External Capital Funding Proposal

Introduction 

Nordstrom is one of the renowned retail companies in North America, offering a variety of products and services to consumers at a convenience. The business has thrived over years due to the exceptional services offered to consumers thus improving the outfit’s market share. Moreover, the firm’s ability to present quality products and exceptional merchandise has improved its overall ability to meet consumer needs, thereby becoming successful. The launch of the Nordstrom Rack off-price sales division enabled the firm to expand on a national scale, and since then, the business has broadened its target audience based on product price and availability. Considering the economic conditions and the development in E-commerce, further expansion of the firm would help the business to attract international markets, which would boost Nordstrom thereby guaranteeing a successful future. Purposefully, expansion into France will have positive outcomes for Nordstrom by expanding its market reach thus improving its overall financial growth.

Internal Risks 

Risks occur at any time, which calls for managers to continually assess their companies for any internal issues that may impair normal operations of the firm. Nordstrom, being a growing business, stands to face various internal risks that can present issues such as hindering targeted success and achievement of the overall business objectives. The firm employs external Auditors to work with their committee in overseeing the internal risks pertinent within the business. The auditors are responsible for examining the financial risks, enterprise management programs and issues on employee management, among others. According to McClure (2016), one of the possible internal risks entails lack of resources to sustain the firm in a foreign country. This is mainly because of the nature of the business to operate with an online presence, which implies having that different stores would call for additional funding from the business, hence increasing the overall expenses.

Employees and France Culture 

Expansion into France would require international expansion education to align the business practices with the foreign culture. Since the firm has, for long, been operating from South America, majority of its employees are Native English speakers and have adopted the United States culture. Its transformation and expansion into France would thus require the need for expatriates with an understanding of the native French language to associate appropriately with their potential customers (Heritage.org 2019). An alternative would entail educating the firm’s employees on French norms and the culture of their foreign country to make them understand the best ways to interact with the consumers. Additionally, there is a need to train the foreign employees on company policies, competencies, behaviours and other organizational cultures for Nordstrom, with the primary purpose of upholding the high quality and standards of the business. As a result, these would further increase expenses incurred by the firm, thereby raising the financial projections.

Trends in E-commerce 

Online and in-store trends are continually changing thus presenting additional risks and opportunities for Nordstrom in their expansion. E-commerce developments are propelled by technological advancements that have improved on ways to attract potential customers on a global level. Moreover, consumer behaviours have been adjusted to follow these technological trends, which reduces in-store shopping experiences (Hedges and Company. 2017). It is easier for Nordstrom to focus on their online presence as a business since this ensures that the business can target a broader customer base while offering competitive prices that can shift dynamically to offer better buying experiences. This develops as an opportunity for the business to invest more in technological aspects of their approach.

Technological Issues 

However, while technology plays a vital role in the internal operations of the business to sustain its growth and operations, there is a risk of customer protection. According to McClure (2016), online platforms are susceptible to malicious attacks that can result in privacy breaches and other security threats to the business itself. Due to the online purchases, the business is expected to collect, handle, store as well as protect consumer data such as their personal information and credit card data. Occurrence of such security threats may potentially harm relations with the consumers, thereby leading to negative public relations, lawsuits, and loss of consumer trust that can adversely impact sales.

External Risks 

Nordstrom’s proposed global expansion will face qualitative risks inclusive of climatic changes, natural disasters, cultural barriers and political issues, all of which might hurt the business.

Culture in a foreign country 

France culture is one of the potential issues that might affect the business in many ways. Expanding the retail business will thus demand adoption of the foreign values. As such Nordstrom would have to align its business model to fit the local neighbourhood (Fraser, 2017). The overall culture of the foreign country, however, may demand many adjustments that can potentially hinder business progress. An excellent example would be Wal-Mart’s case, which, in 2006, suffered a loss of about $1 billion in Germany. According to McClure (2016), Wal-Mart was forced to pull its business out of the foreign country eight years after the retail business had made massive investments due to failure of its business model in adapting to the German Culture.

Moreover, the business was unable to compete with the local retailers that offered discounts such as Aldi and Lidl, among others. Other businesses such as Starbucks, Gap, and Toys R Us, despite their strong global presence, have faced cultural competency issues that have led to significant losses. Nordstrom will have to focus on meeting the cultural requirements in the foreign nation to avoid any such risks associated. It is integral for the company to employ expatriates to help in gaining cultural competency within the foreign national during its expansion process.

Unprecedented Delays due to Climatic issues 

Having their local stores in the United States means that importation and exportation of products to and from France will be a crucial activity in Nordstrom’s supply chain. According to Tran (2015), natural disasters such as changing weather patterns and other human-made disruptions can lead to delays in product delivery to the customers. This can result in decreased consumer satisfaction, especially if the delays are cumulative. Additionally, changing climates within France may reduce customer spending thus inhibiting movement of consumers. This means that if Nordstrom invests in a local store in France, such natural occurrences could limit number of customers per day, which would lower overall financial gain by the business.

