Proposal To Expand Nordstrom's Retail Store In Canada - Benefits And Impact

Most businesses face a landscape of uncertainty and a never-ending stream of risks and opportunities. Managers must continually project the likely financial impact of decisions, make recommendations, act on those decisions, determine how to pay for them, and evaluate the costs and effectiveness of what has been done. Many decisions are short-term, routine, and operational.

Others are longer-term investment decisions that require substantial new resources, such as developing new services, expanding into new geographic markets, or undertaking business combinations or spin-offs. Each requires managers to forecast, plan,and make decisions based on a thorough understanding of both internal and external factors that can affect a company’s financial success. 

Businesses face uncertainties and risks of all kinds that can have a financial impact on an organization. Managers have to take critical decisions about operations, routine work as well as project work that can again affect the financial condition of the organization. Major decision is to take on a long-term investments and they have to be sound enough to ensure that deliver benefits to the organization and get it good returns. For this to happen managers need to do forecasting, proper planning and take into consideration the external and internal factors of consideration while defining financial success. Any project that needs a long-term investment must align with the strategy goals of the organisation and deliver financial benefits.

This report proposes Nordstrom retail store to expand its presence by opening another chain of 20 new retail stores in Canada as it would bring more revenues to the organization in the long run. This proposal makes assessment of the impact that this project would cause on the company and provides justification of how the project would provide out to be beneficial for the organization. The report explores the strategic fit of the project with the company and evaluates the investment from different perspectives including resource utilization, strategic priorities, macroeconomic perspectives, and comparative advantages.

Company Background

Nordstrom is a USA based chain of departmental stores and is headquartered in Seattle, Washington. The company was founded by John W. Nordstrom as a shoe retailer but soon it expanded its operations by selling more retail items like shoes, clothing, jewelry, and cosmetics. Today, the company has 260 stores in 35 states that include 143 Nordstrom rack and 117 full line retail stores. The company has a mission to provide compelling experiences to all it shoppers by offering them best services, value, quality, and selection options. The company aims to continue to expand its presence by taking advantage of new opportunities arising in markets.

Resources

The company today has more than 66,000 employees working for the retail store chain across the globe. This workforce is responsible for managing operations for 260 stores. Addition of 20 new stores in Canada would increase the need to have the new resources. This would need 3000 new recruitments that would be placed in the new retail stores that are opened across the state. This would increase the cost of employment for the company which would include the cost of hiring, cost of restructuring, and cost of training new employees. The company can however take a few employees from the old stores where they may not be doing any major job (Kesteloo, et al., 2011).

Company Background

The retail would need financial resources for creating set up of the new store stores, hire people to work there and procure ingredients and supplies to sell them in the stores. These funds have to be arranged from sponsor if the project has to be executed for which this proposal has been made. The company would incur major costs in setting up the retail stores which it needs to minimize. To so this, the company would not be constructing new stores would be utilizing the existing structures and would improve them in attractive market locations in Canada to turn them into departmental stores for this expansion project.

Major resources would be needed in managing the retail operations in Canada for which the company would be hiring employees from the local market as they would have good knowelge of how the market works. As the country is currently running with low wages, the cost of hiring would be lesser for the company as compared to their home ground which would give them a comparative advantage in Canada.

Time Frame

Assuming that the project gets appeared in a month and the process of expansion begins by Sept 1^st 2018, the project is expected to take 3 years to complete which would involve the following tasks:

As reflected in the milestone table, the company would begin with conducting a research on the local retail businesses to understanding the consumers in Canada which would be followed by the selection of appropriate sites for establishment. Operational and location related permits would then be taken by the company and the process of retail store set would begin. The new technologies and system would be implemented in the stores and the company would stick only a limited amount of the merchandize and products as needed by the company.

Justification

The vision of the company is to ensure that the company takes all the opportunities coming their way to get the best of them to keep the market growing. The current project aims to expand the company’s operations by entering into a new market that has huge opportunities for the company to get more revenues by expanding into new markets. Current conditions in the market are favorable and the retail is likely to also get the support from the government.

Because of the recent economic downturn, there have been less foreign investments and thus, international brands are not sufficiently available in the country. However, the consumers continue to grow in their intensity towards purchasing international brands which would be a great opportunity for the retailer to explore. Considering these factors, Canada appears as a great market to explore for the departmental store chain.

Resources

Strategic Priorities

The company has certain mission to fulfil that include ensuring that customers are provided with the best shopping experience in the store and taking advantage of the available opportunities. The company is planning to grow across globe taking expansion as the route and explore new markets. Thus, any expansion move would be on the strategic priority as it would help the company achieve its vision of expansion.

The company also intends to provide best customer services to create a valuable experience in stores for which the company would need to have a dedicated staff that serves customers well. With the new stores built, the new staff would be hired. The company would get the opportunity to have fresh minds at work and would be able to provide them fresh training on customer service best practices which would enhance the experience of the customers in the store.  

Considering the strategic goal of takin opportunities prevailing in the market, the project involving expansion in a country like Canada which has increasing need for retail stores would be a good move for the company. Also, the company must remain adhered to its other strategic goal of creating a great experience for the consumers for which the company can plan to conduct a research on the Canadian consumers for understanding their purchase habits and preferences for products that would be sold in the market by the retailer. This would help company shape up its marketing and stocking strategies so that the company can gain the maximum benefit from the market and ensure that its entry is openly accepted by the consumers in the country.

