MBA 640 Final Project Milestone Two: Nordstrom Expansion Proposal

This MBA 640 final project milestone two analyzes the potential expansion of Nordstrom into Dubai, assessing internal and external risks and opportunities. The project delves into the competitive landscape, organizational complexities, and customer trends, as well as political and cultural factors impacting the investment. It explores various financial scenarios, including sensitivity analysis based on sales increases and decreases, and evaluates the time value of money and risk in financial decision-making. The analysis includes financial statements and projections, aiming to provide a comprehensive understanding of the project's financial viability and the factors that could influence its success, offering a valuable insight into business finance and investment strategy. The project includes tables showing financial figures under different sales scenarios and discusses the impact of microeconomic factors on the business.

MBA 640 Final Project Milestone Two

TABLE OF CONTENTS
Introduction................................................................................................................................4
Internal risks and opportunities..................................................................................................4
Internal Risk...........................................................................................................................4
Opportunities..........................................................................................................................5
External risks and its impact on financial success of investment project..................................6
Impact of microeconomic factors on business...........................................................................7
Alternate financial scenarios......................................................................................................7
Part A.....................................................................................................................................7
Part B......................................................................................................................................8
Conclusion..................................................................................................................................9
References................................................................................................................................10

LIST OF STATEMENTS
Table 1: Statement showing financial figures if sales increased by 20%..................................7
Table 2: Statement showing financial figures if sales decreased by 20%..................................8
Table 3: Result by different investment appraisal techniques...................................................8

INTRODUCTION
Nordstrom Company was established in 1901 by Swedish American John W. Nordstrom and
Carl F. Wallin. It initiated its business as a shoe retailer and expanded its inventory to entail
clothes, accessories, handbags, jewels, cosmetics and perfumes. In present times, and
Nordstrom is one of the leading fashion retailers. It offers a wide range of best quality
clothes, shoes and accessories for men, women as well as for children in their stores across
the country (History of Nordstrom, Inc. (2017). Furthermore, they continue to remain
committed to the simple idea on which the company was established that is earning the faith
of consumers, one at a time. Now, the company wants to expand its business in Dubai.
Present report analyzes all the variants comprising internal risk and opportunities as well as
external risk along with the impact of all the variants on financial estimates investment
project. Moreover, alternate financial scenarios have been discussed in order to assess the
sensitivity analysis of the project.
INTERNAL RISKS AND OPPORTUNITIES
Internal Risk
Competition: An intensive competition is to be faced on national as well as international
level as Nordstrom Inc. As diverse retailers provide similar merchandise in order to compete
on the basis of price or other variants. The fact cannot be denied that the success of an
organization in a competitive market is dependent on its sustainability (Odeschini,
Cortimiglia, Callegaro-de-Menezes, and Ghezzi, 2017). It is important for the company to
earn profits else the survival of a company will be difficult. Moreover, investors choose to
invest only in the company which is financially strong. Further, according to Gardetti and
Torres (2017), the two things which are important for the company to expand and they are
management stability and branding stability. The extent of competition in the area, i.e. Dubai
in the present case will assist in ascertainment of the price of the product in financial
estimates. The same will lead to a company’s overall intuition of being sound and steady
venture.
Complexities in the structure of organization: Being a fashion retail outlet Nordstrom
requires making changes as per the need of market as well as customer, the same lead to
enhance complexities in operations of the organization. If the structure is not formed in a
correct manner than the objectives of the company cannot be achieved and also it will not be

