Is the Nordstrom Family Preparing to Take Their Company Private?

Retailers have been enduring a more difficult year than any since the Great Recession slammed sales in 2008 and 2009. The culprit this time is not just a somewhat weaker economy, which presumably would correct itself in time, but secular shifts in the way consumers purchase items. The shopping mall, a staple of American life since the 1960s is losing support and consumers are increasingly opting for the convenience of online shopping, where Amazon is the undisputed king.

Department stores have been among the hardest hit. Some, such as Sears and JCPenney are clinging to survival. Others, such as Macy’s, are wondering how to adapt in order to give themselves the greatest odds of future success. Then there are those like Nordstrom, who have been among the most successful and best-managed in the industry but are by no means immune to the challenges of their competitors. In the past week, it has been rumored that the Nordstrom family may take the company private as a strategy meant to combat the incessant short-termism on Wall Street.

The family owns about 30% of the outstanding stock of the company today, meaning that they would need to find some equity partners in order to take the company private in order to avoid saddling the company with excessive debt.

Nordstrom’s underlying business is in better shape than most of its competitors. The retailer caters to wealthier Americans, who have fared better than the middle-class Americans most departments serve. The discount Nordstrom Rack chain has also been a boon to the company. But, perhaps most importantly, Nordstrom’s has had a more coherent e-commerce strategy than any other department store and today gets 20% of its sales from the internet. That has partly come through acquisitions. In 2011, $180 million was paid for the website HauteLook and $350 million was paid for Trunk Club in 2014. Nordstrom has also managed its’ discount chain, Nordstrom Rack, incredibly well where sales are still growing strongly. The company is also slowly expanding into Canada, where at present it only has five stores.

Nordstrom sales by division, 2011-2016. Source: Nordstrom SEC Filings.

The result has been that while sales at full-line Nordstrom stores have declined by 10% since 2012, overall sales for the company are 24% higher.

Those results have failed to impress Wall Street, however, which has punished the stock along with other retailers. After peaking at more than $75 per share in the not too distant past, shares today trade hands at about $46, even after word of the family’s intentions caused a spike in trading. With a market cap of $7.8 billion, the family would need financing for the $5.5 billion of the company that they do not own, in addition to the existing debt of $2.8 billion. It might be possible to find someone willing to lend the money, but that does not make it smart.

If the family can find an equity partner to help them take the company private without a massive debt increase, it would be the best resolution to the disconnect between Wall Street’s short-term impulses and the need for a long-term strategic plan. Short of that, the family is best of contending with investors instead of an unsustainable debt load and an uncertain future.

 

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