Nordstrom Market Structure the Market Structure of

Nordstrom Market Structure 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 Consumer behaviors 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 exclusively due to the prevailing economic uncertainties of the time.

This is indicated by the cyclical nature of the retail. During periods of mass euphoria, individuals purchase more goods and services and the economy therefore continues its upward trend. Many shoppers during these periods are not worried about short-term economic uncertainties as their jobs are believed to be secure and the economy is going smoothly. As such, many individuals purchase products they might not have otherwise purchased during periods of euphoria.

These products almost inevitably include luxury clothes, bigger vehicles, electronics and other convenience items that improve the overall quality of life for that particular person. However, during periods of extreme pessimism, as is the case now, shoppers tend to trade down and purchase only necessities. These necessities are often purchased on the basis of price. Luxury items are seldom bought by the average citizen as uncertain regarding the future makes such a purchase, inefficient and undesirable. This occurs primarily within the lower and middle class segments of the economy (Blogett, 2010).

The upper class experiences some pull back, but not nearly to the same extent. The upper class generally has the means to weather such economic turmoil without a subsequent decrease in their quality of life. This trend, of over optimism and extreme pessimism I suspect will continue for years in the future as the business cycle continues to move through its valleys and troughs. Such shopping behavior has extreme implications for managers of retail chains or consumer-based products. These implications are embedded in the strategic initiatives of Nordstrom's detailed below.

The first implication is to produce a broad array of products that will be in demand irrespective of economic conditions. This what Nordstrom's is doing somewhat with its Omni channel strategy which will outline in more detail below. Another implication is to reduce inventory levels so changing consumer sentiments will not force Nordstrom's to markdown merchandise. This is also addressed strategically by Nordstrom's no localization strategy called "My Nordstrom's." This strategic re-alignment will be detailed below. Strategic Alignment Suppliers play an integral role within the overall framework of business.

As consumers change so too does the strategy of suppliers. Suppliers, if chosen properly, can provide insight and a quality product that is difficult for competitors to duplicate within the midst of a competitive business landscape. Furthermore, suppliers can provide much needed industry insight as to the next product innovation on the verge of development. This information is quite important to a vender, as the company can properly prepare for demand of a product that may be unknown to both competitors and potential customers.

In regards to involvement with the product or service development process, suppliers must always be incorporated within any business discussion regarding merchandise offerings. There are numerous methods in which to accomplish this task. On such example is provided by Nordstrom's Inc. In its new Omni-channel service offering. Omni-channel is a means of providing service through multiple channels of communication with both the potential customer and the vender.

In essence, Omni-channel is a service that allows customers to demand and purchase products through various means including phone, internet, in store support, and more. This multiple channel relationship provides a dialogue between Nordstrom's, its venders and the potential customer. As such, vendors will know what customers are demanding through the use of Omni-channel. Furthermore, the supplier can better align the shopping needs of customers with it product specifications. This insight is then relayed to Nordstrom's Inc. who can they adjust their product offerings accordingly (Kaplan, 2009).

In many instances customer may demand a product the vender doesn't produce. This will allow the vendor to adjust its product specifications to meet those of the customer. This is a classic example of how a supplier can provide valuable insight to the parent firm that can be used to create profitable relationships with customers. Since Omni-channel has been implemented same store sales at Nordstrom's Ins. (a standard measure of performance within the retail industry) have increase 5.3% year over year in 2010 (Business wire, 2011).

Online sales since the implementation of Omni channel have increased 30% in 2010 (Thau, 2011). In fact, Nordstrom's is currently expanding Omni-channel by providing e-commerce fulfillment centers. This is compared with other retail companies such as Sears who have been closing stores at a rapid rate (Wahba, 2011). Traditionally, retails use a one central hub to make business decisions for the entire market. With Omni-channel Nordstrom's has instead elected to give more autonomy and power to the consumer.

The consumer has no say as to how goods are purchased shipped and serviced as oppose to the retailer dictating this behavior. Buyer-seller partnerships can be extremely fragile in the midst of turmoil or economic uncertainty. However, these partnerships are crucial during these pivotal periods as a genuine relationship can produce extreme cost savings. These cost savings allow companies to maintain their margins which translate directly into profitability. Nordstrom's has very high margins at roughly 41%.

