RISK ASSESSMENT ON NORDSTROM

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Risk Assessment on Nordstrom

Natalia Cardona

Southern New Hampshire University

Risk Assessment on Nordstrom

The Nordstrom Inc. is a high end fashion company that majors in the retail operating under the apparel segment. The company has shown mix performance where in different years it has performed well but in other it has reflected decelerating performance. The company was founded in the year 1901 and its headquarters were settled at Washington DC. the company operates more than 225 stores in the United States that are located in 30 different streets, the primary location of the company in terms of geography is known to be the east and the west coast of the United States (Bailey, 2015). The company operates the two segments including the credit and the retail where the retail segment is comprised of the one hundred and sixteen Nordstrom branded full time stores, and one hundred and five off-price Nordstrom Rack stores (Dunne Et Al. 2014). However, there are some economic and business environment crises that indicate that the company will be experiencing downward trend in its expansion to others areas such as Asia as focused in this paper in a risk assessment evaluation.

The risk assessment is done in a scale of 1 to five scales where one is the minimum probability and five is the critical situation (Harvey, 2017). The impact of the occurrence states the repercussions associated with the intended crises and the associated prevention measures.

Internal Risks

To starts with, the online retail server of the company is ever going down (Harvey, 2017). This means that the company will not be able to carry out substantial online activities to support its operations. The slow operations associated with the online server’s signals major challenges to the company’s operations that are reflected through loss of profits because the customers cannot make orders due to slow operations and responsiveness of the online market site (Harvey, 2017). The company also looks unreliable to the customers since they will associate it to increased risks and inconvenience when placing of orders and their processing. Consequently, there is a continuous reduction of customer’s activities in not only buying but also visiting the site to check for the new arrivals and other fashions; this has significantly reduced (Harvey, 2017). The company for the last one year has marked a ten percent decline of the online customers which has directly resulted to unmeaning revenue. Additionally, this has drastically affected the possibility of the new customers to shop with the company due to the server unresponsiveness which has led to the increasing sharing of the negative reviews (Harvey, 2017). According to Jack (2017), poor site security is detrimental since it interferes with the quality, services and treatment to the customers’ reputation.

However, the company can undertake to implement a preventative measure to this menace through backing up their technical breakdown. In this regard, the company should put in place backup generators and servers at the Nordstrom warehouses to ensure continuity and efficiency of the company’s online activities. Additionally, the online serves should be checked regularly to ensure that they keep on functioning even during the power outages (Harvey, 2017). To ensure security, the company’s firewall should not only be monitored but also should be regularly updated to prevent cyber-intrusion from entering the main frame of the site (Harvey, 2017). This has had a negative impact on delaying the orders and at one instance, the company online platform was intruded by outsiders that led to the complete shutdown and exposing the customers confidential information such as their names, credit card numbers just but to mention a few. Therefore, the company should focus on enhancing security on its website, and regular training of the website professionals who are at a disposal to handle the web crises and should depict high ability and skills in situation assessment and fixing of problems both quickly and efficiently (Harvey, 2017).

The company, for a long has been experiencing human breakdown. This includes crises such as strikes, demonstration and go slow. The probability of reoccurrence of this phenomenon in the future is set at a probability of two by the Forbes forecasters (Jerry, 2017). Employees are an important aspect of the organization internal stakeholders whose activities have a direct impact on the company’s activities. For instance, they have a direct impact on the organizations decision and they can either enhance or halt the organization activities. In this regard, it is anticipated that the company’s outlet retails may have close down in the west United States due to lack of employees (Jerry, 2017). This is because most employees ditch the company due to poor pay and other working conditions. The company has been experiencing strike that would become a national one in all its outlets. Consequently, this may impact its multiple store locations which may lead them to close temporarily thus causing a huge loss (Jerry, 2017). It is also worth mentioning that the reputation of the company’s positive employees’ care is at a greater risk.

These factors are expected to increase the company’s financial estimates in handling employees’ strike, backup and secure system maintenance. This will lead to an increased budget estimation to provide the needed accessories and increase the employees pay rise. However, to address this issue, the employees pay raise will be done with reference to company’s revenue and profit growth. For instance, if the company profit growth is at 10 percent, the employee’s pay rise will increase to 5 %.

Additionally, to succeed on new ventures, the company should reconsider its opportunities and work towards materializing them. For instance, it is imperative to meet the customer’s requirement of the luxurious items but also should strive to offer them at a reasonable price (Dunne, 2014). The company should also endeavor to meet the needs of the middle class through expanding its markets by mergers and acquisitions with other companies. This will help to increase its capable base and benefit from experienced employees and wider market share. Therefore, the company should have an established focus so as to impact a changing behavior and the lifestyle of people as well as the society.

