Members of the Nordstrom family, who have been exploring a way to go private, are working on a new financing deal involving less debt in order to secure investment from private equity firm Leonard Green & Partners, the Wall Street Journal reports.
The family may attempt to entice other buyers in order to avoid the higher interest rates from banks that are threatening to scuttle the deal, unnamed sources told the Journal. The original plan included the Nordstrom family’s 31% stake (or $2.5 billion as of Aug. 1) and $1 billion in equity from Leonard Green, leaving $6.5 billion to be financed by banks.
Overall challenges in retail, especially at malls, have been a concern amidst the talks, and the surprise bankruptcy declaration by Toys R Us last month is exacerbating worries among the parties, including the Nordstroms, according to an earlier report on the deal. Requests for comment and clarification to Nordstrom, the family group and Leonard Green weren’t immediately returned to Retail Dive.
Retail is a tricky business in the best of times and these days department stores have especially confounding problems to solve — the consequence of decades of changes accelerated by e-commerce and changing consumer tastes. But Nordstrom, despite a few difficult quarters and many obvious challenges, has mostly kept above the fray.
There are many reasons that going private could help any retailer regroup, and Nordstrom is particularly well positioned for that, analysts say. It helps having 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. Although, in the form of its well established and thriving Rack unit, it's buried deep within the company. And it doesn't have 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. Nordstrom is "brilliantly" positioned to go private because of the loyalty of their customers, their commitment to customer service, the Nordstrom Rack business (established more than four decades ago) and their "very powerful" online business, he said.
Going private would afford the department store 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."