Risks and External Funding Capital for Nordstrom

RISKS AFFECTING NORDSTROM

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RISKS AND EXTERNAL FUNDING CAPITAL FOR NORDSTROM

RISKS AND EXTERNAL FUNDING CAPITAL FOR NORDSTROM

Contents

Analysis

Internal Risks facing Nordstrom

External risks and factors facing Nordstrom

Microeconomic factors

Financial Marketing and Sales Fall

Strategies for Recovering sales in the organization

Alternate Financial Time value of Money

Option A

Option B

Conclusion

References

Analysis

Nordstrom is the largest shoe store and clothes retailer in the United States. The company has over a hundred and twenty departmental stores in nearly forty states in the US. The firm has also invested in the online platform and social media which makes it easier for them to advertise their products. The company has also invested in boutiques to offer high-quality services and goods.

The slogan of the firm is service with a smile incorporated into its culture since founding by John Nordstrom in partnership with Carl Wallin. Whenever a customer visits the stores, they are highly welcomed. In case, a client gets stuck in selecting a particular product; the employees guide them in choosing the best. The employees also thank and appreciate the customers for the products that they have bought. It is a good marketing strategy since it will encourage the customers always to come back and buy the different items and services that they get.

The organization has two distinct segments which are retail and credit. The organization has its rack store where the different products are distributed for ease of reach to customers. The stores include Hautelook, Trunk Club, Nordstrom Rack and Nordstrom square. The credit section controls the least sales in the federal bank. The cards have a loyalty program which rewards shoppers according to their buying potential.

The different stores owned by the company all contribute to the total sales of the firm. Each store has provided a certain percentage of the value of the enterprise with Nordstrom store being the highest contributor. Additionally, online sales contribute to the economic, financial statement of the organization. Over the years, the firm has seen enormous profits and through the massive sales leading to the growth of the company. The stores have products arranged in different sections for men, women, kids and cosmetics section making it easy for customers to locate their desired products.

Internal Risks facing Nordstrom

The organization has been facing weak sales as it has lost touch with some of their clients (Amistad, n.d.). The reason is the increase in the sales of products. Many customers were not happy with the sudden increase in the amount that they have to pay so as to purchase particular products. Due to this, many have resulted to the option of other stores which are a bit cheaper with manageable prices.

Recently, many shoppers in the United States are spending most of their cash on other products. With the increased rise of smartphones, laptops and other valuable gadgets, many buyers are opting to buy those gadgets instead of clothes. The change in customer taste has significantly affected the sales revenues for Nordstrom which mostly sells designer clothes, shoes and even beauty products.

Another inherent risk facing the organization is internal legal issues. The organization has to abide by rules regulating the hours that employees work in a day as well as the perpetuated wages that the workers get paid. Failure of the organization to comply with these laws would significantly affect the organization as the employees have the right to sue the organization if it does not meet the desired requirements.

The organization has to follow all the employment laws that are stipulated by each state. The organization is operating in different States and has to abide by each state’s laws and regulations. If the agency fails to adhere to any of the stipulated rules and sued in the court of justice, it may significantly affect its reputation and tarnish the company image. Due to this effect, the firm can quickly lose its customers, both current and potential.

External risks and factors facing Nordstrom

The organization may face adverse technological factors which may significantly affect the marketing of the firm. Many people living the United States have adopted and bought smartphones and laptops that are fast. With also the ease of access to social media, and the Internet, there has been improved communication among all members of the society. It has become easy for customers to realize cheaper and alternative options that they can buy the products and services sold at Nordstrom. Technology can be used by the firm to create a network for customers that would be used to evaluate customer loyalty and offer rewards to motivate consumer behavior. However, they would have to ensure the paramount safety of information they have stored about the customers. They should maintain information does not easily leak to the public at all means to avoid tarnishing of the firm’s name.

Other external factors could have far-reaching effects on the marketing operations of Nordstrom’s stores. The budgetary strategies received in the current U.S political government to control for counteract re-event of the managing an accounting emergency could, for example, have broad impacts on the element's selected investment funds bank (McDermott, 2012). The result of such enactment could have the potential reducing the element's deals since it was through the bank that the organization offered its "private mark card including Visa cards and platinum cards for its buys. Encourage gigantic administrative arrangements that have been founded, and the likelihood of investigation by numerous organizations accused of this direction could likewise build the cost of consistency for the team subsequently influencing its income.

The team may also face socio-cultural factors. These factors can determine the fashion trends that lead to an increase in the sales of the products. The lack of identification of these patterns is sufficient to get the firm out of business. Cultural viewpoints may incorporate religious affiliations that record for various seasons during the time henceforth unprecedented deals levels in many months. By distinguishing the changing qualities in the general public, the organization could structure its promoting techniques to comply with these progressions.