Similarly, Fraser (2017) noted that delivery in the local areas may also be affected by the natural occurrences. Heavy rains, snow and storm, may curtail ability of riders and delivery vehicles from reaching given areas, which would otherwise increase delays in product delivery to consumers. The firm should have awareness programs, especially on the online platform, to inform consumers of any unexpected delays that could hinder prompt delivery of their products. The approach will help sustain consumer trust and thereby retain these customers.

Political Impacts 

On the political and governmental regulations standpoint, Nordstrom is deemed to face reasonable regulations as other foreign businesses in France. The business will be expected to abide by legal regulations within the foreign nation such as taxes, legal requirements and corporate social responsibility. According to Tran (2015), France offers a stable business environment, but it also faces various issues such as limitation of the businesses based on their activities, pedestrian safety for the delivery vehicles, and other native regulations applicable in France.

Microeconomics Factors 

There is a wide range of microeconomic activities that might influence global expansion of Nordstrom in France. Among these aspects are inclusive of industrial competition, price elasticity of its products and the economy in the host country. Economic recessions, for instance, may hurt overall business activities in France, thereby hindering the profitability of Nordstrom.

Source: Chand (n.d)

Economy in France 

According to Heritage.org (2019), France has about 64.8 million, with a GDP of close to $2.8 trillion that has seen a consistent 1.8% growth rate over recent years. Considering the statistics, it is evident that Nordstrom stands to have a broad target market for their products in both local stores and websites. In Paris, where the firm aims to invest in having more of its stores, it is notable that the city accounts for about 30% of the wealth generated by the whole nation. Paris, being the capital of France, is also economically stable with diverse infrastructure to ensure proper business activities within the town. This implies that Nordstrom will have an opportunity to meet consumer needs within the region provided they align their activities with the city’s activities.

Competitive advantage 

A critical challenge that Nordstrom will face, however, is the growing competition in Paris, especially for the e-commerce sector. There are various retail stores including of Le Bon Marche, Le BHV Marais, Printemps Haussmann and, The Bazar de I`Hotel de Ville, among others, which serve in the retail store industry and operate on clothing products. Most of these retailers are owned locally and have been in operation for a long time, which presents the challenge in penetrating the market and competing effectively in the already saturated industry. The local competitors have an advantage over Nordstrom owing to their already established niche within the country. Further the store’s local management who appreciate French culture gives the retail businesses an edge over Nordstrom. The key benefit for Nordstrom is it’s almost 118 years of experience, which capitalises on their expertise and resources to counter the challenges and adequately meet consumer needs to gain a competitive advantage in the host nation.

Price Elasticity 

Price elasticity is another potential risk that Nordstrom stands to face in its operations in France as a foreign business. According to Tran (2015), it is difficult to predict consumer behaviours since their response to products and changes in prices, particularly the ones offered by retailers. Nordstrom already initiates discounts and other offers as a strategy to cut-off their prices and attract more consumers in South America. The perception that Nordstrom is a well-developed brand; its offerings in Paris is expected to have lower markdowns in the price elasticity. However, if the markdowns increase, they are bound to result in fewer sales thus causing a decrease in earnings for the business. For instance, if Nordstrom decides to raise the price of a given product by about 5%, which alternatively results in a decrease in demand by 10%, the coefficient of the price and demand would be 2%, thus a higher markdown that would cause reduced sales. This is a critical consideration for the business, considering that as a retailer, the price setting is crucial in differentiating the firm from its competitors. Therefore, it would be imperative to align the pricing strategy to consumer needs as a model for improving the firm’s competitiveness.

Alternate Financial Scenarios 

Nordstrom’s overall financial aspects are subject to change, mainly due to the industry they operate in. The possible scenarios in the business model are inclusive of the base case, the best case and the worst case, all of which have different conditions to guide their evaluation. For instance, Nordstrom’s financial data for periods 2013, 204, 2015, 2016 and 2017 all show a corresponding increase in net sales. According to Bailey (2015), net sales for Nordstrom increased by 9.9% between the years 2014 and 2015. This can be attributed to their expansion to adding new stores in South America. However, a comparison of the net sales between 2013 and 2014 reveal an increase of 7.8%. This growth can be attributed to the opening of the full line stores, including acquisition of Trunk Club and a retail store in Canada. The same trend is expected to occur as Nordstrom opens stores in Paris, France since net sales are expected to follow a similar trend, with an average of 8% increase.

