Nordstrom is widely regarded as one of the most expensive department stores in the United States, known for its high-end merchandise, upscale store design, and premium customer service. A trip to Nordstrom can feel like a luxury splurge, with $200+ jeans, $1000+ handbags, and $2000+ shoes not uncommon throughout the store. In fact, Nordstrom‘s average selling price is about $100 per item, compared to just $25-50 at competitors like Macy‘s and Kohl‘s.
So what allows Nordstrom to charge such outrageous prices? As a longtime retail industry analyst and a picky Nordstrom shopper myself, I‘ve identified several key reasons behind Nordstrom‘s premium pricing strategy. From its focus on affluent customers to its tightly controlled inventory to its over-the-top service, here‘s an in-depth look at why Nordstrom is just so darn expensive.
Nordstrom‘s Business Model: High Margins, Low Volume
First, it‘s important to understand Nordstrom‘s underlying business model and how it differs from other retailers. While most department stores aim to maximize sales volume with frequent discounts and promotions, Nordstrom takes a different approach: selling a carefully curated selection of high-end goods at full price to an affluent clientele.
Nordstrom stores aren‘t packed to the brim with merchandise like you might see at a Macy‘s or JCPenney. Instead, Nordstrom meticulously displays a limited assortment of upscale brands and products, often with plenty of open space in between. The goal isn‘t to sell a ton of any particular item, but rather to command high profit margins on the relatively few sales it does make.
This low-volume, high-margin strategy has paid off handsomely for Nordstrom over the years. Although Nordstrom operates far fewer stores than other department store chains, it consistently pulls in some of the highest sales per square foot in the industry. In 2021, Nordstrom averaged $366 in sales per square foot across its locations, more than double the $181 and $127 posted by Macy‘s and Kohl‘s, respectively.
Of course, those lofty sales-per-square-foot figures are only possible because of Nordstrom‘s sky-high prices. By selling a pair of designer shoes for $995 instead of $95, Nordstrom can generate the same profit as selling 10 pairs at a lower-end retailer. But this also means Nordstrom must maintain an uber-affluent customer base who can regularly afford to pay such premiums.
Catering to a Wealthy Clientele with Expensive Tastes
With its focus on luxury brands and lavish in-store experiences, Nordstrom primarily serves the upper crust of consumers. Nordstrom shoppers have a median household income of around $100,000, roughly double the national median income. A 2020 Nielson report found that the top 20% of Nordstrom customers account for over 80% of its total sales.
To continue catering to this exclusive demographic, Nordstrom stocks its shelves with the most sought-after designer labels and luxury products. Top brands like Chanel, Gucci, and Burberry are prominently featured in Nordstrom stores, often commanding full suggested retail prices over more economical options. Nordstrom is the largest seller of luxury fashion brands of any U.S. department store chain.
For instance, a glance at Nordstrom‘s online handbag selection reveals items like a $3,500 Givenchy tote, $2,900 Versace satchel, and $2,200 Saint Laurent shoulder bag. While discount retailers may carry vaguely similar looking bags under in-house labels for a fraction of the price, Nordstrom‘s affluent clientele don‘t seem to mind paying premiums for the real deal.
According to a report by the Luxury Institute, Nordstrom is the top U.S. luxury retailer among ultra-wealthy consumers with over $5 million in assets. "Nordstrom is playing to win with the very best customers in luxury – the top 2-3 percent," says Milton Pedraza, CEO of the Luxury Institute. "Most luxury brands can‘t survive without Nordstrom."
A Dazzling (and Pricey) In-Store Experience
Step inside any Nordstrom store, and you‘ll be greeted by an environment that oozes opulence. Gleaming marble floors, designer fixture displays, moody lighting, plush furnishings – Nordstrom spares no expense in creating a luxurious atmosphere that befits its high-end merchandise and sky-high price points.
Live piano music sets a soothing ambiance throughout many Nordstrom stores, while in-store bars and cafes allow well-heeled shoppers to relax and refresh in style. Exhibition-like "pop-in" shops from featured designers create an art gallery-esque feel. Even Nordstrom‘s restrooms are famously lavish, stocked with complimentary spa products and attended to by full-time staff.
While this all makes for a very appealing and Instagrammable shopping experience, it‘s also incredibly expensive for Nordstrom to execute. All those visual elements, upscale amenities, and prime retail locations cost big bucks – and those costs all get built into Nordstrom‘s product prices. The higher markups at Nordstrom are partially funding its premium store environments.
As Marshal Cohen, chief industry advisor of The NPD Group explains: "Nordstrom has an extremely high-cost infrastructure and high-cost locations, and they use high-level visual merchandising to make their stores look more like a showroom than a store. But those things cost a lot of money, and the consumer ends up paying for all that."
