” she said. “If you’re training the machine learning to style, these stylists are the main people we want to learn from. Their input is pretty much how we train our machine learning.”

After almost two years on Looks, Tu recently moved to Nordstrom’s “personalization and recommendations” team, supporting the company’s webpage and mobile app. Her new team provides personalized product recommendations based on how customers engage with different products online. 

“We have to bring this personalization system into our UI to track customer activities and offer our recommendations, and we have machine learning that can adjust based on customers’ preference changes,” she said. “The next step is to go deeper into the model and find a more scalable way to do personalization.”

It’s one of the most frustrating phrases in e-commerce: “That item is out of stock.”

And it’s not much fun for retailers, either. The work Tu and her team do on delivering outfit recommendations won’t help boost sales if the items they recommended aren’t in the company’s inventory in the first place. 

That’s where Ulrich’s iOS app team comes in — the team who recently shipped the feature for opting in to wish list notifications.

“One of the big considerations is coordination across teams,” Ulrich said. “There’s a lot of data that we need to enable this feature.”

Those data sets include the items a customer is interested in, when a SKU might change, when a price drop occurs and when an item comes back in stock. To track them all, Nordstrom uses a number of event-streaming technologies, including Apache’s Kafka Streams. 

“The main challenge was figuring out how to get the data feed internally, and in an efficient way,” Ulrich said. “Our goal was to get something out there that people could easily toggle on and get those notifications in real time.” 

Ulrich said his team was cognizant of the fact that, for users who opted in, this feature would introduce a new flurry of alerts in a world chock-full of notifications. The team debated quiet hours, or introducing certain periods of time when notifications would come through. 

“One type of future development will be to leverage customer activity and data in the store, and have that data available to train our model as well.”

However, prices can drop and shipments can arrive at all hours of the day — and that’s before considering odd hours when users might be online shopping. 

“We ultimately decided that it’s a real-time event,” Ulrich said. “Should we have some kind of quiet-hour window in which you don’t get the notification, then there’s always a problem of stale data. If we delay those types of things, maybe the price has gone back up by the time they see it.”

T he company is also exploring more ways to bridge the gap between users’ screens and Nordstrom’s physical locations.

“We want to branch those and create a connected experience,” Tu said. “One type of future development will be to leverage customer activity and data in the store, and have that data available to train our model as well.”

Recent Retail Articles

November 3, 2023

Two Nordstrom Case Studies from The DevOps Handbook through the Lens of Slowification, Simplification, Amplification

The goal of science is to explain the most amount of observable phenomena with the fewest number of principles, confirm deeply held intuitions, and reveal surprising insights. This is known as the principle of parsimony .

With Wiring the Winning Organization , we present a very simple and parsimonious theory of performance based on the three mechanisms of slowification, simplification, and amplification. I’ve been continually amazed at how every transformation can be described using these three mechanism:

• Slowify (i.e., “slow down to speed up”) to make it easier and more forgiving to solve problems.
• Simplify (i.e., partition problems in time and space) to split apart large problems to make them easier to solve, most likely in parallel.
• Amplify (among other things, weak signals of failure) to make it obvious that problems need to be solved and that they were successfully resolved.

Over the next several months, I’ll be showing examples of these mechanisms at work. I’ll be picking some of my favorite case studies from The DevOps Handbook and describing them through the lens of slowification, simplification, and amplification.

In this post, I’ll present two case studies from Nordstrom that appeared in The DevOps Handbook , 2nd Edition, followed by specific examples of the three mechanisms from Wiring the Winning Organization .

(NOTE: We used GPT-4 to halve the word count down from the original 1,000+-word case study. Astonishingly, the examples of the three mechanisms were also generated by GPT-4. To me, the fact that GPT-4 can do this so well is strong evidence of the correctness and expressiveness of our model. In other words, we can explain many observable phenomena using fewer words!)

Abridged Nordstrom Case Study 1: Digital Transformation 

Let us examine how the Nordstrom team started their DevOps transformation initiative in 2013, which Courtney Kissler, their VP of E-Commerce and Store Technologies, described at the DevOps Enterprise Summit in 2014 and 2015.

Founded in 1901, Nordstrom is a leading fashion retailer focused on delivering the best possible shopping experience to its customers. In 2015, Nordstrom had annual revenue of $13.5 billion.

The stage for Nordstrom’s DevOps journey was likely set in 2011 during one of their annual board of directors meetings… The strategic topics discussed were the need for online revenue growth. They studied the plight of Blockbuster, Borders, and Barnes & Noble… These organizations were clearly at risk of losing their position in the marketplace or even going out of business entirely…

In 2011, the Nordstrom technology organization was very much optimized for cost—It had outsourced many of their technology functions, and had an annual planning cycle with large batch, “waterfall” software releases…

Kissler and the Nordstrom technology management team had to decide where to start their initial transformation efforts… They focused on three areas: the customer mobile application, their in-store restaurant systems, and their digital properties…

The Nordstrom mobile application had experienced an inauspicious start…any fixes to the application would have to wait months to reach the customer.

Their first goal was to enable faster or on-demand releases… They created a product team that was solely dedicated to supporting the mobile application… They had the goal of enabling the mobile application team to be able to independently implement, test, and deliver value to customers…

Furthermore, the mobile application team moved from planning once per year to a continuous planning process… Over the following year, they eliminated testing as a separate phase of work; instead, they integrated it into everyone’s daily work… They doubled the features being delivered per month and halved the number of defects…

Their second area of focus was the systems supporting their in-store Café Bistro restaurants… In 2013, Nordstrom had completed eleven “restaurant re-concepts”…

As Kissler stated, “One of our business leaders suggested that we triple our team size to handle these new demands, but I proposed that we had to stop throwing more bodies at the problem and instead improve the way we worked.”… They were able to reduce code deployment lead times by 60% and reduce the number of production incidents 60-90%.

These successes gave the teams confidence that DevOps principles and practices were applicable to a wide variety of value streams. 

