Funding Proposal

Nordstrom proposes an expansion of operations from North America to China. Since the organization was established as a shoe store in 1901, in Seattle Washington, it has grown and succeeded instrumentally and has become a leading retailer in apparel, shoe, and accessories. Our North America stores which are mainly based in Canada and the US have made an elusive channel of retailers who have been of necessary to our development agenda.  In the United States, for instance, we have 117 full-line stores, Nordstrom, com, 216 off price Nordstrom rack Stores, and five full-line stores in Canada. According to our 2016 annual reports, all the stores generated more than $5 Billion in 2016. We emphasize selling quality goods and providing our customers with quality services at our stores and over the internet which has enabled us to extend on a global scale. Our target market is made of both high-end consumers and middle-class consumers whom we attract throughout discounted Rack Stores.  We have incrementally made operational changes that have ensured that we meet the needs of our clients while still maintaining a favorable corporate outlook. 

Our outlook on the China market is that it is growing and gaining strength. The organization stands in an excellent spot to expand into the worldwide presence. In the first place, the familiarity with our quality products will attract citizens from the United States who are visiting China or even those who have relocated to the country and those who stay there. The company also acknowledges that the Chinese market is welcoming of retailers like Nordstrom borrowing our idea from the presence of another international retailer Macy’s Inc. Ali Baba is the company that has the largest market share in the nation and has since partnered with Macy’s Inc. to strengthen their e-commerce capacity in the nation. The emerging and growing e-commerce approach, therefore, places Nordstrom at an advantageous position and will ease accesses to the market. Our first phase of entry will be engaging in negotiation with Ali Baba to join the nation’s TMal portal by the end of the year 2019. The portal gives access to the organization such that we can assess where to establish our 30 standalone stores which we are proposing to make a start with.  The second will be definitely the building of the standalone stores in the areas where we will have noted a high likelihood of making high sales. 

On an economic view, the average household income for Chinese families has gradually increased. In the last decade, the income per family rose to about 67,000 CNY in a year (China Average, 2017). The inflation rate, on the other hand, dropped with a significant 0.8 % as of 2017 (China, Inflation, 2017). The standalone stores and rack stores that we target as an organization will be built for both high end and middle-class clients respectively. China is also a nation that has a strong tourism sector which is also composed of business travelers that makes the country such a prime location for making sales in for Nordstrom. 

Our cash flow approximations for the next three years show an average of $ 3-4 million in cash flow. Our financial forecasts from 2020 to 2023 so the possibility to make steady sales ( See Appendix 1). The forecasts on capitalization also indicate that the company set in a good expansion position (4 Trader, 2018). The company can, therefore, acquire $1.5 Billion which will be acquired through bonds and short-term loans. The finances will be sufficient for entry into the China market. 

Additionally, the agreement with Ali Baba to access the Tmall portal, we will also get out e-commerce approach started.  There will also be other costs to incur such as in licensing, taxes, the Tmall’s patent rights payments, hiring personnel and also in building and purchases. Nordstrom will have to erect a transition team that will be responsible for ensuring that the buildings which will be modeled are built with strict compliance with the laws in question. There will also be another team that will be established which will be responsible for hiring and personnel transfers. The organization will also have to build a network for the distribution of products from the US and China. Therefore, Nordstrom will consequently have to make compliance with international trade rules and a full analysis of the China market altogether.

An achievable timeline has been set for the construction which must end by the December 2020. The constructions will be inclusive of 10 rack stores which will measure 25,000 square feet each. A national flagship store which will look like our headquarters in the nation will also be established and it will measure 250,000 square feet and 19 stores will also have to be constructed where each will measure 200,000 square feet.  The organization will finance mortar, e-commerce and brick facilities. One million square feet will also be planned for and it will accommodate corporate and management offices alongside other workers. Housing for the transition committees is also another expense that the organization is set to settle. 

Justification

The last ten years have seen the economy of the world rise and grow. There are however natural factors that could affect the growth of the global economy. Globalization is, however, a change that has brought benefits to the economy of the world and it is set to remain. As the fastest growing economy in the globe, China is set to welcome the global extension of companies and could ease the restriction of expansions into the nation (China Mounts, 2017). The middle and upper classes in the nation are also continually flourishing. The two classes will, therefore, have some income that they can comfortably spend and hence expenses among the vast part of the country’s population are set to increase. 

The company by the year 2022 plans to have its revenue, domestically and internationally combined to be over $20 Billion yearly (Annual Report, 2016). Expanding to a country like China that has such a rapidly growing economy will be an effective change that will help it reach its 2022 revenue goal. The company still bears an American mark, and although China is the fastest growing economy, the influence of America in the international economy is still strong and effective. 

