Anyhelp would be greatly apperciated!

Review the case, Part 3 Integrative Case - Nordstrom's External Environment and Risk Assessment on pages 252-256 of your textbook.

1. Do you think the types of business risks that Nordstrom identifies are typical for most other retailers? Refer back to the comprehensive case for Part I. Do you believe Wal-Mart may face some different type of risks than Nordstrom? What are these risks?

2. In previous units, there were chapters on customers (Chapter 3), competition (Chapter 4), supply chain (Chapter 5), and legal and ethical behavior (Chapter 6). What do you believe is the number one business risk that Nordstrom faces for each of these four broad areas? Justify your response. Using what you learned in the previous units, how can Nordstrom overcome the risks you discussed?

3. In addition to the risks you outlined above, discuss any other business risks of Nordstrom. How can each of the companys risks be viewed as a threat or opportunity for the company? Provide rationale for your response.

4. Research the financial performance of Nordstrom for 2019 and explain the relationships between performance and risks Nordstrom identified in this case. Are the same performance issues and risk factors the same today as it was in 2011? What has changed?

5. In closing, what strategies can you implement to increase Nordstroms value proposition and expand the companys offerings or operations?

NORDSTROM'S EXTERNAL ENVIRONMENT AND RISK ASSESSMENT Background in the e-commerce market to intensify in the future, as Nordstrom, like any other chain store retailer, must oper- the Internet facilitates competitive entry and comparison ate in a constantly changing environment which includes shopping. If we are unable to remain competitive in the competitors, consumers, and supply-chain members and key areas of customer service, the shopping experience also a shifting legal, technological, and coological environ- depth of selection, store environment and location, we ment. All pablicly held retailers in the United States (and may lose market share to our competitors and our sales most other countries) are required to summarize the major and profitability could suffer. business risks they confront, and although virtually all of and profitability could suffer. We believe owning our credit business allows us to these come from the external environment, some arise fully integrate our loyalty program and drive more sales. from the retailers' internal operations and the strategies Many of our competitors also offer general-purpose credit they pursue. The following is Nordstrom's assessment of Many of our competitors also offer general-purpose credit its business risk as reported and adapted from Section 1A credit segment faces competition from other retailers, of its annual report to stockholders. large banks, and other credit card companies, some of which have substantial financial resources. In addition, Major Business Risks Our business faces many risks. We believe the risks "prime" credit ratings who make up a significant portion described here outline the items of most concern to us. of our credit portfolio. If we do not effectively anticipate However, these are not the only risks we face. or respond to the competitive banking and credit card environment, we could lose market share to our compe- Economic Conditions titors, which coald have an adverse effect on our credit We sell high-quality apparel, shoes, cosmetics, and accesso. ries, which many consumers consider to be discretionary items. During economic downturns, fewer customers may Shifting Consumer Preferences shop in our stores and on our website, and those who do and Fashion Trends shop may limit the amount of their purchases, all of which We strive to ensure that the merchandise we offer and our may lead to lower sales, higher markdowns, and increased shopping experience, both in store and online, remain marketing and promotional spending in response to lower current and compelling to our customers. We make decidemand. Deterioration of economic conditions and con- sions regarding inventory purchases well in advance of sumer confidence may also adversely affect our credit the season in which it will be sold. Therefore, our ability customers' payment patterns and delinquency rates, increas- to predict or respond to constantly changing fashion ing our bad debt expense. Some macroeconomic indicators trends, consumer preferences, and spending patterns, suggest that a modest economic recovery has begun; how- and to match our merchandise levels, mix, and shopping ever key factors such as employment levels, consumer credit, experience to sales trends and consumer tastes, signifi. and housing market conditions remain weak. A sluggish cantly impacts our sales and operating results. If we do cconomic recovery or a renewed downtum could have a not identify and respond to emerging trends in consumer significant adverse effect on our business. spending and preferences quickly enough, we may harm CompetitiveMarketForcescustomers.Ifwepurchasetoomuchinventory,wemayourabilitytoretainourexistingcustomersorattractnew The fashion specialty retail industry is highly competitive. be forced to sell our merchandise at higher average markWe compete with other