In 2015, Kissler said that in order for the selling or customer-facing technology organization to enable the business to meet their goals, “we needed to increase productivity in all our technology value streams, not just in a few…”

She continued, “This is an audacious challenge… Our first target condition requires us to help all our teams measure, make [the work] visible, and perform experiments to start reducing their process times, iteration by iteration.”… From a high-level perspective, we believe that techniques such as value stream mapping, reducing our batch sizes toward single-piece flow, as well as using continuous delivery and microservices will get us to our desired state…

Nordstrom’s Transformation Viewed through the Three Mechanisms of Wiring the Winning Organization

Now that we have reviewed this case study, let’s see how Nordstrom moved from the danger zone to the winning zone using the three mechanisms of slowification, simplification, and amplification introduced in Wiring the Winning Organization. 

Slowification

Nordstrom shifted from a fast-paced, cost-optimized approach to a more deliberate focus on speed and agility. This shift was triggered by the need for online revenue growth and the realization that traditional retail models were at risk.

They decided to focus on specific areas of the business to experiment and learn rather than causing upheaval in the whole system. This allowed for more deliberate planning and practice. (In other words, they created a model line—a small but coherent unit in which they could more safely experiment and change.)

They targeted the customer mobile application, in-store restaurant systems, and digital properties for initial transformation efforts.

Simplification

Nordstrom simplified their approach by focusing on specific areas of the business for their initial transformation efforts. This made the complex task of transformation more manageable.

They created a dedicated product team for the mobile application, enabling the team to independently implement, test, and deliver value to the customer. This reduced the need for coordination with other teams.

They moved from an annual planning cycle to a continuous planning process, simplifying the prioritization of work based on customer needs.

Amplification

Nordstrom amplified the issues with their mobile application by acknowledging the negative reviews and the inflexible structure that allowed only biannual updates.

They identified the need for faster releases and quicker responses to customer feedback, which highlighted the issues with their existing processes.

Their focus on reducing code deployment lead times and reducing the number of production incidents in their in-store Café Bistro restaurants also amplified the issues in these areas and led to significant improvements.

Abridged Nordstrom Case Study 2: Experience with Value Stream Mapping

In the previous case study, we learned about the DevOps transformation led by Courtney Kissler and the team at Nordstrom. Over the years, they have learned that one of the most efficient ways to start improving any value stream is to conduct a workshop with all the major stakeholders and perform a value stream mapping exercise—a process designed to help capture all the steps required to create value.

Kissler’s favorite example of the valuable and unexpected insights that can come from value stream mapping is when her team tried to improve the long lead times associated with requests going through the Cosmetics Business Office application, a COBOL mainframe application that supported all the floor and department managers of their in-store beauty and cosmetic departments. This application allowed department managers to register new salespeople for various product lines carried in their stores so they could track sales commissions, enable vendor rebates, and so forth.

As Kissler explained, “I knew this particular mainframe application well—earlier in my career I supported this technology team, so I know firsthand that for nearly a decade, during each annual planning cycle, we would debate about how we needed to get this application off the mainframe. Of course, like in most organizations, even when there was full management support, we never seemed to get around to migrating it.

“My team wanted to conduct a value stream mapping exercise to determine whether the COBOL application really was the problem, or maybe there was a larger problem that we needed to address. They conducted a workshop that assembled everyone with any accountability for delivering value to our internal customers, including our business partners, the mainframe team, the shared service teams, and so forth.

“What they discovered was that when department managers were submitting the ‘product line assignment’ request form, we were asking them for an employee number, which they didn’t have—so they would either leave it blank or put in something like ‘I don’t know.’ Worse, in order to fill out the form, department managers would have to inconveniently leave the store floor in order to use a PC in the back office. The end result was all this wasted time, with work bouncing back and forth in the process.”

During the mapping workshop, the participants conducted several experiments, including deleting the employee number field in the form and letting another department get that information in a downstream step. These experiments, conducted with the help of department managers, showed a four-day reduction in processing time. The team later replaced the PC application with an iPad application that allowed managers to submit the necessary information without leaving the store floor, and the processing time was further reduced to seconds.

Kissler said proudly, “With those amazing improvements, all the demands to get this application off the mainframe disappeared. Furthermore, other business leaders took notice and started coming to us with a whole list of further experiments they wanted to conduct with us in their own organizations. Everyone in the business and technology teams was excited by the outcome because [it] solved a real business problem, and, most importantly, they learned something in the process.”

Case Study Viewed through the Three Mechanisms of Wiring the Winning Organization

Nordstrom decided to slow down and conduct a value stream mapping exercise to determine whether the COBOL application was the problem or if there was a larger issue that needed to be addressed. This involved assembling everyone with any accountability for delivering value to their internal customers, including business partners, the mainframe team, and the shared service teams. The process allowed them to identify inefficiencies in the process, such as department managers having to leave the store floor to fill out a form in the back office.

The value stream mapping exercise simplified the problem by breaking it down and identifying the root cause. This allowed them to isolate, diagnose, and address each issue in the order it occurred in the process, simplifying the problem-solving process.

They discovered that the problem was not the COBOL application itself but the process of submitting the “product line assignment” request form. By identifying this, they were able to focus on simplifying and improving this process rather than attempting to migrate the entire application off the mainframe.

The linearization of the process helped the team to break down the complex problem into simpler, more manageable components. This made it easier to identify and address the root cause of the problem, leading to more effective solutions.

The issue with the “product line assignment” request form was amplified when they realized that department managers were being asked for an employee number they didn’t have, leading to incomplete forms and wasted time.

The need to leave the store floor to fill out the form was also identified as a significant inconvenience and inefficiency in the process.

By amplifying these issues, they were able to address them directly and improve the overall process.

Stay tuned for more case studies viewed through the lens of slowification, simplification, and amplification.

Wiring the Winning Organization comes out on November 21, 2023. Pre-order your copy at your favorite book retailer.