Projected Financial Performance if sales fall 20% sort or are 20% higher than the base assumption 

Based on the assumption, the net sales would increase by 8%. However, there are chances that it might rise by about 20% in the new Paris market, which would be higher than the expectations in the assumptions given. Therefore, the firm will have superseded the expected net sales, which means that the investment will pay off in much less time as would have otherwise been speculated (Boyte-White, 2015). However, if the speculated net sales decrease by 20%, it means that the market response is not accurate, and further investigations would have to be undertaken to align the business practices with the noted outcomes. The two scenarios are an indication that the investment would be a beneficial aspect due to the average net sales that Nordstrom has had in previous ventures of launching new stores. Table 1 below indicates the projections. This means that despite the assumptions of the net sales increasing or decreasing beyond the base target, the firm would still achieve its set objectives thereby justifying the investment as a beneficial approach.

Nordstrom Financial Performance Analysis, Fiscal Year 2018 -2019
	Budget	20% Decrement	20% Increment
Net Sales	15,860	12,688	19,032
Cost of Goods sold	10,155	8,124	12,186
Gross Profit	5,705	4,564	6,846
Total Operating Expenses	4,868	3,894.4	5,841.6
Operating Income	837	669.6	1,004.4
Interest Expenses	104	83.2	124.8
EBT	837	669.6	1,04.4
Provision for Income Taxes	310	248	372
Net Income (loss)	720	576	864

Source: NASDAQ (n.d.)

Net Present value, internal rate of return, payback values implications 

In expansions process, the Present Net Value, NVP, Internal rate of return, IRR, and the payback value are vital components that will guide decision-making process as Nordstrom initiates business activities in France. The table above is an indication of the financial performance for the year 2018 for Nordstrom. Based on the table, it is clear that the speculated values and calculations indicate positive returns in the firm and can thus lead to better outcomes in the future. Furthermore, they imply that the investment will have a positive benefit to the business since it will grow and hence gain higher profitability. However, the statistics used are based on the 2017-2018 financial year, which means that speculations about the future are not based on actual figures. Additionally, due to fluctuations in the market prices and other factors, it is possible that the obtained results will change hence affecting the calculations and analysis provided. Therefore, value of money will be based on projections obtained from the financial analysis after the company is already setup. Notably, this will be due to presence of actual figures thus making the analysis dependent on the realized outcomes.

Conclusion 

The study has examined the intervention of Nordstrom’s expansion into France, which would improve its overall market and raise their net sales. Based on the research, it is clear that the investment stands to yield positive outcomes and raise the net sales of the business. Despite the noted challenges that might potential cripple the move, it is evident that compliance with regulations, integration with French business culture and supply chain optimization, among other activities, will enhance alignment of the business with its operations in France.

References

NASDAQ n.d. Annual Income Statement. Retrieved from https://www.nasdaq.com/symbol/jwn/financials?query=income-statement 

Bailey, S. (2015). Nordstrom Announces Plan for 6 Canadian Stores. Market Realist. Retrieved from: https://marketrealist.com/2015/05/will-nordstroms-international-expansion-expedite-sales-growth/ 

Boyte-White, C. (2015). What is the formula for calculating internal rate of return (IRR) in Excel? Investopedia. Retrieved from: http://www.investopedia.com/ask/answers/022615/what-formula-calculating-internalrate-return-irr-excel.asp 

Chand, S. (n.d). Micro Environment of Business: 6 Factors of Micro Environment of Business Retrieved from: http://www.yourarticlelibrary.com/business/micro-environment-of-business-6-factors-of-micro-environment-of-business/23370 

Fraser, C. (2017). Here Is Why Nordstrom's Canadian Expansion Is a Winning Strategy. The Street. Retrieved from: https://www.thestreet.com/story/13751046/2/here-is-whynordstrom-s-canadian-expansion-is-a-winning-strategy.html 

Hedges & Company. (2017). How A Price Increase/Decrease Affects Gross Profit vs. Unit Sales. Hedges & Company. Retrieved from: https://hedgescompany.com/blog/2010/10/formula-price-increase-price-decrease/ 

Heritage.org (2019). France Economy: Facts, Population, GDP, Unemployment, Business, Trade. Heritage.org. Available at: https://www.heritage.org/index/country/france 

Klapacki, L. (2017). Why off-price retail is rising as department stores are sinking. D. Retail Dive. Retrieved from: http://www.retaildive.com/news/why-off-price-retail-is-rising-asdepartment-stores-are-sinking/434454/ 

McClure, B. (2016). DCF Analysis: Coming Up With A Fair Value. Investopedia. Retrieved from: http://www.investopedia.co Patterson, N. (2016). Nordstrom vs. Macy's: Paying the Same Price for Very Different Stories. Seeking Alpha. Retrieved from: http://seekingalpha.com/article/3987825-nordstrom-vsmacys-paying-price-different-stories m/university/dcf/dcf4.asp 

Tran, M.P. (2015). Global Retail: The Biggest Challenges to Overcome When Selling Internationally. CPC Strategy. Retrieved from: http://www.cpcstrategy.com/blog/2015/04/global-retail-biggest-challenges-overcome-selling-internationally/