national, regional, local, and down levels and lower average margins, which could online retailers that may carry similar lines of merchandise, harm our business. Conversely, if we fall to purchase including department stores, specialty stores, off-price enough merchandise, we may lose opportunities for addistores, boutiques, and Internet businesses. Online retall tional sales and damage our relationships with our shopping is rapidly evolving and we expect competition customers. Growth Strategy capabilities. These efforts involve changes in personnel, Our strategic growth plan focuses both on our stores and processes, and technology over a period of several years. on e-commerce. There are risks associated with opening If we encounter challenges associated with change managenew stores. The availability and cost of suitable locations ment, the ability to hire and retain key personnel involved for our stores depends on a number of factors, including in these efforts, implementation of associated information competition from other retailers and businesses, local land technology, or adoption of new processes, our ability to use and other regulations, new shopping center construc- continue to successfully execute our strategy could be tion, and developers' financial condition. New store adversely affected. As a result, we may not derive the openings also involve certain risks, including constructing expected benefits to our sales and profitability, or we may furnishing, and supplying a store in a timely and cost- incur increased costs relative to our current projections. effective manner and accurately assessing the demographic or retail environment for a particular location. Our sales Information Security and Privacy at new, relocated, or remodeled stores may not meet our The protection of our customer, employee, and company projections, which could adversely affect our return on data is vitally important to us. As we operate in multiple investment. As part of our growth strategy, we also intend retail channels and maintain our own credit operations, to open stores in new and intemational markets. Expansion we are subject to privacy, security, and cyber eccurity will require management attention and resources and may risks and incidents. Our business involves the storage ultimately be unsuccessful, which could harm our future and transmission of customers' personal information, business development. In addition, competition from strong consumer preferences, and credit card information, in local competitors, compliance with foreign and local laws and addition to employee information and company financial regulatory requirements and potentially unfavorable tax con- and strategic data. In addition, we use mobile devices, sequences may cause our business to be adversely impacted social networking, and other online activities to connect We are also pursuing a heightened focus on technology with our customers. Some of our critical systems also to enhance our website and mobile capabilities, broaden the depend upon third-party providers. selection of our online merchandise offering, and improve As techniques used to obtain unauthorited access, the speed and quality of our delivery of merchandise to cus- sabotage systems, or otherwise attack our services change tomers. In addition, other growth opportunities may include frequently and often are unforeseen, we may be unable to acquisitions of, or investments in, other businesses, as well as anticipate these techniques or to implement adequate prenew technologies or other investments to improve the cus- ventive measures, and they may remain undetected for tomer shopping experience in our stores and online. If these some period. Concurrently, measures that we may take technologies and investments do not perform as expected, to prevent risks of fraud and breaches of privacy, security, our profitability and growth could be adversely affected. and cyber security have the potential to harm relations with our customers or decrease activity on our websites Leadership Development by making them more difficult to use or restricting the and Succession Planning ability to meet customers' expectations in terms of shop. The training and development of our future leaders is ping experience. Any measures we implement to prevent a important to our long-term success. If we do not effectively security or cyber security risk may not be totally effective. implement our strategic and business planning processes to In addition, the regulatory environment surrounding attract, retain, train, and develop future leaders, our business - information security, cyber security, and privacy is increas. may suffer. We rely on the experience of our senior manage- ingly demanding, with new and constantly changing ment, who have specific knowledge relating to us and our requirements across our business units. Security breaches industry that is diffilt to replace. If unexpected leadership and cyber incidents and their remediation, whether at our turnover occurs without adequate succession plans, the loss company or our third-party providers, coald expose us to of the services of any of these individuals or any negative a risk of loss or misappropriation of this information, pereptions of any of these individuals, or any