able to operate efficiently (Casadei and Gilbert 2018). In order to evaluate the risk of a
company’s organizational structure, the assessment of job positions, hierarchy and lines of
communication should be done. Further, if the structure is not clearly described and all job
positions that are working in tandem with one another the company will not be able to
achieve its objectives. The specified risk will affect the cost estimation of the project. The
higher the changes required, the more the cost is to be paid for the same.
Customer Trend / Preferences: Customer can be referred to as a new point of sale. Thus, it
is significant for the company to be innovative whether it is related to the expansion of
product, marketing and promotion, staff welfare or shopping experience. In case the lack of
above-specified variants by the company than it could provide a big chance for other rivalries
to fetch their share. Since, if there is no modernization by the company, then it will remain
sluggish, staid and extraneous in a modified market environment. As per assertions of
Guercini and Milanesi (2017), if a company wants to survive in the market, it is necessary to
assess the customer trends, without same Nordstrom can’t compete with its rivalries. For
instance, the peak and lean season could be ascertained, and the same will assist in making an
estimated figure of sales. The extent of loss company will have to bear in the lean season due
to the downfall in sales could be ascertained through it.
Opportunities
Unique designs: The Company Nordstrom has the opportunity of expanding its business
since it has unique designs. Further, the company has many designers on board who
comprehends the brand of Nordstrom Company and the psyche of the consumers who visit
Company as well. This implies that the clothes which are produced by the company are
superior in quality as well as elegant and excellent finishing. It should be considered that not
only qualities of clothes which are produced by Nordstrom are best; moreover, they have
immense finishing as well (Cheng, Fu and Lai, 2018). The same can be proven as an
opportunity for the company in order to expand its business. Hence, the same will affect
financial estimates of the company as if unique designs are acceptable by a customer of the
new market than the figure of sales can be enhanced. However in contradictory condition
expenses relating to research on the choice of people is to be enhanced.
Strong existence: Nordstrom is making an attempt to expand its business in Dubai as well.
Presently, it has its stores in the United States and fashion boutiques in European countries.
The same implies that the company is expanding its presence all over the world along with

the expansion of its brand. The estimation of sales figure is dependent on the expectation of
presence in the new area. Moreover, success in another foreign country can be taken as a base
for the same, as it will assist in making appropriate financial estimations. Thus, it can be
assessed that if there is strong presence than the figures can be enhanced On the other hand, if
the company does not have a strong presence in the market than in that case there is the need
of lowering down of figures.
EXTERNAL RISKS AND ITS IMPACT ON FINANCIAL SUCCESS OF
INVESTMENT PROJECT
Political Aspects: Political factors have a significant impact on a decision relating to the
expansion of the business of an organization (Meyer and Peng, 2016). For instance, an
enhancement in the frequency of terrorist attack has turned stressed diplomatic relations with
its neighbours. Another example of the same can be said growing nuclear threat have
enhanced stress level between North Korea and the United States. Further, if there is a
situation of any terrorist attack or any natural disaster in the country than it will not only
affect the people but also the local communities, organizations and infrastructure. Due to the
above-specified reason; political factors are assessed in detail before entering a new market.
Hejazi Nia, (2014), asserted that Existence of stringent or critical political conditions might
lead to the organization in the position of winding up. In addition to this, it can also lead to
complexities in operation of organization (Datta, Ailawadi and Van Heerde, 2017). Even the
increasing rate of natural disasters influences the organization and its functioning
negatively. It can be concluded from the above discussion that making estimation relating to
political variants which determine the extent of availability of external risk is a tough job. In
case political peace is available than it is possible that Nordstrom investment decision is
proven in its favour. However, in case political issues exist than it might be possible that it
has to suffer hard times.
Culture: Culture has been the main external risk variant which is necessarily required to be
assessed in case an organization is entering a new market (Ayers and Odegaard, 2017 ). It is
believed as one way for emerging market fashion players in order to attain larger global share
through leveraging with cultural capital. The culture of the new market, i.e. Dubai is not the
same as of the United States. Thus, Nordstrom is required to develop such a culture which
can be continued as an ongoing activity. It is not an easy task to develop a culture as choice
and perspective of people change in a continuous manner (Ozkan, 2018 ). Nordstrom Inc is

required to make people believe that they are changing their products in accordance with
latest trends. The estimations of revenue are dependent on the success rate of making people
believe the culture developed by their organization in the perfect one (Baumol and Blinder,
2015). The greater the extent Nordstrom is able to develop culture and evolve the variant of
the culture of Dubai in its organization; specifically for outlets in this area the more
percentage of success of investment can be estimated.
Brand value of competitors: Company Nordstrom has developed significant brand value
across the world. Further, the performance, as well as the quality provided by the company,
has also enhanced over the years. The same might be affected by the brand value of
competitors in the new country. It is a tough task to give competition to the existing brand
value of the new area. Hence the extent to which brand value can be continued will decide the
success rate of an investment decision (Fernie and Grant, 2015).
IMPACT OF MICROECONOMIC FACTORS ON BUSINESS
The considered company is engaged in a competitive industry which is directly affected by
microeconomic factors. Considering the trend in income, sales and expenditure can be direct
with price elasticity in the fashion industry (Mokhova and Zinecker, 2014). However, this
factor can be mitigated as businesses can do well even with the bad economic phase by
reducing their expectations from the market. In a downtrend, people will not simply stop
purchasing; either people will buy less, or they will make more economical purchases
(Baumol and Blinder, 2015). Businesses can survive in the market by changing its expending
strategies, and through this, they can still earn profits.
Trends in business distinct and areas have an instant effect on the fashion industry. For this
aspect, the company is not required to observe merely the economic trends close to business
premises as mainly they are required to look at the economic environment of the business
customers (Baker, 2018). Such microeconomic situations mainly effect on the enterprise.
Therefore, business decisions must be based on falling and growing expectations of business
customers.
ALTERNATE FINANCIAL SCENARIOS
Part A
In a sensitivity analysis, it shows effect how the diverse values of an
independent variable can make on the specific dependent variable

