What Nordstrom’s new tie-up with Fanatics tells us about its e-commerce strategy

In its first such arrangement with a vendor, Nordstrom will initially sell pro sports teams’ jerseys, shirts and hats from online licensed sports gear giant Fanatics’ on its web site only. But here is the twist: Nordstrom won’t be physically handling the merchandise or filling the orders, leaving that to Fanatics. This is called “drop-shipping” in retail parlance. The goal is for shoppers to have more selection and variety without saddling Nordstrom with the expense of buying and shipping inventory. It also removes risk to Nordstrom’s profit margins if items go unsold or have to be heavily discounted. Macy’s announced a similar arrangement last month.

“There is this opportunity to bring more choices to the Nordstrom customer and essentially allow them to get more of what they want from their favorite multi-brand retailer,” Nordstrom chief merchant Teri Bariquit told Fortune.

In February, as the company laid out its plan to investors to weather the pandemic, Nordstrom said it expected online sales to generate half of its revenue within a few years. The retailer added at the time that it planned to vastly expand its merchandise selection in part by bringing on more brands that would take orders directly via Nordstrom’s site, but fill the order themselves rather than Nordstrom. That is exactly what it is doing with Fanatics.

With Fanatics, Nordstrom has a partner that leads in the sports merchandise category, an area where Nordstrom is not active, and that has proven e-commerce chops. And if this arrangement goes well, it will give Nordstrom confidence that this model works. “This gives us a lot of proof points for expanding the selection in a big way,” said Bariquit.

Nordstrom is starting with a universe of 1,000 items from Fanatics, but Fanatics has hundreds of thousands of other products from teams in the National Hockey League, Major League Baseball and other leagues, allowing room for the assortment will grow bigger. And indeed, the partnership won’t necessarily remain online only in the longer term, Bariquit said. Nordstrom and Fanatics wanted to get going with their partnership now, given the approaching holiday seasons, so opted for online-only purchases at first. So it is likely Fanatics could have small shops within Nordstrom at some point, much as it has had at other retailers such as J.C. Penney.

The idea, however, is not for Nordstrom to have exclusive products from Fanatics, given that it also sells to so many other retailers already. But Fanatics will give existing Nordstrom customers more to buy from in addition to the Theory and Hugo Boss threads they already have access to. In turn, Fanatics gets in front of millions of potential new, well-heeled customers.

Nordstrom isn’t the only traditional department store turning to new e-commerce practices to build up their businesses. Macy’s, which says its e-commerce business can grow to $10 billion by 2023, said on Thursday it was launching an online marketplace in the second half of 2022 where third-party sellers can offer their wares in categories where Macy’s and its upscale sister chain Bloomingdale’s don’t have large selections.