Earlier this month, several members of the Nordstrom family, including the company’s CEO Erik Nordstrom and president Pete Nordstrom, offered to acquire the legacy department store chain for US$3.8 billion in partnership with Mexican retail company El Puerto de Liverpool.
But while a special committee of the board is reviewing the bid, some retail experts, like GlobalData MD Neil Saunders, have expressed doubt about the family’s attempts to go private, feeling it might be too little, too late.
As the analyst explained to Inside Retail, the offer comes as Nordstrom is recovering from a long period of poor performance.
“The department store division has various structural challenges, while the off-price Rack division is starting to produce some good growth. This mixed outlook will limit the amount any party is willing to pay,” Saunders noted.
Yet, other retail experts like Steve Dennis, president and founder of SageBerry Consulting, believe that going private makes sense for the American legacy retailer as it will be easier for the business to take more aggressive strategic actions than it could as a public company.
Dennis observed that “the proposed deal structure is superior to most other retail go-private transactions as they won’t be taking on dramatically more debt and their partner is strategic, not financial.”
In 1901, forward-thinking entrepreneur John W Nordstrom opened a luxury shoe store in Seattle, Washington.
In addition to footwear, the solo operation slowly but surely expanded into other retail categories including beauty, apparel and accessories as it grew into an internationally recognised retail chain.
However, since filing for an IPO in 1971 and hitting its peak valuation of US$15 billion in 2015, the American department store has gone downhill. Today it is valued at just US$3.7 billion.
Much like its competitors, such as Macy’s and JCPenney, Nordstrom has struggled to navigate challenges like pandemic-related losses, increased real estate costs and the increased number of more affordable competitors. This includes players like American multinational off-price department store corporation TJX, which operates TJ Maxx (in the US) and TK Maxx (in Australia and Europe).
As Liza Amlani, the principal and co-founder of Retail Strategy Group, noted, “Nordstrom Rack has never been able to catch up to the success of TJX, and yet Nordstrom is planning on opening up more Rack stores.”
As Cathy Smith, Nordstrom’s chief financial officer, stated “We’re going to grow with Rack…We’re very, very focused on driving digital growth.”
In 2023, Nordstrom Rack notably outperformed its luxurious “older brother”, with net sales that grew 14.6 per cent compared to the previous year. To provide a point of comparison, during the same period last year Nordstrom sales had declined by 3 per cent.
Hoping to bank on Nordstrom Rack’s success, the company has announced plans to open 22 more locations before the end of 2024.
However, Amlani warned, that while the “treasure hunt” of shopping in off-price stores is a strong factor for capturing the price-sensitive consumers’ attention, Nordstrom Rack is not the end-all, be-all savior the company is painting it to be.
Especially since “Nordstrom Rack still lacks the merchandising principles of a successful off-price model,” Amlani observed.
Ultimately, Amlani believes that the deal could help improve the company’s stock price, which in turn would benefit the stakeholders and the board.
If the deal were to be finalised, Amlani believes that Nordstrom would continue to be a destination for any shoppers.
“The retailer is finally getting back on track to being a leader in the luxury space even though there is still some work to be done with their [Nordstrom] Rack business,” she said.
“As for the full price store, Nordstrom still remains relevant and has a great mix of brands, the right balance of products, and the customer experience keeps the shopper coming back to the store.”
Dennis also believes that the deal could lead to a brighter future ahead for the legacy department store. “I believe it will give them more control over their destiny and more time to execute a turn-around,” he said.
“Having said that, they face a lot of headwinds, aging customer base, weakness in the accessible luxury space, more competition and they have yet to articulate a compelling long-term strategy.”
“Nordstrom needs to take more aggressive actions to get the company on a path of longer-term sustained and profitable growth,” Dennis concluded.
The post The strengths and weaknesses of Nordstrom’s bid to go private appeared first on Inside Retail Australia.
