I’m coming to believe every good is a convenience good. A recent New York Times article reported that Nordstrom has integrated their in-store inventory with their online supply, meaning that anyone can get access to the entire inventory from any “location” — a physical store or online. They also report that Nordstrom’s management believes that this “innovation” has helped change their same store sales from a “negative growth” (don’t you love that term!) of 11.9% to a positive growth of 9%.
The brilliance of this strategy is that it maximizes the most precious thing in any business — the yield on a customer that wants to buy something, now! The famous maxim by Peter Drucker was, “The purpose of business is to create and serve a customer.” So many businesses have become so operationally complex — especially in retail, that there are many barriers for a customer who wants to spend money. Nordstrom, fortunately, was willing to spend the two years necessary to integrate all their inventory into one information pool — and thereby allows not only better customer service, but fewer mark downs and sale items.
Rightfully, the article points out how few companies have pulled this off. But I will say I saw a similar result years ago. Back in 1998-1999 I was working with W.W. Grainger the $7B industrial parts distributor, and then CEO Dick Keyser. (By the way, Grainger’s stock price has tripled over the past decade while paying a regular dividend.) Dick wanted to completely integrate the physical and the informational. He was early in the market with Grainger.com, and was willing to make the significant investment to integrate all his inventory across retail stores, over 15 distribution plants, across a magnificently complex product line. Grainger carries over 250,000 different products! But Dick wanted any of their thousands of customer service or sales people to be able to check the entire inventory of the company and to be able to commit the actual unit — maybe it was the last water cooler available to replace a broken one in the local high school gym. Not only does their system allow for complete visibility and commitment of the inventory of the entire company, but it even allows the customer to say if they want it shipped, if they will pick it up, or if they want it transferred to a closer store to allow for pick up. Now that’s inventory control.
Dick was very clear on why he wanted to do this: Grainger’s core value proposition is convenience, and if they did not have availability the complexity of their business would dampen their economics. But, if they could break the back of that complexity — by having one inventory then they could deliver better service and capture differentiated demand that was willing to pay a premium for service.
I think this lesson is generalizable. All retail companies, and to an increasing extent business to business companies must have complete availability of all their products and services wherever, however, and whenever the customer comes to them. Demand is a terrible thing to waste.