Research Paper: External Capital Funding Proposal

Introduction

The motivation behind this Executive Memorandum is to illustrate the Nordstrom, Inc's. development opportunity into Singapore. As per Fortune Magazine, "while New York has dependably been a solid market for extravagance, as of late the travel industry from China, Russia and Brazil have blasted, and wealthy customers in those nations have turned into a noteworthy wellspring of development for retailers" (Wahba, 2016). Nordstrom, Inc. was established in 1901 and is at present a main style forte retailer offering unique garments, shoes, and embellishments for men, ladies and youngsters. As indicated by the company's website, Nordstrom has been focused on furnishing clients with the most ideal service and it has improved that service with time. In 1971, the company went public and is now Nordstrom Inc. Nordstrom has 379 stores in 40 states, including new expansions into Canada with three stores and Puerto Rico, with one store. Nordstrom Rack, Nordstrom's discount store has 244 locations this includes three Jeffrey boutiques; two clearance stores; six Trunk Club clubhouses; and three Nordstrom Local service concepts. Nordstrom's also has a robust online presence through Nordstrom.com, Nordstromrack.com, HauteLook, and TrunkClub.com (Nordstrom Inc., 2019).

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Nordstrom keeps on concentrating on enhancing client online experiences to expand sales, get new clients and hold existing clients. Growth in online fashion retail progressively brings open doors for Nordstrom and contender retailers. Nordstrom intends to keep investing in online advancements and request satisfaction. Numerous competitors are additionally putting resources into this territory and seeing huge outcomes. Enhancing inventory systems to work consistently with internet retailing has enhanced sales for Nordstrom and given it an upper hand over Macy's and Saks.

Resources

The 2015 Nordstrom's expansion into Canada incurred about $2.5billion in additional costs. Also, the company's financial reports of 2015 showed a total of $1.082billion in capital expenditures. Although not all of the funds were used in expansion, it shows that the company invested enormously in the Canadian expansion. To have better estimates, take the case of Nordstrom's expansion into New York. As noted earlier, both New York and Singapore have many similarities. The New York expansion is implemented under a five-year capital plan estimated to cost about $1.1billion up to 2019. Based on the annual sales of the Vancouver store ($200,000million), the expansion costs for an equally sized store in Singapore will be:

• Property: $110 million
• Cost of Goods Sold: $130 million
• Labor: $26 million
• Administrative Costs: $8 million
• Marketing: $2.8 million
• Total Costs: $276 million

Justification

In expectation, most business analysts trust that right now the worldwide economy is growing very gradually. However, in two years' time, it will develop thusly. Back in the days, the U.S attempted to change over nearby retail locations to national outfits and fortunately, Nordstrom turned into a recipient of the move and was made a national store. This was encouraged by the progressions that happened in the way customers' utilized items on a worldwide scale and with the headway in innovation which has since time assumed a noteworthy job in the E-commerce business universally. Development moves by organizations are legitimized since when these firms implement plans to develop in their nation of origin, they tend to extend that degree and want to grow to different places on the planet. With E-commerce assuming a job in organization's development, organizations are exploiting the advantage of growing and all the more accordingly for people who are esteemed clients their dimension of wages is relied upon to ascend because of a similar reason.

The economy of Singapore continues developing and therefore many citizens have enough optional cash to spend on items and services. Different countries have either the middle or upper class already established but Singapore is as yet developing its economy and its riches extension is in the advancement phase which is a decent time to put resources into. Nordstrom projects this to be a twenty billion endeavor by 2021.

Financial Scenarios

The monetary situations the organization might encounter in the following three years include fluctuating sales with the reason being the microeconomic conditions in Singapore that control how the organization will do business in India. Also, Nordstrom Company might do exceedingly well and surpass its targets of about 6%. This will affect how the organization will work and will influence the development plans as of now set up. The development may continue modestly after the establishment of stores which would eventually result in the increase in sales from 2019 to 2022.

Huge Decrease in Sales

On the off chance that the sales in Singapore drop and stocks are, at that point adjusted, at that point there would be an extra change accordingly due to the costs incurred from the manufacture of goods scheduled for shipment. In such a case, the company would be able to maintain a positive net income but insufficient to fund all the stakeholders. As such, caution should be taken to ensure that the net income is adequate to support its expansion in Singapore. In order to maintain the solvency of the company in the coming years, Nordstrom would be required to restructure the four walls portfolio and the pricing strategy. That would mean closing all non-performing shops on the basis of sales per given space.

Huge Increase in Sales

Nordstrom has enough financial leverage owing to its $3billion cash flow hence the ability to choose whether to invest domestically or in Singapore. Since 2015, Nordstrom has been performing well in the retail market despite sales fluctuations. A 20% increase in company sales would enable the business to expand its infrastructure by exploiting all internal opportunities hence supporting the expansion at the global arena. Given that revenue is considered as among the most important performance indicators, it is critical that Nordstrom considers the two financial scenarios with utmost seriousness.