External Factors

Most surprising is that there are increasingly reported cases linking the employees to customer’s misconduct. This risk is assigned a probability of two by the Forbes research and probability estimations. Evidently, this is of significant since it predict loss of Customers if not handled as fast as possible. Additionally, the company is abusing one of the business guiding quotes stating that, ‘customers are always right’, this is done through tolerating employee misconduct of mishandling customer’s complain. Consequently, the company has for a long time avoided the liabilities that it should comfortably address and should to defend its reputations. For instance, the company is liable and therefore, should amicably address the misdeeds committed by its employees while under the employment tenure in the company (Harvey, 2017). Additionally, the Company has failed to comply with the government’s requirement for customers or shoppers insurance cover. This is seen in the increasing cases where customers who have been injured while shopping at the company outlets have sued the company in the legal court. Furthermore, there has been increasing legal partition in the company where the customers have sued the company due to the negligent hiring and retention (Harvey, 2017). This damages the company’s reputation to the job seekers thus; scaring away potential and highly skilled employees from applying into the company’s employment slots. Terry (2015) affirms this claim by noting that the reputation of the company and the services to the employees has for a long time been under severe damage due to what he terms as reckless and improvement management in handling small but critical business issues.

The company’s abilities to expand to other environment factors are haltered by some legal and other cultural factors. The company’s expansion to other countries is limited by its financial base. For example, it has been experiencing decreasing investment from the shareholders further stretching its budgets which may limit its ability to handle its expenditure. Thus, any slow activities may lead to its fall down. The company financial base also indicates that it may not be able to meet its operation costs and other activities due to high fee imposed by the government on new external businesses with an attempt to protect local startup businesses.

People spending culture is different and depending on the company’s aim to expand to Asia may be detrimental. For instance, the declining economic conditions in last two years have haltered business activities. There has seen increasing employment cases, tightening customers spending, and the declining market in the United States, this condition has affect the consumer’s spending not only in USA but also across the world (Nordstrom, Inc. Credit Rating – Moody’s, 2017). Additionally, People from different cultural backgrounds have different taste, and purchases abilities thus if no proper research is done on the people’s dressing code and spending habit, the company may end up in a thick end. Consequently government regulation in terms of environmental management, tax compliance, employee’s contract among others may be an addition factor of concern in different countries (Nordstrom, Inc. Credit Rating – Moody’s, 2017).

However, the problems can be mitigated through implementing human breakdown initiative that is geared towards preventing employees from consumer’s misconduct crises from taking place. Nordstrom Company should focus on implementation a thorough and well informed hiring system that will undercut a comprehensive background screening and checking to ensure that they recruit the best personnel. Most importantly, the company should take immediate actions after suspecting or realizing that a certain employee is not only a threat to its working forces but also to the customers. Moreover, streamlining operations at Nordstrom requires frequent meetings and thus it is important for the company to schedule monthly meetings for the staffs to ensure that it encourages open communications between the managers and the employees in an effort to mitigate the employee’s strikes and go slow. The company should use these meetings to get close to its customers and also to reassure their work force that they are a valuable asset to the company’s operations and wellbeing.

Legal factors

The company faces the risk of losing customers due to complains arising from the discontents. For instance, a crises event has been reported where the company has affiliated brands that have been caught using illegal sweatshops. Actually, this is one of the major risks to the company which ranks at a probability of four according to the Forbes report (Harvey, 2017). As a result, there has been an arising mixed reaction which has seen customers boycotting the company’s brands. This has a detrimental consequent to that has seen the decreasing sales and loss of profit. According to Harvey (2017), the use of sweatshops can lead to the effect where customers will chose new sellers and commit them never to shop at Nordstrom. Additionally, the company faces the challenge of legal suits that can be filed against it that’s hurting its reputation. Moreover, the company faces the problem of consecutive brand accusation which may lead to other discoveries of other brands. The violation of the law would lead to more damage to the company’s reputation.

To address the issue of law suits, it is imperative for Nordstrom to put in place a well detailed process that will explain how one should partner with other particular brands. The company should also put in place regular communications with its stakeholders geared towards preventing other related issues from emerging. Also, the company should enact a strict affiliation process, a task force whose work will enhance the investigation of other brands that they may choose to partner with. Additionally, the company should be informed that any cases of illegal associations of certain potential brands will not be tolerated.