Macroeconomic Justification

The economic structure of a country in which the company is operating would affect the working environment of the company and determine its possibilities of success in various ways. The macroeconomic environment around the company has to be positive and supporting to the company in order for it to flourish in a new market. Thus, it is important to explore the macroeconomic conditions of the destined country to understand if it would help the retailer sustain itself as well as foresee a possible growth in future with the given macroeconomic conditions. Nordstrom is looking for expanding its establishment in Canada and thus, the macroeconomic environment of Canada needs to be explored.

Employment rate in the country had been standing low since long but it has started to pick up only in recent years after the financial crisis. The country is not on the growth trajectory with growth in real estate. However, the sales businesses have not been very significant which is why investments in business have reduced drastically in past few years. This has also lead to a reduction in the hourly wage rates in the region.

Time Frame

This decline can majorly be attributed to the decline in the oil price. However, industry experts are optimistic about future investments and the opportunities that lie ahead in business. The country would be put back on the growth trajectory in business in coming years. This could be an opportunistic time for the retail chain to expand in the country as because of lack of investments, the company would get easy support and with low wage rate prevailing, the company would be able to make new hires in less cost. By the time, the company would end up establishing all its outlets in the country, the economic conditions would improve and the retailer would be able to take the advantage of that (Castaldo, 2017).

While oil price crash caused a major downturn for the economy, it did lead to a major shift in priorities as the activities are now shifting from resource sectors to non-resource businesses. This would mean that product market would be on rise and small business dynamics would play a major role in fostering economic growth in near future. When considering retail sector, consumers spending capacity plays a major role which is reflected by the disposable income in households. Canadian households have always been high in terms of disposable income which was 167.6% in 2015 which is near the top in the OECD range. Despite the downturn, Canadian household assets continue to be at 73% and debt close to 17% which suggests the increase in net worth despite the downturn (OECD, 2016).

Adjustments have been made in terms of trade and new policies have emerged to facilitate non-resource sectors in Canada in past few years. The industries that are supported by this move include real estate, transportation, retail, warehousing, healthcare, art, entertainment, and recreation. Since retail is one among the supported sector, the company can have an advantage which would support its expansion plan (Evans, 2017).

Considering the current macroeconomic conditions prevailing in Canada, the time seems right for Nordstrom to make an entry into the country and establish its new retail stores at lower cost and get more revenues in near future.

Comparative Advantage

A country can take advantage from an international trade when it specializes in process of production of specific goods that have lower cost of opportunity and imports the goods that have higher cost of opportunity. Opportunity cost is incurred when a choice is made between two alternatives to production. It is the value of production that is lost because the resources have been utilized for one purpose chosen over the other.

Justification

An international trade in this way would allow companies to benefit from such a comparative advantage. Comparison of the ratio of the production costs of two countries can help discover which country would have a comparative advantage over the trading partners. However, obtaining such a production cost data may not be feasible and thus, a different approach may be taken.

It can be fairly assumed that trade flows are somewhat free from policy induced trade costs and thus, export from a country would always have a comparative advantage as compared to the trading partners. Canada has been a state that was dominated by non-chain stores and it was only in past few years that the country has experienced an increased acceptance for retail chains thus, presenting opportunities for retail chains lime Nordstrom to expand their markets by entering the region (report, 2016).

Grocery market is growing in Canada and grocery purchase from departmental stores with click and collect facilities are increasing which can lead to the disruption in the industry and would allow for newer players and chain stored like Nordstrom make their mark (Patterson, 2018). Moreover, the low wage rates prevailing in the country would give the company a comparative advantage as compared to their home ground

Conclusions

This proposal was created for Nordstrom for suggesting the company to take market expansion as the step to its development for which the market of Canada was chosen. It was found that Canada has been recovering from the previous economic downturn and presents favorable conditions for the retailer. It has low wage rates prevailing, high disposable income of people, and increasing political support for non-resource businesses like retail. The report explored the case of the company and explained how company can justify its move of expansion.

The company ir proposed to set up 20 new stores in Canada in coming 3 years as the part of its expansion plan. The strategic goals of the company are to take advantage of prevailing opportunities and to ensure that excellent experience is provided to its customers in the store. With this expansion plan, the company would already be taking the advantage of the opportunities present in the Canada market and the creation of new stores would give the company opportunity to create a new experience for customers of Canada fulfilling their other strategic obligation.

Thus, the expansion project is highly recommended for the expansion of Nordstrom as it would be aligned with its strategic objectives and would give the company a comparative advantage while building retail stores in Canada. The company can establish its stores hiring people from the local communities to take the best advantage of their knowledge and can take stocking and marketing decisions based on the understanding of the consumers in the local ground.

References

Castaldo, J. (2017). Exactly how Canada’s economy is doing right now, in 10 charts. Canadian Business.

Evans, P. (2017, January 08). 5 reasons Canada's economy is looking up in 2017. Retrieved from CBC: 

Kesteloo, M., Potter, J., Mansson, A., Fernandes, F., Chahine, G., Phillips, D., . . . Navarro, C. (2011). Best-cost country sourcing : A next-generation approach. PWC.

OECD. (2016). OECD Economic Surveys Canada. OECD.

Patterson, C. (2018). Canadian Retail Forecast. Retail INsider.

report, S. o. (2016). State of retail: the Canadian report. Government of Canada.