Nordstrom is an American fashion retailer dealing in luxury fashion items including clothing, footwear, and accessories for all segments including men, women, and kids. The company has partnered with various other luxury brands like GUCCI, Bobby Brown, MAC, and others for sales on its platform. The company has its physical presence in US and Canada while it ships its products to more than 96 countries. In the fiscal year 2021, the company witnessed around a 15% increase in its revenue, it increased to $14.78 billion from $10.71 billion.
However, for long-term viability, the company needs to undertake strategic analysis at regular intervals to assess the internal and external environment that will have a direct impact on the company’s future strategies. Having said that, this article presents a detailed PESTLE analysis of Nordstrom looking into the influence of external factors on the company’s operations. Besides, if you want to acquire detailed knowledge about the PESTLE analysis model, you can go through our elucidated guide on PESTLE analysis.
Table of Contents
A delineated and accurate PESTLE analysis of Nordstrom
Political factors affecting Nordstrom
The US is one of the important luxury fashion markets. The state of New York is planning to introduce a law wherein the companies that have revenues of more than $100 million are required to disclose their material production volumes and also reveal to the government the suppliers that the companies believe cause greater risk to the environment or the society in terms of not providing employees with fair wages, releasing more than mandated greenhouse gas emissions.
This is being done to increase transparency and hold companies accountable for unethical and unsustainable operations (Green, 2022). Further, the federal government of the US has recently announced a reduction in corporate tax from 35% to 21% to boost investments. In addition, most of the manufacturing is outsourced to Chinese companies and the federal government of the US has imposed 25% tariffs on the garments and footwear imported from China.
This decision would increase the cost of goods and ultimately lead to an increase in the prices of the goods. Also, the companies operating internationally can benefit from the tax treaty that the US has with 85 countries under which the income earned in a few nations by the US companies is taxed at a lower rate while earnings from many countries are tax-free (IRS, 2022).
Further, Canada is also considered to be a highly profitable market for luxury fashion retailers and the city government of Ottawa has imposed an emergency over the protests related to COVID and the trucking industry. This can disrupt the operations of the retail industry. Moreover, the province of Saskatchewan has amended the property tax rules and now the evaluation will be done on 85% instead of 100%, thereby leading to 15% savings for the retailers.
Economic factors affecting Nordstrom
The US grew moderately by 5.7% in 2021. Further, the analysts predict that the economy would go downwards to 4% in 2022 and 2.6% in 2023 (IMF, 2021). Further, the unemployment rate is 6.3% and is expected to lower to 5.7% in 2022 (UN, 2021). The decline in unemployment can lead to rising in income-generating abilities among the people, hence they would spend more on fashion products.
Further, the inflation in the US is at a 40 year high at 7.5% and high inflation would lead to an increase in the prices of the products but that would not have any impact on the sales of the luxury fashion retailers as three customer base comprises of wealthiest people for whom the prices matter less than the status. Further, the Canadian economy grew by 6.7% in 2021 (CBC, 2022). It is expected to lower to 3.8% in 2022 (Mishra, 2022).
The current unemployment rate is 5.5% and is projected to stay almost the same at 5.6% in 2023 and 5.5% in 2024. Most of the fashion products are imported from China and any significant change in the exchange rate can have an impact on the financials of the companies as their cost of importing goods would increase. Most of the outlets are leased and rented by retailers and the commercial rental rates in the US have increased by 1.2% (Lupa, 2021). But, the rates have continuously declined in the Canadian market by 0.5% and 0.6% in the last two quarters.The luxury fashion industry is worth $28.45 billion and is predicted to witness a steady growth rate of 1.85% from 2022 to 2025 (Statista, 2022).
Social factors affecting Nordstrom
People in the US embrace a modern lifestyle and are happy to spend on luxury brands to maintain their social status. In the US, consumer spending on apparel and footwear has declined by around 9% in the last year (Danziger, 2021). Further, 79% of customers have changed their shopping style and are preferring products that are environmentally sustainable (SGB, 2020). Hence, the companies should shift their focus to selling products that are made from sustainable materials. Also, the trend of e-commerce is gaining trend and in 2021, the sales from e-commerce witnessed 14% growth while the sales from brick and mortar sales declined by a huge margin. The increasing trend of online shopping signifies the need for companies to enhance their online presence.