Gene Kim is a Wall Street Journal bestselling author, researcher, and multiple award-winning CTO. He has been studying high-performing technology organizations since 1999 and was the founder and CTO of Tripwire for 13 years. He is the author of six books, The Unicorn Project (2019), and co-author of the Shingo Publication Award winning Accelerate (2018), The DevOps Handbook (2016), and The Phoenix Project (2013). Since 2014, he has been the founder and organizer of DevOps Enterprise Summit, studying the technology transformations of large, complex organizations.

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Nordstrom Case Study: How You Can Copy Nordstrom’s Retail Success

American upscale fashion retailer Nordstrom is outperforming every other retail company. Nordstrom’s success is built on excellent customer service. But is its employee handbook really only a single line long, as the widespread legend goes? We think there is more to it.

Retail Business Profile

Nordstrom’s success story is remarkably unswerving. Its sales are increasing every year, coming from $US 8 Billion in 2009 to $US 13 Billion in 2014. It has long been ranked around #250 in Fortune 50.

Nordstrom is said to have the highest sales per square foot performance in the retail industry.

It is listed on NYSE, with a market capitalization of almost $US 10 Billion.

Nordstrom, Inc. was founded more than century ago, in 1901. John W. Nordstrom and Carl F. Wallin started the company, headquartered in Seattle, Washington, as a shoe retailer. It has since expanded its inventory to include clothing, accessories, handbags, jewellery, cosmetics, and fragrances.

Some Nordstrom stores have a wedding and home furnishing departments, too.

Altogether, there are 323 stores operating in 39 states, including 119 full-line stores and 194 Nordstrom Racks, the latter expanding rapidly.

Despite its age, the company has adopted the innovative multichannel retail business model. It serves its customers through Nordstrom.com , the newly developed e-commerce site nordstromrack.com, and its online private sale site, HauteLook. For now, the online sales make 3% of total sales.

What to Say in Customer Service Handbook?

For many years, Nordstrom’s new employees were given a copy of the Nordstrom’s Employee Handbook, a single 5-by-8-inch (130 mm × 200 mm) grey card containing 75 words.

Nowadays retailer’s handbook has been streamlined to the company’s “One Rule”: “Use good judgment in all situations.”

Nordstrom is very focused on hiring nice, capable people whose judgment can be trusted to represent the company. This reflects in favourable salaries and working conditions, too.

Besides great financial results, the company has been present in Fortune’s “Best Companies to Work For” Top 100 for years, ranking around 90th .

While the “One Rule” truly exists, there actually are many rules and standards that are communicated by overseeing personnel or in other documentation.

A Nordstrom employee has listed some of these statistics:

– A Nordstrom salesperson rarely points. If you have a question about where something is located, they walk you there.

– salespeople are taught to walk your bagged purchased around the counter to you vs. just handing it across the counter., – salespeople can offer to ring up your purchase without you ever having to stand in line. this particularly happens a lot in the shoe departments., – departments are generally trained to answer the phone on no more than the 2nd ring..

How to Build Successful Customer Service?

As written by Micah Solomon in Forbes , Nordstrom and every other great organization have standards. Yes, the employees are encouraged to be flexible and adaptive, but there indeed are additional guidelines and internal, the codified knowledge that support the employees and multiply the power of their “best judgment.”

“Employee autonomy — “ using your best judgment ” — is extremely important to delivering Nordstrom-quality customer service,” Solomon writes. “And it crucially comes into play on the more complex and unpredictable tasks, of which there are many: selecting items for a customer’s wardrobe makeover, walking the line between honesty and not insulting a customer when she’s trying on clothes, finding ways to go the extra mile for a customer.”

Mr. Solomon provides this highly illustrative story: “For example, do you know who’s legally responsible if a common carrier leaves your Nordstrom delivery in the rain and your $200 shoes are ruined? Well, the responsible party might be you or it might be the trucking company, but it’s absolutely not Nordstrom. Yet, when this happened to me, not for an instant did my salesperson /…/ consider saying “You need to file a claim with the trucking company.”

The example ends with a pleasant and quick solution for Mr. Solomon:

” She instead told me, without hesitation, the following: “ I’m so incredibly sorry that happened, and I’m bringing over a brand new pair of shoes–will you be home in forty-five minutes? “”

This is actually a policy, not an initiative by the salesperson. Nordstrom will take back any merchandise people bring back, no questions asked.

In any Nordstrom retail store, you can easily notice that employees are clearly empowered, but it’s equally clear that Nordstrom is running a really tight — maybe the tightest there is — retail ship. Nordstrom-level customer experience is impossible to accomplish solely by empowering employees. There are standards and training, where the employees work with examples and model cases.

How to Build Business Standards?

There’s a refresher on standards in the Forbes article by Mr. Solomon: Standards help you ensure that each aspect of your service at your company reflects the best way your company knows to deliver it.

The summary of each standard should include three points:

1. Why the service is of value (why we’re doing this in the first place)

2. The emotional response the customer should feel

3. The expected method for accomplishing the service in question.

It’s important to use this exact formulation so that your employees — your empowered employees — know when and why it may be appropriate to deviate from the service delivery method you have recommended. “Most of all, it’s important to realize that standards and employee autonomy aren’t conflicting forces, ” Mr. Solomon concludes. “You need autonomy and you need standards, and the two need to work in harmony.”

Are there Other Keys to Retail Success?

Sure it cannot be just about customer management and employee policy. Business Insider lists 3 key factors that help Nordstrom to beat retailers from Macy’s to T.J. Maxx. Great customer service, i.e. factor #1 is what we know the best and already researched.

Besides that, Business Insider points of the retail outlet business. According to the company’s 2014 Investor Presentation, Nordstrom Rack that has grown from 17% to 24% of company’s operations in five years. Consider that Nordstrom has increased sales from $US 8 Billion in 2009 to $US 13 Billion in 2014, so the Nordstrom Rack is a huge cash machine for the company.

