Nordstrom’s latest deal confirms that department stores are undergoing a fundamental shift

LivelyLively sells bras for $US35.
  • Nordstrom is doubling down on its partnerships with so-called “strategic” brands such as Reformation, Allbirds, and Bonobos to drive traffic to its stores and set it apart from rivals.
  • Its latest partnership with the e-commerce-focused underwear startup Lively launches on Wednesday. A selection of Lively products will be available at 11 Nordstrom stores and online.
  • Co-President Erik Nordstrom told investors at the company’s annual Investor Day in July that these partnerships not only help drive traffic to stores, but are also less vulnerable to discounting.
  • The goal is to reverse the headwinds that department stores as a whole have faced in recent years.

Nordstrom is on a rampage to bring Instagram-famous brands to its stores, and it signals that the department store is losing faith in traditional retail models.

On Wednesday, Nordstrom announced its latest addition to the store: Instagram-famous underwear label Lively, which launched in April 2016 and has since amassed a large following on social media.

Michelle Cordeiro Grant, Lively’s founder and CEO, told Business Insider that she was approached by Nordstrom right after the brand launched. It’s taken over a year to iron out the details of the new partnership, which will bring their core products, including $US35 wireless bras and swimwear, to 11 Nordstrom stores in major US cities starting on September 17.

“Nordstrom sees the future of retail being around digitally native brands like ours,” Grant said in a phone interview with Business Insider.

The department store already has partnerships in place with several other so-called “strategic” brands, including Warby Parker, Allbirds, Everlane, and Reformation.

During its annual Investor Day presentation in July,Co-President Erik Nordstrom told investors that Nordstrom has become a “partner of choice” for these direct-to-consumer brands.

Emerging labels and limited distribution brands now represent around 40% of annual revenue at Nordstrom’s full-price stores; this is expected to rise to 50% by 2020, according to Bloomberg. Sales of these brands are also growing 30% faster than others, and they’re delivering higher profit margins, according to Nordstrom.

It’s a stroke of genius for a business in a sector that is coming under intense pressure to compete with trendy e-commerce-centric and Instagram-popular brands. The rise of e-commerce, declining foot traffic to malls, and a higher demand for off-price products have caused department stores as a whole to suffer.

Stocking strategic brands helps drive traffic to stores and makes Nordstrom’s offering more unique. It also helps smaller brands to broaden their reach.

“The idea that a direct-to-consumer brand can bring their in-real-life experience to a channel like Nordstrom with such a big, yet loyal, consumer base is an amazing opportunity,” Grant said.

These new partnerships are evidence of how retail is changing and how more savvy department stores are taking the steps to address it. Nordstrom appears to be learning that in order to win over startups, it will need to be more flexible.

“They have broken down the barriers of red tape. They are letting us do what we want to do,” Grant said.

Lively will have mini-stores in these locations, and rather than being split between swimwear and underwear sections, the whole collection will be in one area.

Where the two companies do align, however, is on their outlook toward discounting.

“We have a zero tolerance on that,” Grant said, adding that Nordstrom is very focused on selling is products full-price.

Discounting has become one of the biggest obstacles that traditional brick-and-mortar retailers are facing, and for Nordstrom, these strategic partnerships provide the ideal escape from this.

“The more ubiquitous a product or brand is out there, the more pressure there is on pricing [which leads to] promotion,” Erik Nordstrom said at Investor Day.

“Having strategic relationships – sometimes they’re exclusive; they don’t always have to be exclusive but need to have limited distribution there – that helps us a lot.”

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