The Expansion of Nordstrom Globally - Case Study Example

Introduction

Nordstrom, Inc. is a top fashion specialty retailer that offers persuasive clothing, shoes, and accessories for men, women, and children. The business was established in the year 1901 as a retail shoe business in Seattle, afterwards, Nordstrom incorporated in 1946 in Washington and expanded to be among the leading fashion specialty retailers whose headquarters is in the United States (About Nordstrom. 2017). As a corporation, Nordstrom runs over 300 stores in the US and are based within 40 States including a strong e-commerce business hosted on Nordstrom.com. The expansion of Nordstrom globally is a key strategy towards the success of the business in the future inside the current unpredicted global market. This paper presents an external funding proposal for Nordstrom Inc. for its expansion to Australia.

Description of the investment

The proposal towards a direct external capital funding is focused towards a global expansion of the business operations of Nordstrom into the Australian market. The expansion project will start with the deployment of several stores in the country and will focus on serving new customers that shop within local shopping stores in the country. The main objective of the investment is to increase the capacity and efficiency of serving customers on a global scale. This will enable the business compete with other firms that are in a similar industry.

The business has allocated over 1 billion of its planned capital expenditure for the period between 2015 and 2019 for the expansion of stores in the US and Canada. Thus, for an expansion to Australia, more funding is required for the expansion. Nordstrom had already set aside approximately 1 billion of the expansion of other project.

The investment in the US and Canada represent about 25 percent of the total amount that was allocated for the capital expenditure over the period (Nordstrom, Inc. 2008). The investment into Australia and other locations may cover about 18 percent of the capital expenditure allocated.

By the end of 2015, Nordstrom had already set up 118 full-line stores and 177 Nordstrom Rack stores (Nordstrom, Inc. 2008). The future pans of the business is to expand Nordstrom Rack stores on an annual basis to attain three hundred stores by the year 2020. In addition, the company projects to establish new stores in by the end of 2017. By 2018, the company is anticipating to set up five new full-line stores in the US.

The proposal to expand Nordstrom to Australia is wide strategy more so for the stores and may reinforce its position counter to department stores as well as off-price retailers such as Ross (ROST) and TJX companies (Nordstrom, Inc. 2008). Companies like TJX run over 3,000 stores across Canada, United States and Europe. Besides this, Ross Stores is running over that 1300 stores among other companies.

Resources required for the expansion

Nordstrom will require a number of resources for the proposed global expansion. Among them will include; adequate financing, human resource, advertisement and marketing, infrastructure, and information technology. Besides this, conducting a business in Australia requires a number of factors to be considered within foreign direct investment. The business will thus need to look for help in retrieving part of the requirements from both a legal adviser and representatives locally. It is important particularly finance resources under capital expenditure in order to sustain profits and lessen the costs of expansion. On the other hand, Nordstrom has access to other forms of financing by considering a credit line that is revolving as well as commercial paper program should these resources be required in the efforts of expanding into Australia.

Among the largest costs expected in the expansion will be real estate and rent since it requires a sound management team so as to limit the expenses on rent to assist sustain liquidity. In most cases, Nordstrom normally hires buildings and land including facilities, warehouses, offices and equipment. Most of the stores that the business hires revolve between 15 and 30 years and have alternatives to increase the period of the contract if need be (Nordstrom, Inc. 2008). In relation to expenses anticipated in future, the company has proposed an approximate of about 3 billion between 2017 and 2021. In leasing the space, the business will consider the average size of a single rack that will be incorporated in the cost.

Time Frame of the expansion project

The expansion of Nordstrom towards Australia has a time frame that is required to start towards the end of 2017 and anticipated to grow through 2025. Generally, the long terms of Nordstrom in Australia will include developing other stores in the region. To successfully launch a store in Australia, the business anticipates a period of one year (Nordstrom, Inc. 2008). Depending on the business conditions in the in the country, the company will exit the market if the objectives of the business are not well achieved in the long run.

Why now?

In the current economic conditions of the world, many of the foreign investors are searching for opportunities in the international market in order to attain goals set for companies doing business on an international scale. For this reason, Nordstrom is at a better position to globally carry out investment regardless of issues related to foreign exchange rates as well as the prevailing state of the economy in the world. According to different research findings in the United States, it is evident that the need for global expansion is high for the future growth of a business in upcoming markets that have more opportunities. Thus, with the emerging trends in the market, Nordstrom has an opportunity to expand the business.

Priorities

Among the OECD member states, Australia is among the countries that are open to foreign direct investment (Hogan, 1999). Foreign direct investment covers over a third of the GDP in the country. This is as a result of the stability, strong economic growth, economic liberalism, strong legal system that covers its geographical isolation and narrowness in the market. This are among the benefits that the company will achieve with operating in Australia. Besides this, Nordstrom should consider issues associated with currency and rates of conversion in relation to the United States.

Strategic fit

Over the past few years, the company has made a number of strategic decisions so as to align the organization with the preferences and needs of the customers that have changed over time. The best part was in 2015 that saw over 4 million customers started shopping at Nordstrom.com. The company had made important investments to expand e-commerce as well as expanding in to Canada. Over the past five years, Nordstrom has invested over 3 billion in capital and increased its net sales by a large percent. Due to this, the prevailing environment demands that more focus should be placed on profitability and a reason as to why investment opportunities are significant in the forthcoming years. Besides this, Nordstrom invested over 140 million in 2015. This can be compared to lesser amounts that were invested in 2014 as well as other years. Also, over the past three years, the capital expenditure of the company has significantly increased from 2015. This increase is attributed to the expansion the company and investment in technology. Thus, the great expansions of Nordstrom more so for Nordstrom Rack will improve its performance of between its sectors of retail and off-price retail.

Global Microeconomic environment

In Australia, the high demand of retail clothing will enable the company enter into a business environment that is growing very fast. Australia has many individuals that change the trends in shopping and most people prefer retail stores. In the United States, most individuals who shop also consider shopping at retail stores. Through this perspective, the microeconomic environment has raised the sales within off-price retail stores and improved global expansion.

Comparative advantage

The competitive advantage of Nordstrom over its competitors is based on a number of factors that include, customer satisfaction, quality of products, as well as improvement of their services. The company achieves a competitive advantage by providing its customers with off-price and full line stores. In addition, the company targets both middle class shoppers as well as high-end shoppers. Thus, the expansion of the business into the Australian market will improve on the basis of its competitive advantage and offer a new opportunity to the company.

Conclusion

This paper has presented the external capital funding proposal of Nordstrom Inc., a publicly incorporated company in the US with a focus of expanding into the Australian market. The paper has described the investment that the company has done in different environments, analyzed the resources, presented the time frame for the proposal, evaluated the reasons as to why now is the best time, analyzed the strategic accomplishments that Nordstrom has achieved including priorities, microeconomic environment, and comparative advantage. The paper concludes by highlighting Australia as a strategic investment towards its global expansion.