negative litigation, potential liablitity, reputation damage, and loss perceptions of our business as a result of those demage our brand image and our business. of customers' trust and business We have expended, and will continue to expend, sig. nificant resources to protect our customers and oursclves Merchandise Planning Werchandise Planning age these breaches and to ensure an effective response We are making investments to improve our multichan- to an internal or external security or cyber security breach. nel merchandise planning, procurement, and allocation either actual or perceived. Capital Management and Liquidity and regulations, including those imposed by the US. Our access to debt and equity capital, and our ability to Securities and Exchange Commission (SEC), the marketinvest capital to maximire the total returns to our share- place, the banking industry, and foreign countries, which holders, is critical to our long-term success. We utilize may change from time to time. These obligations are comcapital to finance our operations, make capital expendi- plex and continuously evolving, and the related enforcetures and acquisitions, manage our debt levels, and return ment is increasingly aggressive, particularly in the state of value to our sharcholders through dividends and share California, which has increased the cost of compliance. repurchases. Our ability to obtain capital and the cost of Significant legislative changes, including those that relate the capital depend on company performance, financial to employment matters and health care reform, could market conditions, and independent rating agencies' impact our relationship with our workforce, which could short- and long-term debt ratings, which are based largely increase our expenses and adversely affect our operations. on our performance as measured by credit metrics includ. Possible legislative changes include changes to an employ. ing interest coverage and leverage ratios. If our access er's obligation to recognize collective bargaining units. to capital is restricted or if our cost of capital increases, Recent health care reform could materially increase our our operations and financial condition could be adversely employee-related costs and if it is necessary to make impacted. Further, if we do not properly allocate our cap- changes to the health benefits provided to our employees ital to maximize retums, our operations, cash flows, and as a result of health care reform, we may not be able to offer returns to shareholders could be adversely affected. competitive health care benefits to attract and retain employees. In addition, if we fall to comply with applicable Brand and Reputation laws and regulations, we could be subject to damage to our We have a well-recognized brand that consumers may reputation, class action lawsuits, legal and setllement conts, associate with a high level of customer service and quality civil and criminal liability, increased cost of regulatory merchandise and is one of the reasons employees choose compliance, restatements of our financial statements, and Nordstrom as a place of employment. Any significant disruption of our business, and loss of customers. Any damage to our brand or reputation could negatively required changes to our employment practices could result impact sales, diminish customer trust, reduce employee in the loss of employees, reduced sales, increased employ. morale and productivity, and lead to difficulties in recruit- ment costs, low employee morale, and harm to our basiing and retaining qualified employees, any of which would ness and results of operations. In addition, political and harm our business. economic factors could lead to unfavorable changes in federal and state tax laws which may increase our tax liabiliInformation Technology Strategy ties. An increase in our tax liabilities could adversely affect We make investments in information technology and sys-- our results of operations. We are also regularly involved in We make investments in information technology and sys- various litigation matters that arise in the ordinary course tems developments to advance our competitive position, of business. Litigation or regulatory developments could and we believe they are key to our growth. We must mon- adverscly affect our business and financial condition. itor and choose the right investments and implement them at the right pace. Excessive technological change Financial System Reforms could impact the effectiveness of adoption and could The recent financial crisis resulted in increased legislative make it more difficult for us to realize benefits from the and regulatory changes affecting the financial industry. technology. Targeting the wrong opportunities, failing to The Credit Card Accountability Responsibility and Dismake the best investments, or making an investment com- dosure Act of 2009 induded new rules and restrictions mitment significantly above or below our needs may on credit card pricing, finance charges and fees, customer result in the loss of our competitive position. In addition, billing practices, and payment application. These rules if we do not maintain our current systems, we may see required us to make changes to our credit card business interruptions to our business and