Nordstrom reportedly closing in on deal to go private
Nordstrom is close to a deal with private equity firm Leonard Green & Partners that would allow the department store to go private, CNBC reports. Nordstrom, both the company and the family group exploring a take-private deal, declined to comment to Retail Dive on the report.
Nordstrom family members in June announced that they were among a group of major shareholders exploring the idea, and last month the company filed a warning to shareholders about the potential risks of such a move.
Several private equity-backed retailers have struggled and some have collapsed under PE-instigated debt loads and ownership terms that impeded a turnaround, but with Nordstrom family members maintaining some level of control, the move could follow the more constructive paths of PE-retail success stories.
A strategic combination of Leonard Green and Nordstrom is "logical," given the PE firm's retail experience, which includes The Sports Authority, BJ’s, The Container Store, TopShop and Signet, and it previous equity ownership in the Seattle-based department store, according to an email from Gordon Haskett analyst Chuck Grom emailed to Retail Dive. "[I]t’s become more clear that one of the primary motives behind the [move] is so that the Nordstrom family can continue to make the necessary investments to make the franchise viable over the long-haul, particularly its most recent news to roll out stores with little merchandise – a strategy we think could make sense in today’s evolving 'brick' and 'click' world," Grom said. He downgraded the stock to "hold," saying, "we think it’s prudent to move to the sidelines and not get greedy."
Going private would allow the department store, which has sidestepped many of the worst troubles experienced by rivals, to pursue long-term strategies away from the short-term pressures presented by Wall Street. Some analysts argue that the move makes sense for a retailer that has faltered in recent quarters, but isn't piled with a lot of debt. A private restructuring would likely take Nordstrom three to five years, Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates, told Retail Dive.
Others told Retail Dive earlier this year that going private also affords the company time and space that can be difficult to come by as public investors clamor for growth on a quarterly basis. "[Wall] Street expects positive results quarter by quarter, which even in the best of times is often unrealistic," Mark Cohen, director of retail studies at Columbia University's Graduate School of Business, told Retail Dive. "Let alone times when the industry at large is in turmoil, or a specific retail company is in some form of turnaround or transition. Going private, assuming it did not entail taking on a crushing level of debt, may very well be the best thing that could happen to Nordstrom."
Nordstrom is particularly well-suited to this move, with members of the founding family still in its executive ranks, a flagship department store fleet that hasn’t over-expanded the way Macy’s has, and e-commerce and off-price operations that lend the company added value, analysts told Retail Dive.
"Nordstrom, which started as a shoe store and evolved into a premium apparel house, never was a full-line department store and has gained market share over that same 30 year period" that saw full-line department stores, including Sears, J.C. Penney and Macy's, steadily losing market share, Nick Egelanian, retail analyst and president of retail development consultants SiteWorks International, told Retail Dive. "However, the Nordstrom brand is now segmented into the mature 120 department stores business and the faster growing Nordstrom Rack brand. Taking the company private may be just a first step in separating the very valuable but now slow-growth premium department store brand from the higher growth discount Rack brand to create greater overall value."
Davidowitz said Nordstrom is "brilliantly" positioned to go private because of the loyalty of its customers, its commitment to customer service, the Nordstrom Rack business (established more than four decades ago) and their "very powerful" online business.
"They have many more Rack stores than they have Nordstrom stores," he said. "Unlike Macy’s, who was in bed on sleeping pills when this whole off-price retail took off, Nordstrom did it and is producing superb results. How do you get value for the Nordstrom shareholders as long as Nordstrom Rack is buried? If you want to spin off — Rack might be valued more than the whole Nordstrom — one reason to go private and do a restructuring is you can’t do these things when you’re a public company because there’s too much criticism. You don’t have to worry about earnings and you don’t have to impress anybody. You do what you have to do and come back."
It’s a viable option for a company with funds available and light at the end of the tunnel, Michael Brown, a partner in the retail practice of global strategy and management consulting firm A.T. Kearney, told Retail Dive in an email earlier this year. Nordstrom's recent sales troubles and investors' attendant wariness could actually help.
"Going private when share prices are low and then public again, after investments have been made and benefits are being realized, can have a positive return for a company doing this," he said. "All retailers are under pressure from a number of fronts. On-line price transparency, consumers’ desire for off-price goods, millennials' affinity to spend on experiences as opposed to goods and a decreased number of shoppers in their prime spending years, as baby boomers age out of the market and millennials have not hit their peak spending years. These are macro factors affecting everyone."
Gordon Haskett's Grom suggested that Nordstrom is uniquely positioned for this kind of move. "The structural challenges for the traditional department stores are abundantly clear today (i.e. unfavorable demand vs. supply imbalance, over-stored issues, declining customer traffic, etc.) and therefore we don’t foresee anything similar transpiring at Macy’s, Kohl’s, and/or JCPenney, particularly since family ownership is virtually non-existent" in those companies, he said.
"Furthermore, Neiman Marcus’ struggles as a private company have been well documented with current owners (Ares Management/Canada Pension Plan Investment Board) having difficulty monetizing the asset that was acquired from TPG/Warburg Pincus," he also said. "With that said, we do think the Nordstrom news will help continue to improve the narrative around the retail landscape, which up until recently has been the most dire in the 15+ years we’ve covered the sector."
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