Time Value of Money

Using the two likely financial scenarios, it is possible to extrapolate the net present value, internal rate of return, and the total period of payback to assess the project. The net present value is used to determine the time value of money and convert the future cash flows into hand cash. In this case, the project will cost $295million and will have an annual cash flow of $50million for the coming three years at a 5% rate thus the projected payback period for the expansion is 5.9years. The time value of money is anchored on the idea that the value of money received in the future is less than the value of money now.

Financing

Regardless of whether Nordstrom decides to go solo or through partnership, expansion into Singapore will require heavy investments. One of the ways of funding the project is through retained earnings. The advantage of this approach is that it does not add debt to the financial profile or drain the profits through payment of interests. In addition, it ensures the managers maintain full control in how they run operations. However, using retained earnings would take longer as the required funds are being accumulated and risk missing out on opportunities. Also, the company would need money to fund ongoing activities hence reduce the retained profits allocated for expansion.

Even though funding the project through outside investment would mean relinquishing a certain degree of control, it could also be an opportunity to learn from the insights and experience of the new investors. When pursuing domestic projects, Nordstrom should use internal funding approach but when pursuing overseas projects, the company should go for external funding due to the high level of complexity and enormous investments involved in gaining a competitive advantage. Some of the external funding options available to Nordstrom include debt financing, bank loans, or investors.

To minimize risks in case the funding proposal does not go through, Nordstrom should use its internal capital and enter the Singapore market. The only challenge would be that the company must monitor its partners closely to ensure that its business name is not ruined. Nordstrom would also use its online business framework to acquire partners because it has a great reputation in that field. In 2011, Nordstrom acquired an online retailer called HauteLook and grew its membership by 300% in just two years. While big financial lenders have recently come under criticism due to their refusal to give loans, it is unlikely that a highly qualified borrower like Nordstrom would have such problems in securing conventional loans. In case the loan is not approved, the company would go for the above alternatives.

Track Record

In the past years, Nordstrom has maintained steady growth and a healthy financial situation. Based on the company's financial reports, Nordstrom opened 27 new Rack stores in 2015 and more in the past three years. The company plans to have more than 300 Rack stores by 2020 which is seemingly attainable going by the current situation. The steady growth of the company can be well illustrated by the 14% increase in sales for Nordstrom Rack, nordstromrack.com and HauteLook in 2015. Further examples include the first overseas outlet in Canada in 2015 which remains the most successful flagship store for the company. In 2016, Nordstrom invested $1billion in its top line which in turn increased sales to $14.1billion. That was equivalent to 2.7% increase in comparable sales and 7.5% net sales. Despite the many challenges in the retail market, e-commerce sales increased to $3billion in 2016 (Nordstrom, 2016).

In addition, Nordstrom has a credit segment which enables the customers to have several payment options. The credit segment is among the revenue generators for the company as shown in the appendix. Importantly, data by the US Census Bureau shows that online sales have grown by more than 16.2% annually until 2015. Currently, online sales account for 10% of all US retail sales. Analysts project that this figure will grow to reach 12.4% by 2020 since online shops offer convenience and competitive prices (Statistica, 2019). Also, Nordstrom's expansion plan of opening 300 stores by 2020 will provide a competitive advantage against its main competitors. To sum it all, Nordstrom's solid financial position, ethical principles, credit ratings, and integrity have played a key role in growing the company and building a strong reputation to its stakeholders. That performance has had significant direct impacts on the profile and value of the company which will certainly be a major consideration during the review and evaluation of this funding proposal.

References

Nordstrom Inc. (2019). investor.nordstrom.com. Retrieved from Nordstrom.com: https://investor.nordstrom.com/static-files/3f735b47-233c-4ed3-bd0d-5d2f619ae83d

Nordstrom. (2016). Nordstrom - 2020 Investment Funding Proposal Sources: Nordstrom 2015 Company Review. Seattle, Nordstrom. Retrieved June 8, 2016 from http://shop.nordstrom.com/c/nordstrom-company-review?origin=leftnav

Nordstrom. (2016). About Nordstrom. Retrieved from http://shop.nordstrom.com/c/nordstrom-company-review?origin=leftnav

Statistica. (2019). United States: e-commerce share of retail sales 2021 | Statistic. Retrieved from https://www.statista.com/statistics/379112/e-commerce-share-of-retail-sales-in-us/

Wahba, P. (2016). Nordstrom to Open 2nd Manhattan Store As Luxury Wars Heat Up. Retrieved from http://fortune.com/2016/01/31/nordstrom-manhattan/