There is only a 10-20% overlap between Nordstrom Rack customers and the high-end department store, meaning that plenty of people are still paying full-price too. The Nordstrom Racks are a small operation that can be set up quickly. Nordstrom has opened more than 70 Rack locations since 2010 and has plans to build dozens more.

There’s obviously a great deal of supply chain optimization going on Nordstrom’s back office, provided by enterprise resource management software. Inventory management, central price lists, product information management, customer relations software, and integrated POS software are all essential tools for getting these results.

Retail Outlets to Reach Youth

Robin Lewis, CEO of The Robin Report, points out that Nordstrom has solved one of the biggest problems facing retailers: reaching millennial customers.

“The outlet business gives Nordstrom exposure to young customers who are seeking a deal and otherwise wouldn’t be shopping there,” Lewis told Business Insider. “The company believes that the younger customer will migrate into the full-line stores as they grow older.”

While Lewis believes there is a risk of the outlet business diluting the brand’s image, he says that brands like Nordstrom that offer a variety of brands are less at-risk than name brands like Michael Kors.

Omni-Channel Retail Experience

Part of excellent customer service to not to limit, where and when the customer can shop. While some retailers see online commerce as a threat, companies like Nordstrom are a proof that online and offline retail business can co-exists, and even benefit each other.

Nordstrom is apparently determined to be amongst the world’s top omnichannel retailers. Contemporary retail management software is perfectly geared to solving any supply chain problems. Evidently, omnichannel retail business does not mean just a possibility to shop both online and offline. A strong customer relations management backbone is vitally important, so Nordstrom can provide its notoriously great customer service.

“This company is at the forefront of e-commerce and omnichannel retail,” Robin Lewis has said. Nordstrom is innovating the shopping experience: recently made it possible to instantly buy the items featured on Instagram.

Employees also merchandise stores using input from its Pinterest page. Items that are popular on the social media site are featured more prominently on the sales floor.

Nordstrom has also aggressively invested in e-commerce, investing in men’s brand’s Bonobos and Trunk Club and its own flash-sale site, Hautelook.

“Nordstrom has spent more than a billion dollars investing in this aspect of the business, and it’s paying off,” Edward Hertzman, founder and publisher of retail publication Sourcing Journal, has told.

Conclusions

To sum up, how the retail giant has maintained its success story, we should detach retail policy and retail management tools. Nordstrom’s retail business policy is focused on their clients.

Their goal is to provide excellent customer service, so people not only buy more at one time, but come always back for more. For this, a set of internal standards is set, like the no-questions-asked return policy. It is true that Nordstrom’s main customer service handbook is virtually a one-liner, but other methods, notably training are used to communicate the rules to employees. Also, employees need to be more capable, and are rewarded accordingly.

Below the clearly visible retail customer service layer, there are retail management software tools. It would be impossible to personalize the experience without proper Customer Relations Management software.

The use of retail management software does not stop with CRM software.

As the company has big full-price stores, small retail outlets, discount outlets, and online channels, advanced Inventory Management software is inevitable. You have to match your supply and demand and be able to handle prices across different sales channels.

As pointed out, Nordstrom exploits different retail models and several trademarks, all of which have a similar set of suppliers. To manage the wide range of clothing and accessories, the company needs centralized software for Product Information Management.

Being an innovator in omnichannel retailing, Nordstrom has naturally complex, yet easily manageable Stock and Point of Sales (POS) system that support simultaneous online and offline retail experience.

So, to put it short, to copy the success story of Nordstrom, you need to build your business policy around customer service, and start using a retail management software system that is rich in features, integrates smoothly and facilitates growth.

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Case study: Finding Millions in Potential Savings in a Tough Retail Climate

Nordstrom wanted to increase the efficiency and speed of its technology operations, which includes the Nordstrom.com e-commerce site. At the same time, Nordstrom Technology was looking for ways to tighten its technology operational costs.

After embracing a DevOps transformation and launching a continuous integration/continuous deployment (CI/CD) project four years ago, the company reduced its deployment time from three months to 30 minutes. But they wanted to go even faster across environments, so they began their cloud native journey, adopting Docker containers orchestrated with Kubernetes .

Nordstrom Technology developers using Kubernetes now deploy faster and can "just focus on writing applications," says Dhawal Patel, a senior engineer on the team building a Kubernetes enterprise platform for Nordstrom. Furthermore, the team has increased Ops efficiency, improving CPU utilization from 5x to 12x depending on the workload. "We run thousands of virtual machines (VMs), but aren't effectively using all those resources," says Patel. "With Kubernetes, without even trying to make our cluster efficient, we are currently at a 10x increase."

When Dhawal Patel joined Nordstrom five years ago as an application developer for the retailer's website, he realized there was an opportunity to help speed up development cycles.

In those early DevOps days, Nordstrom Technology still followed a traditional model of silo teams and functions. "As a developer, I was spending more time fixing environments than writing code and adding value to business," Patel says. "I was passionate about that—so I was given the opportunity to help fix it."

The company was eager to move faster, too, and in 2013 launched the first continuous integration/continuous deployment (CI/CD) project. That project was the first step in Nordstrom's cloud native journey.

Dev and Ops team members built a CI/CD pipeline, working with the company's servers on premise. The team chose Chef , and wrote cookbooks that automated virtual IP creation, servers, and load balancing. "After we completed the project, deployment went from three months to 30 minutes," says Patel. "We still had multiple environments—dev, test, staging, then production—so with each environment running the Chef cookbooks, it took 30 minutes. It was a huge achievement at that point."

But new environments still took too long to turn up, so the next step was working in the cloud. Today, Nordstrom Technology has built an enterprise platform that allows the company's 1,500 developers to deploy applications running as Docker containers in the cloud, orchestrated with Kubernetes.

"The cloud provided faster access to resources, because it took weeks for us to get a virtual machine (VM) on premises," says Patel. "But now we can do the same thing in only five minutes."