increase our costs in practices and systems, and we expect more regulations order to bring our systems up to date. and interpretations of the new rules to emerge. Depending on the nature and extent of the full impact from these Laws, Regulations and Litigation rules, and any interpretations or additional rules, the rev. Our policies, procedures, and practices are designed to enues and profitability of our credit segment could be comply with federal, state, local, and foreign laws, rules, adversely affected. In addition, the Dodd-Frank Wall Street Reform and Business Continuity Consumer Protection Act was enacted in July 2010. It Our business and operations could be materially and significantly restructures regulatory oversight and other adversely affected by supply-chain distuptions, severe aspects of the financial industry, creates a new federal weather patterns, natural disasters, widespread panapency to supervise and enforce consumer lending laws demics, and other natural or man-made disruptions. and regulations, and expands state authority over consumer We derive a significant amount of our total sales from lending Numerous regulations will be issued in the near stores located on the west and east coasts of the United future to implement the requirements of this Act. The States, particularly in California, which increases our final regulatory details remain uncertain at this time. exposure to conditions in these regions. These disrupDepending on the nature and extent of these regulations tions could cause, among other things, a decrease in conand the enforcement approach of regulators under the sumer spending that would negatively impact our sales, new law, there could be an adverse impact to our credit sumerting shortages in our stores, distribution centers, or segment. corporate offices; interruptions in the flow of merchanAvailabilityandCostofMerchandisemerchandisevendorsorpropertydevelopers;increaseddisetoourstores,disruptionsintheoperationsofour Our relationships with our merchandise vendors have costs; and a negative impact on our reputation and been a significant contributor to our success and our posi- long-term growth plans. tion as a retailer of high-quality fashion merchandise. We have no guaranteed supply arrangements with our key Anti-Takeover Provisions vendors, many of whom limit the number of retail chan- Ae are incorporated in the state of Washington and nels they use to sell their merchandise. Competition to subject to Washington state law. Some provisions of obtain and sell this merchandise is intense. Nearly all of Subject to Washington state law. Some provisions of the brands of our top vendors are sold by competing retai- takeover bids or other change-in-control events affectlers, and many of our top vendors also have their own ing us. For example, one provision prohibits us, except dedicated retail stores and websites. If one or more of under specified circumstances, from engaging in any our top vendors were to limit or reduce our access to significant business transaction with any shareholder their merchandise, our business could be adversely who owns 10 percent or more of our common stock affected. Further, if our merchandise costs increase due (an "acquiring person") for a period of five years followto increased raw material or labor costs or other factors, ing the time that the shareholder became an acquiring our ability to respond or the effect of our response could ing the person. adversely affect our sales or gross margins. Consumer Credit Questions Our credit card operations help drive sales in our stores, 1. Do you think the types of business risks that allow our stores to avoid third-party transaction fees, and Nordstrom identifies are typical for most other retaigenerate additional revenues from extending credit. Our lers? Refer back to the comprehensive case for Part I credit card revenues and profitability are subject in large and comment if you believe Walmart may face some part to economic and market conditions that are beyond different type of risks than Nordstrom. What are our control, induding, but not limited to, interest rates, these risks? consumer credit availability, consumer debt levels, unem- 2. In Part 2, there were chapters on customers (Chapter 3), ployment trends, laws and regulations, and other factors. competition (Chapter 4), supply chain (Chapter 5), and Elevated levels of unemployment have historically corre- legal and ethical behavior (Chapter 6 ), identify what sponded with increased credit card delinquencies and you think the number one business risk Nordstrom write-offs, which may continue in the future. Further, these faces for each of these four broad areas. economic conditions could impair our ability to assess the 3. Review the business rikks of Nordstrom and prepare creditworthiness of our customers if the criteria and/or a PowerPoint presentation that categorizes these into models we use to underwrite and manage our customers primarily threats or opportunities for Nordstrom. become less predictive of future losses. This could cause 4. Research the financial performance of Nordstrom our losses to rise and have a negative impact on our for 2011 and comment if you see any relationship results of operations. between performance and the risks Nordstrom