The market structure of the retail industry is that of monopolistic competition. As its name suggests, monopolistic competition is an environment composed of a large number of firms each with a portion of the market. The firms in this type of market structure have similar products but they are differentiated in some way. Nordstrom's for example has private brands that only Nordstrom's can carry. These brands include Hotel Collection sheets, Martha Stewart cookware, Psycho Bunny for men, INC brand clothes for women, and much more. Even though these product offerings may be similar to competitors in regards to color or value proposition, they are differentiated by the fact they are only offered at Nordstrom's locations. Furthermore, there are many firms competing within the retail environment. For example, Nordstrom's must compete with JC Penny, Target, Wal-Mart, Dillard's, Sears, internet stores, and many other outlets. All of these competitors are attempting to erode Nordstrom's market share within the retail environment. Each also has a slightly differentiated product offering. All the above mentioned companies can, and often do, sell clothing. Nordstrom's is higher end retail chain. It caters to those with large discretionary incomes. This allows the company to mantain sales volume targets as the organization is less likely to be affected by a sudden downturn in the overall market. Nordstrom's customer base is one in which, their higher incomes constitute more purchasing power. As a result, the entire organization can charge premium prices for their product offering. However, Wal-Mart is a low cost producer, Dillard's is for the middle class consumer, and Nordstrom's provides premium quality and service. They all sell clothing, but each has a unique and compelling value proposition for the consumer. The market environment is changing as the economy continues to recover. More consumers prefer to spend discretionary income at low end retail chains as incomes continue to decline. Like high end consumers, unaffected by the economic slump are purchasing higher end brands of products.
Microeconomic implications on Nordstrom's Organizational Structure
The macroeconomic concerns within the United States indicate both a slow and uneven recovery. Unlike many pundits throughout America, many positive aspects in regards to the macroeconomic environment indicate further growth ahead. For instance, according to recent census reports, the unemployment rate has fallen from 8.1% to a now more modest 7.8%. The overall supply of available housing is diminishing every month, while household formation increases every month. The excess inventory within the housing market is being eliminated very slower, but their now appears to be a bottoming out of prices. Areas, particularly on the coast, how have seen home values plummet are now beginning to see demand increase. This, in my opinion, is due primarily to the "animal spirits" of American capitalism. Due to both extreme monetary policies individuals are now able to purchase homes at very low rates. These rates are the lowest Americans have realized in over 50 years. In fact, on an inflation adjusted basis, Americans can borrow money now at a negative yield due to the extreme monetary policy of the fed (Shaw, 2008). These factors have direct implications on the overall business of Nordstrom. For one, the company now has a consumer base that is more confident in the future outlook of the country. This confidence ultimately allows the consumers to feel better about their corresponding purchases. When consumers are more confident, they tend to spend more dollars in retail franchises. Likewise, confidence allows consumers to open more lines of credit with the store as they ability to pay this credit back is heightened. Finally, as consumers incomes continue to rise, so too will their discretionary income. This ultimately will allow consumers to spend more on items they do not necessarily need but have aspirations for.
These aspects by themselves, however, will not be the solution to the pessimistic macroeconomic situation prevailing in America. This monetary policy in regards to mortgage rates does help abate or diminish the influence of adverse economic situation in the future. Due primarily to the global economic concerns, Americans are simply in a "Confidence Crisis" rather than a "Financial Crisis." Overall America is much healthier, on a macroeconomic basis, than most Americans believe. Corporations now have very strong balance sheets with large amounts of cash yet to be deployed. Microsoft and Apple for instance, have billions of dollars of cash currently sitting on their balance sheets. Companies are also earning record profits with 74% of the S&P 500 beating analyst expectation for earnings growth in the second quarter of 2012. Americans themselves are getting their personal balance sheets in order. Banks now have received record inflows of core, non-interest bearing deposits. The latest FDIC report on deposits shows Wells Fargo growing deposits for the year ending June 30, 2012, by over 12%. Bank of America grew deposits by over 6% during this period. Consumers are becoming more responsible in regard to credit as they are now prepaying or refinancing loans. Loan loss provisions from the largest banks have fallen 8 straight quarters reflecting the change in consumer behavior and apprehensiveness towards credit. Delinquency rates, those 90 days or more past due has also fallen in many large banks including Wells Fargo and JP Morgan. According to a recent quarter earnings conference call 93% of all Wells Fargo mortgage loans are current with an average FICO score of above 680.
These statistics prove that consumers are getting their personal balance sheets in order. They are paying down debt, saving more, and are being more strategic with their purchasing behaviors. This ultimately bodes well for Nordstrom's can better align its business strategies with that of the prevailing behavior in the overall economy. For instance the company is now expanding its stores, investing in technology and attracting top talent for the long-term.
Quantitative Easing has also had a modest impact on the overall macroeconomic situation prevailing in America. Through QE the value of particular assets raises, particular stocks and homes. This value increases spurs economic growth as Americans feel wealthier as their assets increase in value. Record low interest rates also help propel spending in regards to the consumer. Monetary policy is attempting to discourage saving by keeping interest rates low. However, as noted earlier, individuals are actually saving more as they are not confident in the future full of uncertainty globally. The individual saver, however, losses substantially in this low interest rate environment. Monetary policy, in conjunction with inflations caused savers to lose money over the long-term. The Fed, anticipating this wants to encourage spending which is 70% of the U.S. GDP. This spending ultimately will help spur the economy and grow GDP at a more robust 2.5 to 3%. Signs of this monetary policy have proven to be beneficial. Retail sales of large retailers have increase over recent years. Nordstrom's Inc. For instance has seen same store sales rise over 3% over the first 3 quarters of the year.
The largest detractor from the macroeconomic environment is that of fiscal policy. By far, the largest hindrance to growth is fiscal policy. Our government is viewed, particularly, by the average American, as inept. We, as a nation have record levels of debt, much of which is owed to China and Japan. Our current trajectory indicates ever more spending in the years ahead. If left unchecked, this can result in massive implications for the rest of society. The impending fiscal cliff is one such side effect. Massive tax increases and spending cuts will automatically be initiated during the beginnings of an economic recovery. This will have adverse consequences on the macro environment as consumers are further harmed through the increase of taxes. Subsequently, they spend less, which affects businesses overall (Benjamin, 2008). Analyst project, that if the fiscal cliff tax increases are enacted, the result would be an immediate recession. As such the importance of fiscal policy going forward will have a very large impact on the macroeconomic environment as a whole
The shopping experience for the typical American has changed dramatically over the last few years. Due to economic circumstances plaguing both the global and domestic economy, shoppers are now more apprehensive about their purchasing behavior. Likewise, other economic circumstances such as the decreasing trend of the average Americans income are also contributing to the extreme bout of pessimism the nation is currently experiencing. It is no secret that the economy is in shambles with unemployment around 8%. Many states such as Florida and Nevada are experiencing unemployment rates still near the 10% range. As such, shoppers are attempting to save more money and are foregoing luxury purchases until they feel more secure in their finances (Shaw 2011). As I will allude to in the following pages, American shoppers are fearful for their future. Many feel as though they have not adequately saved for retirement or saved adequately in the event of long-term unemployment. As such, their shopping behaviors indicate the extreme bouts of pessimism within the overall economy today. Shopper's behavior changes almost…