Unparalleled (and Expensive) Customer Service
If there‘s one thing Nordstrom is even more renowned for than its steep price tags, it‘s the department store‘s supreme commitment to customer service. Tales of Nordstrom‘s above-and-beyond service are so legendary they‘ve practically become folklore: The store once accepted a return on a set of tire chains (even though Nordstrom doesn‘t sell tire chains!) and refunded a customer for a shirt he bought at Macy‘s and tried to return to Nordstrom.
Nordstrom invests heavily in training its salespeople and empowers them to use their judgment to satisfy customers, no matter the cost. Free personal styling, in-home delivery, and a generous return policy are just some of the services Nordstrom provides. Its stores are staffed with nearly twice the number of employees as comparable locations.
Nordstrom shoppers have come to expect this unrivaled level of service as part of the experience. And they don‘t seem to mind paying extra for it. In a 2021 NRF survey, Nordstrom ranked #1 among premium retailers on customer service. As journalist Christopher Mathews put it, "You may be paying more at Nordstrom, but you get a level of service you‘d be hard-pressed to find elsewhere."
Of course, this concierge-like service model is very labor intensive and comes with sky-high labor costs for Nordstrom. To support its platoons of personal shoppers and no-questions-asked approach to returns, Nordstrom has to charge high prices and limit discounts. Analyst Oliver Chen calculates Nordstrom‘s SG&A expenses as a percentage of sales are 7-12% higher than peers as a result of its high-touch service.
Strategic (and Pricey) Brand Partnerships
Over the past decade, Nordstrom has doubled down on its upscale reputation by forging strategic partnerships with high-end brands and designers. These range from limited-edition collaborations with luxury labels like Hermès and Christian Louboutin to ongoing deals for exclusive product lines you can only find at Nordstrom from the likes of Burberry, Chanel and Prada.
Many of these partnerships involve Nordstrom getting first dibs on new collections and product launches before they‘re available anywhere else. This allows Nordstrom to be seen as an retail authority on what‘s new and next in luxury fashion, further burnishing its aspirational brand halo for affluent shoppers (and justifying its premium prices).
A prime example is Nordstrom‘s annual anniversary sale, which heavily features exclusive items and first-look access to new fall merchandise, often at limited-time discounts. The event has become a phenomenon among Nordstrom devotees, who flock to the sale to scoop up deals on brands and products that rarely go on sale otherwise. But even the anniversary sale prices would be considered expensive compared to regular prices elsewhere.
Nordstrom‘s focus on cultivating a luxurious, exclusive brand image via these partnerships does come at a cost though. Analyst Simeon Siegel notes that Nordstrom‘s gross margins are about 8-10% lower than other high-end department stores like Saks Fifth Avenue as a result of its high-low brand mix and discount model. "Nordstrom is paying up for premium brands and exclusive access," he says.
Maintaining the Illusion of Luxury Online
In recent years, Nordstrom has invested heavily in e-commerce and omnichannel capabilities to unite its online and in-store experiences. Its website now accounts for over a third of Nordstrom‘s total sales. But translating the upscale Nordstrom experience to digital is a challenge – and an expensive one to get right.
Unlike other retailers that pack their sites with as many products as possible, Nordstrom.com maintains the same minimalist, highly curated approach as its stores. High-end brands and exclusive collections are front-and-center, editorialized with magazine-quality imagery and copy. Live chats and video consultations with style experts preserve the high-touch service Nordstrom is known for.
Behind the scenes, Nordstrom has invested millions in e-commerce infrastructure and logistics to support its digital business. It‘s built state-of-the-art fulfillment centers and developed algorithms to optimize inventory across channels. It offers free shipping and returns, as well as services like curbside pickup and same-day delivery in select markets.
While these investments have helped make Nordstrom.com a leader in luxury e-commerce, they‘ve also put pressure on the bottom line. "Nordstrom‘s online business is less profitable than its physical stores," notes analyst Micheal Armstrong. "They‘re having to throw a lot of money at e-commerce to maintain their high-end experience and compete with the likes of Net-a-Porter."
The Bottom Line
When it comes down to it, Nordstrom is expensive because it has built an entire business model and brand identity around serving the world‘s most affluent consumers. Through its persistent focus on stocking exclusive high-end merchandise, delivering unrivaled customer service, and creating dazzling store experiences, Nordstrom has cultivated a devoted clientele willing to pay top dollar for its unique offerings and positioning.
While budget-conscious shoppers may balk at its designer price tags, Nordstrom has decided that catering to this 1% is more profitable than trying to be everything to everyone. "The core Nordstrom customer does not really care that the prices are high," says luxury market expert Pam Danzinger. "They see it as a price of membership to an exclusive club."
As long as there are well-heeled consumers willing to drop $800 on a pair of shoes or $300 on a t-shirt, Nordstrom will be there to indulge them – and make a tidy profit doing so. The department store has built a shopping experience tailor-made for those who can afford the very best, and don‘t mind paying handsomely for it. While the rest of us may need to stick to sale racks and off-price spinoffs, Nordstrom is laughing all the way to the bank.