Macroeconomic Factors

Most of the company’s challenges are macroeconomic based that are seen in the increasing company’s retrenchment of employees and decreasing sales across its retail store outlets as well as the declining sales from its websites (Dunne, 2014). For instance, the company in the year 2016 laid down more than two hundred employees across the country’s stalls which it attributes to the declining sales and other business activities. Additionally, the company’s sales have also declined as the country’s economy takes a downfall. According to Jerry (2017), economic environment across the retail shops has been consequently impacted by the bad economy thus affecting the sales volume of the Nordstrom Company. In this regard, it is in the interest of the company to retain its customer’s incentive and to lower their prices so as to ensure that they remain loyal even at the times of economic crises which can be quite challenging.

In an attempt to diversify the company’s activities by investing in other countries and regions, the company experiences a stiff competition from competitors such as eBay, alliexpress and Alibaba among other well established retail store marketers. For instance, the company’s intention to take its activities to China and Asian countries has been affected by the presence of Alibaba and Aliexpress activities. To venture into these markets, the company is expected to meet huge government compliance measures and lower its prices to attract new customers. Considering the social culture of the business it is deemed challenging to venture into new markets. This is because the company explores its market niche focusing on clients that are willing and able to purchase luxury products. To venture into the new markets, the company is required to keep the customer’s incentives and prices at minimum level possible. Therefore, the company lacks price sensitivity.

Alternative Financial cases

In alternative financial case, the consensus recommendation shows that with the increasing retail and online stores competition, it is deemed vital for the company to also focus on cheap and fairly priced products than only emphasizing on the luxurious expensive ones (Jack, 2017). This is because luxurious products do not have a wider market share and are affected by the waves of the economic crises. This financial strategy is aimed at attracting more customers as well as investors who will in return boost the company’s financial base (Jack, 2017). For instance, currently, the company experiences a 16 percent share drop and its comparable sales have reduced by 2.2% and the highest comparable sales stood at 11% (Jack, 2017). Additionally, the company reported its profit margin fell by 1.63 percent which points to 33.9 percent of the sales due to low sales in its outlet stores (Nordstrom, Inc. Credit Rating – Moody’s, 2017). These aspects are attributed to reduced sales and less capital based that hinders expansion. After diversifying and expanding its activities, the company’s projected revenue is $14,846 million, the gross margin of 38.9, and the operating income of 1305 million. Thus the net income will increase to 11.2 percent.

With this regard, if the company’s sales fall by 20% percent, it is estimated that the pay rise of 5% to the employees will not be met; this will also reduce the company’s capital base by 20 percent as it strives to cater for the daily and monthly expenditures through eating from capital investment. Additionally, the company’s market share will also reduce. If the company sales go higher than projected, the converse of the above aspects will also go higher except for the market share. This is because sales may increase among the loyal customers only. To the proposed assumptions, the company should be critical and keen to maintain its sales by avoiding large variations, this can only be realized though meeting the consumers’ needs adequately, and having a strong capital base and having a wider market share that targets people of all classes.

The net present value in this case may not be sufficient to meet future investment of the company. Therefore, it is important to look into the depreciation value and inflation rates while making financial projections. The internal rate of return is important since it helps to show and calculate the value and the attractiveness of the project investment. In fact, it is through this formula that the project is deemed lucrative. The payback value indicates the amount and the duration taken for an investment to pay back the capital invested. In this case, the company is expected to take utmost two years to stabilize and at least five years to repay the capital invested. The time aspect of money affects investment calculations that compares the money received in the future to that received as at now. Therefore, time affects the monetary value and the investment project should appreciate with time. This is a factor of consideration since Nordstrom projected investment should appreciate with time.

References

Bailey, S. (2015). An overview of Nordstrom’s growth story – Market Realist. Marketrealist.com. Retrieved 26 February 2017, from http://marketrealist.com/2015/02/overview-nordstroms-growth-story/

Dunne, P. M., Lusch, R. F., & Carver, J. R. (2014). Retailing.

Harvey, N. (2017). Nordstrom Risk Assessment on Seelio. Seelio. Retrieved 26 February 2017, from https://seelio.com/w/2f4h/nordstrom-risk-assessment

Jack, A. (2017). California Transparency in Supply Chains Act Disclosure | Nordstrom. Nordstrom. Retrieved 26 February 2017, from http://shop.nordstrom.com/c/nordstrom-cares-ctsc-disclosure

Jerry, J. (2017). Growth, Profitability, and Financial Ratios for Nordstrom Inc (JWN) from Morningstar.com. Financials.morningstar.com. Retrieved 26 February 2017, from http://financials.morningstar.com/ratios/r.html?t=JWN

Nordstrom, Inc. Credit Rating – Moody’s. (2017). Moodys.com. Retrieved 26 February 2017, from https://www.moodys.com/credit-ratings/Nordstrom-Inc-credit-rating-551600

Terry, J. (2015). Nordstrom, Inc. Mergent’s Dividend Achievers, 5(3), 200-200. http://dx.doi.org/10.1002/div.7462

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