Nordstrom's first foray into scheduling containers on a cluster was a homegrown system based on CoreOS fleet. They began doing a few proofs of concept projects with that system until Kubernetes 1.0 was released when they made the switch. "We made a bet that Kubernetes was going to take off, informed by early indicators of community support and project velocity, so we rebuilt our system with Kubernetes at the core," says Marius Grigoriu, Sr. Manager of the Kubernetes team at Nordstrom.

While Kubernetes is often thought as a platform for microservices, the first application to launch on Kubernetes in a critical production role at Nordstrom was Jira. "It was not the ideal microservice we were hoping to get as our first application," Patel admits, "but the team that was working on it was really passionate about Docker and Kubernetes, and they wanted to try it out. They had their application running on premises, and wanted to move it to Kubernetes."

The benefits were immediate for the teams that came on board. "Teams running on our Kubernetes cluster loved the fact that they had fewer issues to worry about. They didn't need to manage infrastructure or operating systems," says Grigoriu. "Early adopters loved the declarative nature of Kubernetes. They loved the reduced surface area they had to deal with."

To support these early adopters, Patel's team began growing the cluster and building production-grade services. "We integrated with Prometheus for monitoring, with a Grafana front end; we used Fluentd to push logs to Elasticsearch , so that gives us log aggregation," says Patel. The team also added dozens of open-source components, including CNCF projects and has made contributions to Kubernetes, Terraform, and kube2iam.

There are now more than 60 development teams running Kubernetes in Nordstrom Technology, and as success stories have popped up, more teams have gotten on board. "Our initial customer base, the ones who were willing to try this out, are now going and evangelizing to the next set of users," says Patel. "One early adopter had Docker containers and he was not sure how to run it in production. We sat with him and within 15 minutes we deployed it in production. He thought it was amazing, and more people in his org started coming in."

For Nordstrom Technology, going cloud-native has vastly improved development and operational efficiency. The developers using Kubernetes now deploy faster and can focus on building value in their applications. One such team started with a 25-minute merge to deploy by launching virtual machines in the cloud. Switching to Kubernetes was a 5x speedup in their process, improving their merge to deploy time to 5 minutes.

Speed is great, and easily demonstrated, but perhaps the bigger impact lies in the operational efficiency. "We run thousands of VMs on AWS, and their overall average CPU utilization is about four percent," says Patel. "With Kubernetes, without even trying to make our cluster efficient, we are currently at 40 percent CPU utilization—a 10x increase. We are running 2600+ customer pods that would have been 2600+ VMs if they had gone directly to the cloud. We are running them on 40 VMs now, so that's a huge reduction in operational overhead."

Nordstrom Technology is also exploring running Kubernetes on bare metal on premises. "If we can build an on-premises Kubernetes cluster," says Patel, "we could bring the power of cloud to provision resources fast on-premises. Then for the developer, their interface is Kubernetes; they might not even realize or care that their services are now deployed on premises because they're only working with Kubernetes."

For that reason, Patel is eagerly following Kubernetes' development of multi-cluster capabilities. "With cluster federation, we can have our on-premise as the primary cluster and the cloud as a secondary burstable cluster," he says. "So, when there is an anniversary sale or Black Friday sale, and we need more containers - we can go to the cloud."

That kind of possibility—as well as the impact that Grigoriu and Patel's team has already delivered using Kubernetes—is what led Nordstrom on its cloud native journey in the first place. "The way the retail environment is today, we are trying to build responsiveness and flexibility where we can," says Grigoriu. "Kubernetes makes it easy to: bring efficiency to both the Dev and Ops side of the equation. It's a win-win."

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15.1: Building a Customer Service Culture: The Case of Nordstrom

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Nordstrom Inc. (NYSE: JWN) is a Seattle-based department store rivaling the likes of Saks Fifth Avenue, Neiman Marcus, and Bloomingdale’s. Nordstrom is a Hall of Fame member of Fortune magazine’s “100 Best Companies to Work For” list, including being ranked 34th in 2008. Nordstrom is known for its quality apparel, upscale environment, and generous employee rewards. However, what Nordstrom is most famous for is its delivery of customer service above and beyond the norms of the retail industry. Stories about Nordstrom service abound. For example, according to one story the company confirms, in 1975 Nordstrom moved into a new location that had formerly been a tire store. A customer brought a set of tires into the store to return them. Without a word about the mix-up, the tires were accepted, and the customer was fully refunded the purchase price. In a different story, a customer tried on several pairs of shoes but failed to find the right combination of size and color. As she was about to leave, the clerk called other Nordstrom stores but could only locate the right pair at Macy’s, a nearby competitor. The clerk had Macy’s ship the shoes to the customer’s home at Nordstrom’s expense. In a third story, a customer describes wandering into a Portland, Oregon, Nordstrom looking for an Armani tuxedo for his daughter’s wedding. The sales associate took his measurements just in case one was found. The next day, the customer got a phone call, informing him that the tux was available. When pressed, she revealed that using her connections she found one in New York, had it put on a truck destined to Chicago, and dispatched someone to meet the truck in Chicago at a rest stop. The next day she shipped the tux to the customer’s address, and the customer found that the tux had already been altered for his measurements and was ready to wear. What is even more impressive about this story is that Nordstrom does not sell Armani tuxedos.

How does Nordstrom persist in creating these stories? If you guessed that they have a large number of rules and regulations designed to emphasize quality in customer service, you’d be wrong. In fact, the company gives employees a 5½-inch by 7½-inch card as the employee handbook. On one side of the card, the company welcomes employees to Nordstrom and states that their number one goal is to provide outstanding customer service, and for this they have only one rule. On the other side of the card, the single rule is stated: “Use good judgment in all situations.” By leaving it in the hands of Nordstrom associates, the company seems to have empowered employees who deliver customer service heroics every day.

Based on information from Chatman, J. A., & Eunyoung Cha, S. (2003). Leading by leveraging culture. California Management Review, 45 , 19–34; McCarthy, P. D., & Spector, R. (2005). The Nordstrom way to customer service excellence: A handbook for implementing great service in your organization . Hoboken, NJ: John Wiley; Pfeffer, J. (2005). Producing sustainable competitive advantage through the effective management of people. Academy of Management Executive, 19 , 95–106.

