Would Nordstrom be better off private?
Last week, members of the Nordstrom family indicated they are exploring taking the retailer private.
“Because of the changing dynamics in the retail environment, the Group is evaluating whether the long-term interests of the Issuer are better served as a privately held company,” Nordstrom said in a regulatory filing. The family, which includes multiple company executives, collectively owns about 31 percent of the company’s shares.
An early aggressive investor in e-commerce, Nordstrom has adapted better than many to the changing retail environment. Online accounts for about a quarter of the company’s sales. The ramped-up expansion of Nordstrom Rack has also paid off.
But comps have declined at its full-line stores for seven consecutive quarters. And while its shares have performed better than many rivals over the last year, the cloud over department stores is leaving Nordstrom’s stock undervalued, according to analysts.
Taking the company private could help Nordstrom make changes that may benefit the business for the long-term but could work against Wall Street’s emphasis on short-term results. Management may make changes that could slow down sales and eliminate free shipping and liberal return policies in order to preserve long-term margins, all possibly with an impact on short-term online growth.
“It’s not unlike being an awkward teenager,” Greg Portell, lead partner at A.T. Kearney, told USA Today. “Nobody enjoys their teenage years because everything’s changing, and to do that in the public eye is very difficult and in many ways counterproductive.”
Nordstrom’s challenges include finding a private equity buyer to support the transaction on favorable terms with many major investors recently burned by debt-fueled buyouts in the space. Competitors such as Neiman Marcus and J. Crew are struggling with heavy debt loads following buyouts. The Sports Authority, Mervyn’s and Linens ‘n Things are just a few that have liquidated following LBOs.
On the positive side, Nordstrom is relatively less indebted than many of its peers and the family is staying involved.
“Sometimes you see families going private and selling to third-party investors and taking the money out,” Neil Stern, analyst with retail consulting firm McMillanDoolittle, told the Seattle Times. But it appears the Nordstrom family “wants to keep control of its legacy, of its business.”
- Nordstrom Announces Exploration of Going Private Transaction by Nordstrom Family and Formation of Special Committee – Nordstrom
- Nordstrom family weighs buyout for Seattle retailer, with its legacy — and billions — on the line – The Seattle Times
- Nordstrom to Explore Deal to Go Private as Retail Sector Reels – The New York Times
- Nordstrom might struggle for private backing as mall stores lose value – Reuters
- Nordstrom could go private as department stores struggle – USA Today
- Will Panera Bread be more successful as a private company? – RetailWire
DISCUSSION QUESTIONS: What are the pros and cons of the Nordstrom family taking the retailer private? Is the timing right, given the changes facing traditional retailers and the department store channel?