Internal risks- operational and strategic factors

 

Risks and opportunities of Nordstrom Inc Company

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Internal risks- operational and strategic factors

The Nordstrom company’s funding capital may be subjected in different ways of opportunities and internal risks that will lead to its expansion to Peru, Lima.  The most vital factor under consideration of this development plan is to look at the opportunities, strategic, and operational risks. Opportunities and strategic risks majorly involve the managers’ decisions in carrying out the business’s objectives. In contrast, opportunities and operational risks are majorly linked with the Company’s employees, processes, systems, and internal resources. The Nordstrom company’s financial statement also consists of outlooks in finance and information through forward-looking, which are generally problematic in making their predictions (Ma, 2019).  Due to such difficulties in determination, financial statements may be put under the subjection of operational risks and strategic, which is added if there is inaccuracy or overestimation in the forecasts.

Having opportunities as the main aim, Nordstrom’s strategy, which is majorly the global market expansion, will provide new customers and needs untapped to increase sales growth. Conversely, the Nordstrom managers must know and recognize and manage the significant risks posing a danger to the Company. There must be a more profound understanding of trends in the local market and the workforce and the consumers’ desires and needs in the global expansion development strategy. Nordstrom company may undergo risks in the level of consumption that may result in profits loss if the Company does not consider products and services that match towards or above the preferences of the international consumers (Waak and Paaso, 2020). For example, the marketing research which has been done by the Company have come up with the finding that most people majorly the Peruvians who are living in the urban centers such as Lima are mostly attracted by the social life thus they like things like the internet, magazines, and television which has led to increasing in opportunities in the market of western high fashion clothing and style clothing being offered by Nordstrom company.

Nevertheless, the consumers living in the rural areas of Peruvian are not majorly attracted by the products being offered by the Company. Therefore they tend to be more influenced by the fashion of clothing, which is traditionally based. Therefore, Nordstrom’s idea of opening new branches in Latin America to expand it to the international markets will need p[roper decision making and managerial thoughtfulness to the trends of resources and local shopping present in the market. Additionally, Nordstrom must strategize by putting its retail stores in demographically suitable areas, which would lead to more attraction of the shoppers interested in purchasing clothing from the newly opened stores.

Nordstrom company could face opportunities and risks since there has been a curd of change between in-store and online shopping channels. Even though the Nordstrom company has had the opportunities from technology and e-commerce in the attraction of the consumers at the level of the global market, it has also had a significant effect on the consumer’s behaviors of shopping, which has posed significant risks in the strategies of growth as it is in relation majorly to the in-store shopping (Nordstrom, 2020). There has been a drastic shift in the behavior of consumers whereby they have moved from the store which was physically built making them move physically and shop to the technology of internet whereby both the international and American shoppers have shifted to simply because of services and prices which are better than making moves to the physical store. Even though Nordstrom company is still making a more considerable investment in its segment of retail off-pricing through the development of new rack store openings which are larger in number, if there could be a change I the traffic of customers in the plazas or malls, then Nordstrom store would make the significant loss of their products and services in their stores.

The Nordstrom stores’ customer base has also been widened by the development of technology whereby they can reach international markets, awareness branding in both the overseas and the United States, and improve the customers’ loyalty through technology. Conversely, failures to meet the customers’ desires and expectations and unsuccessfulness in the technology investment have posed many risks. Therefore, the Nordstrom company must protect the pre-information by safeguarding the incustomers’mation or data of m being breached by the public. It is the mandate of the credit and retail sectors in the Nordstrom stores store. It collects data or information that is bo and information from credit cards from the customers who are doing their shopping online and in stores (Daxue, 2020). Failure to do so may pose the Nordstrom stores at risk of security threats, which may interfere with the customers’ relationship and public relations, which is harmful. There will be customer trust depreciation, which could negatively influence sales.

Managers at the Nordstrom store have the responsibility of ensuring that core principles of the Company are put under consideration by giving the chance of employment to the qualified and right workforce during the process of development of new stores in other countries in overseas. If not, the store will undergo compiling risks if the strategies put in place do not attract the managers, leaders, and employees who have the skills and specific know-how on Peruvian’s retail industry. If the Nordstrom company is not capable of retaining workforce globally in the execution of its business goals and strategies, then that could lead to costs which are added from the rates of turnovers which are unexpected that could portray the reputation and image of the store in the negative way leading to the destruction of Nordstrom stores. Leaders at the Nordstrom stores have the mandate to make continuous improvements and adjust quickly to the strategies as the change in the retail environment occurs. Still, they also have the responsibility of meeting the expectations of its profits through sales its project of expansion of the market globally.

External risks

The proposed project of the global expansion of Nordstrom stores may have some substantial external risks non-financial, including qualitative risk factors such as natural disasters, climate changes, political risks, and cultural barriers. In terms of culture, retail business expansion in overseas can lead to troubles if there is no understanding by Nordstrom concerning the business model adaptation to the culture of Peruvian and local neighborhood preferences. With markets that are merging, such as Peru, cultural and regional barriers contain different variations in international and intra-national. Lack of recognition of this diversity and differences in culture may result in business failure or missed opportunities as it has happened in the past with multinational corporations. An example is  Wal-Mart stores, which suffers drastically almost two bullion in Germany since the store, even after being in existence for more than seven years, could not adapt to German culture and compete fairly with other local stores. Therefore it was forced to pull out its business (Nordstrom, 2020).

