Nordstrom (JWN) went shopping and snapped up an incredible buy. The forward-thinking department store chain snagged flash sale site HauteLook for $180 million in stock. And just like that, a successful traditional retailer pushed itself way ahead of the competition.
For those of you unfamiliar with HauteLook, the e-tailer successfully tapped one of the hottest trends in fashion: the thrilling 48-hour, online-exclusive sale. Since 2007, HauteLook's cultivated an army of devoted bargainistas shopping for top designers' excess inventory at discounts up to 75 percent. As such, the company snagged over $41 million in VC funding and boasts 4 million members.
Buying into success is smart -- but here's why Nordstrom's move is brilliant:
- Not reinventing the wheel -- Other department stores have taking flash sales into their own hands. Saks has been running intermittent sales for its email membership under the Fashion Fix banner since 2009. However at the time, HauteLook's CEO Adam Bernhard told the WSJ that Saks' foray could confuse designers and Saks other suppliers. "Saks is first and foremost a full price distributor of brands." Nordstrom, however, has already established its reputation for being a source for deeply discounted merchandise via its popular Rack, so customers and suppliers are already on board with the concept. In fact, Rack's 4Q sales increased over 24 percent. Yet Jamie Nordstrom, president of Nordstrom Direct, recognizes there's plenty to learn from a real flash seller. He told WWD HauteLook "has capabilities in enhancing service and doing it fast. We are a big company. We don't move as fast as a small start-up. This will help us innovate faster and become nimbler."
- Taking it slow -- Rather than muscle headfirst into HauteLook's executive suite, Nordstrom is leaving well enough alone for now. HauteLook will operate as an independent subsidiary and maintain its LA offices under the direction of its founder Bernhard. But even with complete autonomy, the door is open for HauteLook to cozy up to any Nordstrom vendors not currently in its portfolio.
- Minimal risk -- As the economy improves, there is some question as to whether the hunger for rock-bottom prices will subside, not to mention how a retailer can continue to score inventory with so many suppliers offering minimal stock initially. Nordstrom wisely wrote in a three-year "earn-out" payment based on the company's financial performance for HauteLook's owners that could be as much as $90 million. Even if HauteLook's sales continue to go like gangbusters, Nordstrom's record-breaking sales of $9.31 billion make the earn-out a drop in the bucket.
- Staying ahead of the pack -- In the past two years Nordstrom proved it's serious about being an industry leader. The company's recent inventory integration between stores and warehouse is just one example of how savvy strategies that made inventory turn at record-setting speeds (to 5.41 in 2009 from 4.84 in 2005) and improved margins on merchandise that would have languished on racks until marked below 50 percent. This is just another step on Nordstrom's trailblazing path. Other department stores would do well to take notes.
Image via HauteLook.com