The organization compares itself with equally performing retailers like Macy’s whose expansion into the Middle East and China specifically has been instrumental. Our organization too has a high end and off-price merchandise approach which has the potential to make it flourish in China. The nation’s currency is also the strongest in comparison to the US dollar. For instance, its value as compared to the Japanese yen and in consideration of the US dollar, it is higher by 4.6% (DeFotis, 2017). Our projected sales by 2022, are $15.6 Billion which are approximations that have been done without the addition of our 30 global stores (Appendix 1 highlights). The financial strength of the company, coupled with the economic health of China and the growing value of the Chinese currency, the organization stands on a position to succeed.

Our expansion to China will be done with ultimate honor to our organizational values. They are values that place corporate social responsibility, quality service and one customer at a time abreast (Nordstrom, 2017). Our expansion will serve the social responsibility and commitment to environmental conservation. It will also be a venture that will help the organization to showcase our exemplary treatment of customers and other individuals who relate with the organization. The localities where we will build our stores will also have to be in strict confinement to our mission and values just like we did in Canada where positive reports have been encountered. All our efforts as an organization will be purposed to realize the same results in China most of which will be realized after logical and reasonable use of our corporate mission and values. We will also strive to protect the integrity of the firm which is a firm ground on which we have stood for the last 120 years.

Foreign investment in Chine is favored by myriad issues such as the taxing structure and the support that is given to new projects and constructions. The nation also has a rapidly growing middle and upper class who are the best target markets for the firm. Ali Baba, for instance, enjoys such a large market share in their online and physical stores but with a limited number of departmental stores. We will, therefore, utilize that gap to provide a high-end and low-priced high-end approach in our physical stores anticipating that the new approach will attract many clients across the nation.

Taking an example for Hong Kong as our central location of expansion, we are likely to meet a favorable structure of taxation whereby we will not have to struggle so hard to fit into. We will also have a repertoire of so many customers who will be inclusive of the upper and middle classes. In the region too, the nation can have a chance to negotiate for expansion incentives which would reduce our operational burden.

In conclusion, Nordstrom will offer China a product line that has not been engaged by the existing companies. We will offer departmental stores that offer quality services and which offer online services as well. Our level of engaging customers will also be of high quality and will surpass that of the existing companies like Ali Baba and Macy’s Inc.  We will approach the market with the view of a country where retail is on the rise and therefore, we will have to go with the flow. We will also use a retail approach that uses different channels, unlike the existing companies that will stimulate customers to buy from the companies in their nation alone thereby enhancing the economic growth of the country at the same time. Tax benefits of goods sold in China will also be remedied to the nation, which will be an additional impact on the economy. Our superb customer service will establish a strong customer base giving the organization a chance to thrive expeditiously. 

References

4 Traders. (2018). Nordstrom, Inc. : Financials, earnings estimates and forecasts for Nordstrom, Inc. | JWN | 4-Traders. Retrieved from http://www.4-traders.com/NORDSTROM-INC-13210/financials/

Annual Reports. (2016). Retrieved from http://investor.nordstrom.com/phoenix.zhtml?c=93295&p=irol-reportsannual

China Average Yearly Wages  1952-2017 | Data | Chart | Calendar | Forecast. (2017). Retrieved from https://tradingeconomics.com/china/wages

China Inflation Rate  1986-2017 | Data | Chart | Calendar | Forecast. (2017). Retrieved from https://tradingeconomics.com/china/inflation-cpi

China Mounts Fresh Defense of Globalization at Economic Forum. (2017, December 05). Retrieved from https://www.bloomberg.com/news/articles/2017-12-06/china-mounts-fresh-defense-of-globalization-at-economic-forum

DeFotis, D. (2017, October 04). China’s Currency: Safer Than Japan’s Yen? Retrieved from https://www.barrons.com/articles/chinas-currency-safer-than-japans-yen-1507151758

Nordstrom Online & In Store: Shoes, Jewelry, Clothing, Makeup, Dresses. (2017). Retrieved from https://shop.nordstrom.com/

Retail Business Review. (n.d.). Retrieved from http://www.retail-business-review.com/

Appendix 1

Financial Forecasts

	Estimates in M $
Fiscal Period January	2020	2021	2022	2023
Sales	14 757	15 367	15 608	15 831
EBITDA	1 647	1 589	1 584	1 592
Operating profit (EBIT)	1 002	947	915	887
Net income	354	493	494	475
P/E ratio	21,9	15,6	15,3	15,4
EPS ( $ )	2,02	2,92	2,96	2,96
Dividend per Share ( $ )	1,48	1,51	1,57	1,74
Yield	3,35%	3,31%	3,46%	3,83%

                                  (4 Traders, 2017)