Microeconomic factors

The microeconomic predominant monetary condition affects the simplicity of credit securing. In turn, its cost consequently may lead to postponing of the section of the association into a given market when such is subsidized using this financing model. Monetary status of the populace likewise impacts the sum that they will spend on attire which the organization sells.

Outside trade rates winnings could be affected by both the financial circumstance and the administration initiated measures to right exchange lopsided characteristics. The misfortune in the estimation of the household cash would prompt the Nordstrom to spend more on things secured from the outside business sectors consequently expanding the cost of products sold and decreasing the net revenues if offering costs are not changed.

Financial Marketing and Sales Fall

Nordstrom has seen a boost in its total advertising amounts in the past few years. The organization has approximately one hundred and ninety-five million US dollars on advertising in the exercise 2015. It has seen an increase up from the one hundred and sixty-seven million dollars spent in the year 2014. It is a huge figure and needs to be made more realistic.

The increase in the sales advertising and marketing is because of the drop in the number of products being sold (Sangari, 2014). The organization is trying to reach many people, and this is why there are spending heavily on promoting sales so as to attract customers. The group should devise ways on how it can decrease on this spending.

Strategies for Recovering sales in the organization

Nordstrom aim is to increase its sales revenue overall retail channels and by entering new markets. Its purpose in the financial year 2015 was to create untapped business opportunities and create more stores in the United States. For instance, they wanted to include stores in Ottawa and Vancouver and create more stores in the coming years. It additionally arranged in 2015 to open three full-line stores in Puerto Rico, Minneapolis, and Milwaukee. The firm declared arrangements to open its first full-line store in Manhattan in 2016 which is an important, high-profileretail showcase.

The business hopes to expand its roots by connecting more to less-prosperous customers. Nordstrom has been quickening the pace of development of its off-cost Nordstrom Rack stores, with arrangements to have more than 230 stores before the finish of 2016. It would be an increase up from its 167 stores. It keeps developing its internet business to extend the stock determination, and to upgrade the site to hunt, route, and expand the speed of satisfaction and conveyance for its customers. The firm is mostly focused on men clothes as it had bought Trunk Club which was a men store.

Alternate Financial Time value of Money

The business venture anticipates that money related to the sales fall by 20%. It will then have to rethink of the corporate level decrease to (100/120*195 million) 162.5 million and expansion by 20% will shoot it up at (120/100*195) in the coming financial year. Assume Nordstrom Inc. is thinking about the choice of one from two fundamentally unrelated speculations extends, each with an expected five-year life (Karni, 2014).

Continue A with and expense of $1,616,000; then it anticipates to produce a yearly income of $500,000. Its assessed leftover incentive following five years is $301,000. Extend B, costing $556,000 and with a piece estimation of $56,000, ought to produce a yearly income of $200,000. The organization works a straight-line deterioration strategy and rebates money streams at 15 for each penny for every annum. The venture utilizes four various speculation examination procedures, net present esteem, inside rate of return, payback period, and the bookkeeping rate of performance.

Option A

NPV=A [1- ] -initial cost

NPV=200,000[1- ] -556,000=$ 114,431.02

LR=23%,NPVLR=4,694.60 HR=24 , NPVHR=(6923.12)

IRR=LR+ = 23+= 23.40%

Payback period =initial investment/annual cash inflows

=556000/200000=2.78 years

Accounting rate of return (ARR)= =

Depreciation A=(556000-56,000)/5=263,000

ARR A = X100%= 17.98%

Option B

NPV=A [1- ] -initial cost

NPV=500,000[1- ] -1,616,000=$ 60,077.55

LR=16%,NPVLR=21,146.82 HR=17 , NPVHR=(16,326.92)

IRR=LR+ = 16+= 16.56%

Payback period =initial investment/annual cash inflows

=1616000/500000=3.232 years

Accounting rate of return (ARR)=

Depreciation A= (1616000-301000)/5=263,000

ARR = X100%= 14.67%

Conclusion

Option A is the best option to select. The reason behind this is that option A has greater Net Present Value, Internal Rate of Return and Accounting Rate of Return than that of Option B. Option A has higher returns and shorter payback period.

References

Karni, E. (1974). The Value of Time and the Demand for Money.Journal Of Money, Credit, And Banking,6(1), 45.

McDermott, L. (2012). Why People Buy at Department Stores.Journal Of Marketing,1(1), 53.

Sangari, E. (2014). Personal selling and sales management in the marketing of financial services: Introduction to the special issue.Journal Of Financial Services Marketing,19(2), 71-73.

Amistad, R. Risks Facing the International Banking System.SSRN Electronic Journal.