supported by a specified set of assumptions. This method is utilized in
particular boundaries.
Table 1: Statement showing financial figures if sales increased by 20%
Nordstrom INC 2016 2017 2018 2019 2020
Revenue 17397.6 18164.4 19254.3 20217 21025.7
Expenses 9440 9890 10077.9 10279.5 10485.1
Calculated Profit 7957.6 8274.4 9176.35 9937.51 10540.6
Calculated Profit Margin 46% 46% 48% 49% 50%
Table 2: Statement showing financial figures if sales decreased by 20%
Nordstrom INC 2016 2017 2018 2019 2020
Revenue 11598.4 12109.6 12836.2 13478 14017.1
Expenses 9440 9890 10077.9 10279.5 10485.1
Calculated Profit 2158.4 2219.6 2758.27 3198.52 3532.05
Calculated Profit Margin 19% 18% 21% 24% 25%
By considering the above figures, it can be noticed that with the change in sales value there is
a significant difference in the percentage of profit margin. Increase in sales will increase the
overall inflow which will increase the return on the investment. On the other hand, in the case
of the decline of sales, return on the project will be adversely affected.
Part B
It is important to identify the time value of money and risk for the process of financial
decision making. However on any case, if cash flows and risks are not recognised, then it’s
possible for a company to make decisions which are not focused on important goals of
exploiting the welfare of the owners (Sharan, 2015).
The theory of time value of money assists in reaching at the equivalent value of the dollar
amount that occurs at dissimilar points of time into corresponding standards of a particular
point of time (Bridge and Dodds, 2018).
The cash occurs at various points of time which can be compared by the following methods-
1) By comparing the present amount of investment to the future period cash flows
therefore by computing their worth in terms of present money.

2) Discounting of the future amount to the present date therefore by searching out the
present value (PV) of future value (Abor, 2017).
By applying this concept, impact on investment appraisal decision:
Table 3: Result by different investment appraisal techniques
NPV, IRR and payback period under a normal scenario
0 2016 2017 2018 2019 2020
Net cash flow -20000 5058 5247 5967.31 6568.01 7036.32
PV @ 10% -20000 4598.18 4336.36 4483.33 4486.04 4369
NPV 2272.917682
IRR 4%
Cumulative cash flows -20000 -14942 -9695 -3727.69 2840.323 9876.645
Payback period 3.830953358
NPV, IRR and payback period in sales increased by 20%
Net cash flow 0 2016 2017 2018 2019 2020
PV @ 10% -20000 7957.6 8274.4 9176.35 9937.51 10540.6
NPV -20000 7234.18 6838.35 6894.33 6787.45 6544.88
IRR 14299.19437
Cumulative cash flows 22%
Payback period -20000 -12042.4 -3768 5408.354 15345.86 25886.46
2.546536067
NPV, IRR and payback period in sales decreased by 20%
Net cash flow 0 2016 2017 2018 2019 2020
PV @ 10% -20000 2158.4 2219.6 2758.27 3198.52 3532.05
NPV -20000 1962.18 1834.38 2072.33 2184.63 2193.12
IRR -9753.359006
Cumulative cash flows -18%
Payback period -20000 -17841.6 -15622 -12863.7 -9665.22 -6133.17
0
By considering the results of investment appraisal techniques, it can be noticed that with the
increase in sales NPV and IRR increases and payback period declines which make the
venture more profitable. Further, on the contrary side, the decline in the sales made NPV and
IRR negative, and this means the project is not even able to provide the initial amount
invested. This factor shows the importance of forecasting in business and consideration of
sensitivity analysis for decision making.

CONCLUSION
It can be concluded that the investment decision of Nordstrom Inc. should be made after
assessing the external as well as internal risk variants. In order to avail the benefit, the
company should focus on available opportunity and implement them in order to mitigate the
risk variant. Lastly, as in normal scenario, the payback period is three years, which represent
that if the factors are in favour of the organization, it will be able to earn an appropriate return
from the investment.

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