Discussion Questions

• Describe Nordstrom’s organizational culture.
• Despite the low wages and long hours that are typical of retail employment, Nordstrom still has the ability to motivate its staff to exhibit exemplary customer service. How might this be explained?
• What suggestions would you give Nordstrom for maintaining and evolving the organizational culture that has contributed to its success?
• What type of organizational culture do you view as most important?
• What attributes of Nordstrom’s culture do you find most appealing?

Nordstrom SWOT Analysis

Before we dive deep into the SWOT analysis, let us get the business overview of Nordstrom. Nordstrom, Inc. is a leading fashion retailer based in the United States, offering a wide range of products, including clothing, shoes, accessories, and beauty items.

Founded in 1901 by John W. Nordstrom and Carl F. Wallin as a small shoe store in Seattle, Washington, the company has since expanded significantly. It now operates over 350 stores across the US, Canada, and Puerto Rico, as well as an online presence.

Nordstrom’s primary focus is on providing high customer service and offering an extensive assortment of products from well-known and emerging brands. The company operates through several retail formats, including:

• Full-Line Stores: These are traditional department stores offering a vast selection of products, ranging from designer wear to affordable fashion, cosmetics, accessories, and home goods.
• Nordstrom Rack: A discounted off-price retail chain offering customers significant savings on designer and branded products. Nordstrom Rack caters to price-conscious consumers seeking high-quality products at reduced prices.
• Trunk Club: A personalized styling service that provides curated, handpicked clothing selections based on individual customer preferences. Customers can choose to receive shipments periodically or schedule appointments with a stylist.
• Jeffrey: A luxury boutique chain acquired by Nordstrom in 2005, offering high-end designer products in a curated and personalized shopping environment.
• Online and Mobile Channels: Nordstrom operates an e-commerce platform through its websites, Nordstrom.com and Nordstromrack.com, as well as mobile applications, allowing customers to shop from anywhere and offering a seamless omnichannel experience.

Financial Performance :  For the fiscal year ended January 28, 2023, net earnings were $245 million, and diluted EPS was $1.51, with EBIT of $465 million, or 3.1 percent of sales. Full-year revenue for fiscal 2022, including retail sales and credit card revenues, increased 5.0 percent compared with fiscal 2021. GMV increased by 5.0 percent in fiscal 2022 compared to 2021.

Here is a SWOT analysis for  Nordstrom :

A SWOT analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats of a business, project, or individual. It involves identifying the internal and external factors that can affect a venture’s success or failure and analyzing them to develop a strategic plan. In this article, we do a SWOT Analysis of Nordstrom.

SWOT Analysis: Meaning, Importance, and Examples

• Strong brand reputation : Nordstrom has built a solid reputation for offering high-quality products and exceptional customer service. The company has consistently received accolades for its dedication to customer satisfaction and its ability to provide a seamless and personalized shopping experience.
• Diverse product offering : The company offers a wide range of products, from luxury brands to more affordable options, catering to a broad customer base with different preferences and budgets. This diverse product offering allows Nordstrom to attract various customer segments and maintain a loyal customer base.
• Multiple retail formats : Nordstrom operates through several retail formats, including full-line stores, Nordstrom Rack, Trunk Club, and Jeffrey. This diversification allows the company to cater to different customer needs and preferences while minimizing the impact of a decline in a single retail segment.
• Omnichannel presence : Nordstrom has invested in its digital capabilities, resulting in a solid online and mobile presence. The company’s seamless integration of brick-and-mortar stores with its online platforms enhances the customer experience and allows it to reach a wider audience, catering to their shopping preferences.
• Innovative initiatives : Nordstrom is committed to staying ahead of the curve regarding technology and customer experience. The company has implemented several innovative initiatives, such as using AI-powered chatbots, virtual stylists, and personalized styling services like Trunk Club, to create a unique and engaging shopping experience for its customers.
• Employee culture : Nordstrom places a strong emphasis on employee satisfaction and empowerment. The company is known for its positive work environment and offers employees training, development opportunities, and competitive benefits. A motivated workforce allows Nordstrom to maintain its high level of customer service.
• Strategic partnerships and acquisitions : Nordstrom has pursued strategic partnerships and acquisitions to expand its product offering, enhance its customer experience, and stay competitive in the retail landscape. For example, the acquisition of Trunk Club and the partnership with Rent the Runway have allowed the company to diversify its services and cater to new customer segments.

• Dependence on the US market : Nordstrom derives a significant portion of its revenue from the US market, making it vulnerable to economic fluctuations and changes in consumer spending habits within the country. This geographic concentration could impact the company’s growth and profitability during economic downturns.
• Competition : The retail industry is highly competitive, with numerous players offering similar products at various prices. Nordstrom faces competition from traditional department stores, specialty retailers, discount stores, and e-commerce platforms. As a result, the company must constantly innovate and adapt to maintain its market position and stay relevant to consumers.
• Slow international expansion : Compared to some of its competitors, Nordstrom’s global presence is relatively limited, with a few stores in Canada and none in other countries. This slow international expansion limits the company’s growth potential and exposes it to risks associated with a heavy reliance on the US market.
• High operating costs : Operating large brick-and-mortar stores, particularly full-line department stores, can be expensive due to rent, utilities, and staffing costs. As a result, Nordstrom’s profitability may be impacted by these high operating costs, especially if sales decline or there is a shift toward online shopping.
• Vulnerability to fashion trends : As a fashion retailer, Nordstrom is susceptible to consumers’ changing tastes and preferences. If the company fails to predict or quickly adapt to new fashion trends accurately, it may experience a decline in sales and customer loyalty.
• Challenges in the off-price segment : Nordstrom Rack faces intense competition from other off-price retailers like TJ Maxx, Ross, and Burlington. Ensuring a consistent flow of high-quality inventory at discounted prices can be challenging, and any shortcomings in this area could negatively impact the company’s reputation and sales.
• Supply chain risks : Nordstrom’s supply chain is susceptible to disruptions caused by factors such as global economic conditions, natural disasters, or geopolitical issues. Any disruptions in the supply chain could lead to delays, increased costs, or inventory shortages, which could harm the company’s operations and reputation.