It is in the company's best interest therefore to protect these margins by initiating cost saving strategies and initiatives. As noted above, partnerships can lead to cost savings through various methods. One such method is providing a service more cheaply and efficiently. To elaborate on this issue and for the sake of continuity I will again provide an example from Nordstrom's Inc.

In addition to the Omni-channel service mentioned above, Nordstrom's is also implemented a nationwide program entitled "My Nordstrom's." This program is used by both suppliers and Nordstrom's to help keep inventory levels low within all stores, while simultaneously providing product offerings unique to a specific geographic region. One of the biggest detriments to profitability within the retail industry is that of inadequate inventory levels. Inadequate inventory can sap profits otherwise generated from solid business operations. For example, a Nordstrom's store in Miami may have high demand for televisions.

For simplicity lets say 100 televisions are demanded within the Miami market. To compensate for this, a vendor or supplier many send 200 televisions to the store. Now, as is often the case with changing consumer sentiments, customers don't demand the 200 television anymore and elect instead for IPods or another electronic device. Now what is Nordstrom's to do with those 200 extra televisions? In many instances they are marked down to a level that customers, irrespective of their tastes, will purchase anyway.

This mark down is at considerable lower price than the suggested MSRP. As such, both profits and margins shrink as the product is marked down. Furthermore, there is an opportunity cost bourn by the holding facility within the store. The space taken up by the 200 televisions could be used to hold other products that are otherwise in demand by the consumer. Not only is the store selling televisions that are not in demand, but also it is losing sales for products that really are in demand.

This is a double cost to the company. On the other end of the spectrum, lets again assume the 100 televisions are demanded but instead only 20 are shipped to the store. As such, there is a potential loss of 80 television sets that could have been purchased. Again, profits are diminished as 80 televisions could have been sold, but due to inadequate inventory levels, only 20 are actually sold. These strategic changes can lead to extreme cost saving for the Nordstrom's. The "My Nordstrom's" program better aligns inventory levels with demand.

By working with suppliers and vendors products that are demanded in one market will be shipped directly to that particular store. This is a stark contrast to many retail stores who have a standard offering no matter where the store is located. A store in Ocala, Florida will generally have the same offerings as those in San Diego, California. This is no bad method as consumers know what to expect but at the same time do not have an offering that is tailored to their own unique market.

What "My Nordstrom's" does is provide a tailored offering based on the demand of that area. For example, Miami is number one in cold weather clothing sales in the nation! Why, well through the Nordstrom's program it was determined that many Hispanics in Miami go to New York to visit family and thus need to purchase cold weather products. By identifying this need, Nordstrom's began offering the product in stores which generated increase sales and saved on inventory costs.

Hiring and Recruitment at Nordstrom's HRM practices will be vital for Nordstrom's Inc. To continue its amazing progress within the retail environment. By hiring top talent within the field, Nordstrom's can continue to be at the forefront of innovation and creativity. Both of which will be needed in the future to maintain profits and margins. Human resources play an integral role in any organization, including Nordstrom's. The allocation of human capital is critical to the overall success of Nordstrom's as it is heavily dependent on consumer sentiments (Steover, 2008).

Depending on the particular industry, talent and its subsequent retention is directly correlated to the overall profitability of the firm. This is especially true in retail where consumer interactions can create or lose a sale. By employing and retaining the correct individuals for the corresponding position, both the business and society benefit. For example, the most creative individuals will be placed in the positions that utilize their talent most effectively. This talent will thus be cultivated in the position allowing the individual to grow and develop.

This development allows the individual to create products or solutions that another individual with less talent may overlook. This is primarily how Microsoft, Google, Intel, and IBM continue to generate new and innovate products decade after decade. They simply have the right people in the right places through the use of HRM. One model used by Nordstrom in particular that will be discussed is that of the matching model. This concept is both simplistic and rudimentary in nature. However, it does provide a solid framework.