Further, in Canada too, people actively purchase from luxury brands to enjoy a modern lifestyle. Besides, Canada has 335,800 net worth individuals and they are predicted to grow by 50% to 503,800 by 2026. The increase in wealthy individuals would lead to an increase in the demand for luxury products (Sharri, 2020).
Technological factors affecting Nordstrom
The US government spends the highest on Research and Development in the world. It spent $157 billion in 2021 and the expenditure for 2022 is estimated to be $171 billion (Connolly, 2021). The Canadian Government spent $40.1 billion in 2021 (Statistics Canada, 2021). Various technologies have shaped the shopping experience of customers in retail supermarkets which include Just Walk Out technology wherein the customers pick up the products and directly exit the store without the need for physical payment and the customer’s facial recognition is scanned and the payment is deducted automatically from the account of the customer.
Another technology named instant wherein the carts are fitted with sensors and the payment is deducted from the account immediately after the customers put the items in the shopping cart is gaining popularity. Furthermore, self-checkouts are being established at various outlets that help in easy payments and less use of the workforce. In addition, the use of chatbots assists companies to interact with customers and stay in touch with them 24/7, thus can help increase customer satisfaction. Moreover, the shortage of labor can be overcome by using autonomous forklifts to store goods. For the successful integration of emerging technologies, the company needs to work on effective change management models.
Legal factors affecting Nordstrom
Various laws regulate the functioning of the retail and garment industry in the US. The state government of California has recently passed Garment Worker Protection Act wherein it is mandatory for the employers to pay the workers on an hourly basis rather than for the pieces they manufacture which was the rule until now.
Further, In the US, there are strict antitrust laws that restrict companies from engaging in mergers with an intention to reduce competition in the market. The functioning of the industry is also regulated by The Sherman Act which prohibits companies from fixing prices by forming cartels or engaging in the market division and rig bids (Federal Trade Commission, 2022). The US government encourages innovation in various fields by granting an exclusive right to the technology through patents for the period of 20 years from the filing.
Further, many laws govern the retailers in Canada. These include the Anti-Spam Legislation and Consumer Product Safety Act along with many others. Under Anti-Spam legislation, it is mandatory for the companies to acquire the consent of the individuals before sending them the promotional messages electronically. The companies that are found to be sending the messages without consent can be fined up to $10 million (CVMA, 2022).
Moreover, The Consumer Product Safety Act is another Act impacting the retailers wherein the companies must issue a General Certificate of Conformity before importing the products to certify that the products do not contain any hazardous material that might cause harm to the consumers.
Further, the federal government of Canada has increased the federal minimum wage along with the government of Ontario from $14 to $14.35 and $15 respectively. This could put an extra financial burden on the companies as they would have to spend more on the employees’ salaries (Retail Council of Canada, 2022).
Environmental factors affecting Nordstrom
Retailers in the US use around 100 billion plastic bags each year that end up in landfill and lead to pollution (Staub, 2020). Further, various environmental laws have been introduced that include banning single-use plastic by various states like Michigan, and California from 2022. Besides, the retail industry in Canada constitutes 10.5% to total greenhouse gas emissions and the federal government of Canada has announced a ban on plastic carry bags which can increase the cost of the businesses as they would have to shift to the expensive recyclable materials for sourcing carry bags.
Also, the Canadian government has recently introduced The Canadian Net Zero Emissions Accountability Act wherein the government has proposed to achieve net-zero emissions by 2050 (Government of Canada, 2022). Hence, the companies would have to invest in researching innovative techniques to conduct business in an environment-friendly manner.
To conclude, the luxury retail industry is now required to disclose the details of its supply chain to the governme nt in New York. Further, the retailers need to focus more on the e-commerce operations and selling environment-friendly products as the customers have started preferring sustainable products and e-commerce as their mode of shopping. Retailers can enhance the customer shopping experience by implementing cashless technologies. Furthermore, the retailers would need to research sustainable options to replace the plastic carry bags as it is being banned by both the governments of the US and Canada. Moreover, if you wish to analyze the internal capabilities of the company, you can delve into an astute SWOT analysis of Nordstrom conducted by us with extensive research.
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