Additionally, companies such as Starbucks and Gap have suffered the same loss even if they were some of the companies with a strong global presence; they could not adapt to the local cultures and preferences. Therefore, they were forced to pull out of the business. Therefore for Nordstrom company to succeed in its business, it must have a proper plan on how it will adapt and flex to the cultural needs of the local market of Peruvian.

Peru has got one of the most substantial political risks, which has affected many businesses such as corruption, bribery, weak judicial systems and institutions. The survey which was done recently puts Peru to be number 85 out of the 170 countries in the index of transparency in the international corruption levels.  Within the industries are where these forms of corruption primarily exist, conversely, there has been effort being made by Peru towards the initiatives of anti-corruption, which has led to the improvement of the trust and to create a framework through creating policies which holds the corporations liable for corruption or cases of bribery they have done (Waak and Paaso, 2020). Under US foreign corrupt practices, behaviors of corruption and bribery are illegal, which have impacted the US and multinational-based companies that have been under the US nationals, corporations, and exchange. Therefore, Nordstrom stores’ policies should prevent these illegal activities from preventing and giving penalties that could affect the business profits.

Nordstrom stores’ operations and businesscould be affected if there is disruption of port or supply chain, natural disasters or weather, and other disruptions that can be man-made or natural. These disruptions, which are caused, may, in turn, affect the spending of consumers, which later affects the sales, also causing shortages of staffing, stores supply merchandise inability, higher costs, damages of reputational, and expansion plan effects (Ma, 2019). Climate change has affected Latin America, especially Peru, whereby there have been instances of forest degradation and deforestation in the Amazon of Peru. These issues of climate change have affected the residents of Lima. Through these effects, they cannot get access to electricity and drinking water, which is gotten from the power of hydroelectric. Flooding has also been experienced due to glacial melts, which hinders access to hydropower and freshwater resources, which are most needed in the business; this has caused negative effects as it has led to Peru losing its annual GDP by about twenty percent. Therefore, these risky activities in Peru should make Nordstrom stores equip their business properly to drive away these changes. These challenges will be avoided by making decisions about bringing short-term benefits and being equipped with equipment that can help prevent environmental goods from being damaged.

Microeconomic factors

The global expansion project of Nordstrom stores may be impacted by microeconomic factors whereby it involves the products and price elasticity, competition among the industries, and the economy’s status. The economy’s recession may have an impact on Nordstrom stores since customers will come to shop in fewer numbers for product quality, which are in websites and stores. There would be a lower level of demand, sales will reduce, markdowns will go lower, there would be high promotions, and the cost of marketing will also go high. Many stores and retail shops in 2017 closed in the United States due to bankruptcies, which was a sign that there was instability in the economy.

As the greatest element to global expansion strategy, the Nordstrom Company must decide on the competitive advantage extent and decide on whether it will be successful for business in Peru. If there is an underestimation of resources and capabilities needed for the market expansion, it could lead to failure in meeting the objectives globally; there will be losses of finance, great delays will be experienced, and the higher cost will also be experienced. Some of the challenges that will be experienced include local competition power growth from mostly foreign retailers, which may become more powerful than expected. The strong growth of retail in Peru has led to demand, which is intensified for a commercial real estate space. Other foreign retailers’ higher competition has led to greater investment in Peru (Daxue, 2020). As the growth of competition is experienced, challenges will be faced in Nordstrom Company, with the first business to move more likely to have success since they have the best locations that have been acquired.

Another risk that Nordstrom may face is price elasticity, since the prediction of how the customers will react to changes in price is always difficult, which may impact the rate of sale on the items that are being retailed. The price elasticity concept is always determined by the change in percentage on the market’s willingness to purchase if the product’s price has grown higher. Moreover,  there is a form of coordination that is taking place between the foreign retailers and the local with the aim of market merging, which will make it harder for the penetration by the new entrants in the market of Peruvian. Retailers at the local level are having a better understanding of the culture of local consumers. They always have the types of brands that the consumers at the local level are more familiar with. Therefore there must be the provision of brands and flexibility so that the business remains competitive.

Alternative financial scenarios-sale falling short

Nordstrom’s financial projections are under the assumption which can be critical to financial scenarios at different levels. Since assumption uncertainties and Nordstrom input concerning the revenue being targeted always pose a risk, there must be consideration of scenarios in different ways, the worst, the best case, and the base case; this will help in the evaluation of risks in different situations. This may involve the change of sensitivity examination in Nordstrom’s assumptions on projections of finance in the future. Projections of finance assumptions are majorly based on Nordstrom’s financial data or information history for years in which the report has taken place.

Consequently,  there may be an assumption that Nordstrom stores will have a higher increase in its profit in the coming years in the form, which is continuous. The history of Nordstrom has been successful with better investment in returns which is being produced. Therefore, if there is an increase in the sales, which is projected by twenty percent, there would be an increase in production of profit by Nordstrom stores, and sales drop may lead to a decrease in sales leading to a loss increase. Therefore, there is a need for the Nordstrom Company to determine if the elasticity in price may bring changes so that the business remains competitive.

Time value of money

The global project expansion of Nordstrom Company in the Latin American market must consider the money time value in the projection of finance. This may involve net present value and return calculation rate as part of the analysis in the capital budgeting and value of payback. Net present value is being determined by estimating cash flows, which is projected, an outlay of initial investment, cash flow operation, and cash terminal value over the project expansion. When the analysis of the net present value of Nordstrom company has been determined as positive in number, the stores should be able to successfully move forward with the project expansion, which will lead to risks in few numbers. With the historical information of the expansion of Nordstrom in the Canadian market, there is an estimation that the project’s opening, both Peru and Lima, would have the approximation of horizon valuation after ten years.

 

 

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