Opportunities

• International expansion : Expanding into new international markets can provide Nordstrom with a broader customer base and increased revenue streams. By strategically entering high-potential markets, the company can reduce its dependence on the US market and diversify its geographic risk.
• E-commerce growth : Nordstrom can further invest in its e-commerce and digital capabilities to provide a seamless shopping experience for customers. Enhancing its online presence and leveraging innovative technologies can help the company attract more customers, improve customer retention, and increase sales.
• Personalization and customer experience : Nordstrom can continue to enhance the customer experience by offering more personalized services, such as AI-driven recommendations, virtual styling, and tailored loyalty programs. These efforts can help build customer loyalty and differentiate the company from its competitors.
• Expansion of private-label brands : Developing and expanding its portfolio of private-label brands can help Nordstrom increase profit margins and offer unique products that cater to different customer segments. This approach can also help the company differentiate itself from competitors and enhance customer loyalty.
• Sustainable and ethical practices : As consumers become increasingly conscious of the environmental and social impact of the products they purchase, Nordstrom has an opportunity to position itself as a leader sustainably and ethically. This can involve offering more eco-friendly products, ensuring fair labor practices in the supply chain, and implementing sustainable packaging and store operations.
• Partnerships and collaborations : Nordstrom can explore strategic partnerships and alliances with emerging brands, designers, or technology providers to enhance its product offerings, improve the customer experience, and gain a competitive advantage.
• Strengthening the off-price segment : Nordstrom can focus on strengthening its off-price segment, Nordstrom Rack, by improving inventory management, enhancing the in-store and online shopping experience, and expanding its store network. This can help the company attract price-conscious customers and capitalize on the growing popularity of off-price retail.
• Intense competition : The retail industry is highly competitive, with numerous players vying for market share. Nordstrom faces competition from traditional department stores, specialty retailers, discount stores, and e-commerce platforms. Increased competition can lead to price wars, reduced profit margins, and a potential loss of market share.
• Economic fluctuations : As a retailer primarily focused on discretionary spending, Nordstrom is susceptible to economic downturns and changes in consumer spending habits. Reduced consumer spending due to economic uncertainty or recessions could negatively impact the company’s sales and profitability.
• Shift towards online shopping : The rapid growth of e-commerce has led to declining foot traffic at brick-and-mortar stores. If Nordstrom fails to adapt to consumers’ changing shopping habits and enhances its online presence, it may struggle to retain customers and maintain sales.
• Fast-fashion and changing consumer preferences : The rise of fast-fashion retailers and ever-changing consumer preferences threaten Nordstrom’s business model. If the company fails to keep up with the latest trends and cater to the evolving needs of its customers, it may lose market share to more agile competitors.
• Supply chain disruptions : Nordstrom’s supply chain is susceptible to disruptions due to various factors such as global economic conditions, natural disasters, geopolitical issues, or labor disputes. Any disruptions in the supply chain could lead to delays, increased costs, or inventory shortages, which could negatively impact the company’s operations and reputation.
• Cybersecurity risks : As Nordstrom expands its digital presence, the company becomes more vulnerable to cybersecurity threats, such as data breaches or cyberattacks. Any security incidents could lead to the loss of customer trust, legal issues, and financial losses.
• Regulatory changes and compliance : Nordstrom operates in a highly regulated environment and must comply with various laws and regulations related to labor, health and safety, consumer protection, and environmental practices. Changes in regulations or failure to comply with existing regulations could lead to fines, legal issues, and damage to the company’s reputation.

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CASE STUDY: Finding Millions in Potential Savings in a Tough Retail Climate

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• What happened when Uber and Lyft shut down in Austin, Texas

A large regional city with a progressive bent wants to impose new rules on Uber and Lyft. The ridesharing giants threaten to leave the city. The dispute becomes the hottest issue in town. The Legislature gets involved.

It could be Minneapolis in 2024, as it tussles with Uber and Lyft over a minimum wage for drivers. But it's also Austin, Texas, in 2016.

Austin lost Uber and Lyft service for more than a year after the companies fought a city ordinance requiring drivers to be fingerprinted to protect passengers. The players, the locale and the politics may differ, but the final result could be the same.

Uber says it will cease operating in the Twin Cities, while Lyft claims it will shut down in Minneapolis if the pay minimums stand. Meanwhile, city and state elected leaders in Minnesota are frantically trying to craft a solution before the Legislature adjourns May 20.

Austin's experience shows how such a conflict can play out in a tech-savvy, car-dependent, party-loving town that famously embraces its weirdness. It's a story about a Democratic stronghold in ruby red Texas that took on two brazen companies offering a wildly popular service and winning in convincing fashion. But its victory was short-lived. Republican lawmakers overturned the new rules.

What hasn't changed since since then is that Uber and Lyft are still willing to leave town if they don't get their way. "Uber has changed a lot over the years, including how we make our case for positive regulations, but one thing has been consistent: leaving a city has never been a decision we've taken lightly," said Josh Gold, a company spokesman.

A safety issue

In 2015, about a year after Uber and Lyft began service in Austin, several cities in Texas adopted regulations requiring ridesharing companies to fingerprint drivers following several reports of drivers having sexually assaulted passengers.

"It was truly a safety issue for women," said Ann Kitchen, a City Council member who led a committee that crafted Austin's fingerprinting ordinance. "There was no reason for [Uber and Lyft] to not do it."

At the time, taxi, limousine, even pedicab, operators in Austin were fingerprinted as part of the city's licensing process. But not Uber and Lyft, which claimed their security screening process worked just fine.

Lyft says fingerprinting is "a discriminatory practice with outsized impacts on communities of color," said spokesperson CJ Macklin last week. "The fingerprint background check system is widely considered incomplete and inaccurate and a discriminatory practice when used as a basis to deny work."

When San Antonio adopted a fingerprinting ordinance in 2015, both ridesharing companies ended service, returning only after it was deemed voluntary. After Houston required fingerprinting, Lyft left, and Uber stayed on.

Both companies warned if Austin adopted a fingerprinting measure, they would leave. Despite that, the City Council adopted such an ordinance in late 2015.

The response to the new regulations was swift: A group backed by Uber and Lyft called Ridesharing Works for Austin gathered 65,000 signatures to force an election that would overturn the new ordinance. Called Proposition 1, or Prop 1, an election was set for that May.

Deals fall apart

Throughout the spring of 2016, then-Mayor Stephen Adler said he tried to broker a deal with Uber and Lyft by suggesting solutions.

Among them: the city fingerprinting Uber and Lyft drivers where they worked or lived for convenience sake; having the local tech community design a slider for the companies' apps indicating drivers who were fingerprinted; and crafting a "thumbs-up" seal of approval for drivers who had been fingerprinted. Adler even suggested a lottery with a Tesla as a prize to encourage drivers to get fingerprinted.

"We put together some pretty nifty, innovative ideas," he said. "They told us they would leave the city anyhow, which made no sense to us because we weren't asking them to do anything."

Adler is writing a book about his eight-year tenure as mayor that includes a chapter devoted to the Uber and Lyft rumpus. He said he wanted to show that "solutions can be worked out between new technologies and platforms in the sharing economy if companies are willing to work with the communities."

But Adler said he was repeatedly rebuffed by Uber and Lyft, which began to operate like the stodgy, change-resistant old-economy companies they routinely pilloried.

Prop 1 fatigue

As the Prop 1 campaign wore on, many Austin residents grew weary of the issue.

"You could not guess the number of ads that came from Uber and Lyft, they spent so much money, people just got annoyed," said Austin resident and former pedicab operator Chris Anderson. "Every day, you'd go out to your mailbox and there were 10 mailers in there. People got pissed."

Another coalition that supported fingerprinting, which included taxi companies and labor unions, sprouted up called "Our City. Our Safety. Our Choice." The group was co-founded by longtime Democratic political consultant David Butts, who contributed about $20,000 of his own money to the cause.

"It was an attempt by a corporation to run over a city," Butts said. "We weren't going to stand for it."

Uber and Lyft reportedly spent about $10 million on its campaign to overturn the fingerprinting ordinance, with the city shelling out less than $200,000.

Kitchen, the City Council member who led the fingerprinting effort, came under direct fire. Uber launched a service that featured horse and buggy rides in downtown Austin called "Kitchen's Uber." A flat fee of $50 was charged.

"Council Member Kitchen's plan would impose 19th-century regulations on 21st-century technology," an Uber spokesperson said.

"It was funny, except I didn't think it was funny at the time," Kitchen said last week. "It was just outrageous."

At the same time, there was a move to recall Kitchen. Uber and Lyft denied being a part of the recall effort — the political action committee leading the charge was traced to Republican operatives, according to the Austin American-Statesman. No recall election was ever held.

Prop 1 ultimately failed as well, as city voters overwhelmingly defeated Uber and Lyft's attempt to overturn fingerprinting by a 12-point margin.

In response, Uber and Lyft shut down service within two days in Austin.

Alternatives sought

With no ridesharing, diminished taxi service and minimal public transit, Austin was ripe for new transportation solutions, especially since thousands of former Uber and Lyft drivers were available for work.

Within months, a nonprofit rideshare company was formed by local tech entrepreneurs with city support called RideAustin, which permitted customers to round up their fares for local charities. Boston-based Fasten entered town, as well as several others.

Jeff Kirk, an Austin-based rideshare strategist, said about 14 rideshare apps surfaced at various times after Uber and Lyft departed. Service was often spotty. Ultimately all of them shut down, although new apps have cropped up more recently.

A big test came for the alternative ridesharing apps during the 2017 South by Southwest conference and festival, a magnet for thousands of celebrities, techies and creative thinkers. One rainy Saturday night at the height of the event, many of the apps crashed.

"It was completely impossible to get a ride, and all of the out-of-towners and journalists covered it," Kirk said. "There were a lot of pissed-off techies."

But Kirk said Minneapolis appears to have some promising rideshare players entering the market. "If there are alternatives that are actually working, I'm wondering if more and more cities will essentially do the same thing as Minneapolis. They could present a serious threat to Uber and Lyft and one that is long overdue."

Legislature enters fray

Most involved in the Prop 1 battle in Austin suspected the Republican-controlled Legislature would pass a bill that preempted local ridesharing ordinances — and that's exactly what happened.

"All Uber and Lyft had to do is drag some campaign contributions around the statehouse, [legislators] are like feral cats in heat when that happens," said Butts.

As Republican Gov. Greg Abbott signed legislation in 2017 usurping local ridesharing regulations in more than 20 communities throughout the state, he declared, "This is freedom for every Texan."

Within hours, Uber's and Lyft's apps in Austin were turned back on, a move that was met with "joy and bitterness," according to the local newspaper.

When asked whether Uber and Lyft are bluffing in Minneapolis, Kitchen (and others) said they're not.

"But the thing about it is: Who cares? Our community did not suffer from them being gone," she said. "The community said no, they would not be bullied, and created RideAustin to take care of drivers and passengers.

"I was proud of our community for standing up to them."

RideAustin, which provided nearly 3 million rides , struggled after Uber and Lyft returned to Austin. Then the pandemic hit, and it closed up shop in 2020. It has open sourced its software platform so others may start their own ridesharing apps.

Transportation reporter Janet Moore covers trains, planes, automobiles, buses, bikes and pedestrians. Moore has been with the Star Tribune for 21 years, previously covering business news, including the retail, medical device and commercial real estate industries. 

Josie Albertson-Grove covers the western Twin Cities suburbs for the Star Tribune.

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