Nordstrom Inc. has a strong case for going private, especially as a company that’s undergoing operational and merchandise changes, and is likely to transform even more in the future.
For one, Wall Street takes a dim view of Nordstrom and most department stores. Through a private transaction, Nordstrom could reach a higher valuation, and preempt an unwanted bid for the company. Given its low stock price, at around $23.50, and the recent string of investor activity at department stores, including at Macy’s, Nordstrom seems vulnerable to takeover offers. Mexico’s Liverpool department store chain has a 9.63 percent stake in Nordstrom as of March 31, 2024, but when Liverpool accumulated the stock in 2022, it indicated it was a passive investment. On Monday, Macy’s Inc. rejected Arkhouse and Brigade’s takeover bid and terminated talks with the two activist investors.
Under the Glare of Wall Street
Going private takes the Nordstroms out from under the constant glare of Wall Street, and enables them to eliminate the time and costs of producing quarterly reports, staging conference calls and meetings with investors. They’ll deal with less scrutiny, far fewer stakeholders and regulatory requirements, and can be more decisive with a smaller constituency to report to. They’ll have more time to focus on long-term strategy and spend time with their families. Private companies can be less transparent so competitors know less about what they’re up against.
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On the other hand, it can be tougher and more expensive to raise money.
“I spent about a third of my time with the board, investors, Wall Street analysts, and writing scripts on quarterly results,” said one former public company retail chief executive officer who requested anonymity. “When you are running a private company, you still have to report to a board and investors but there would not be as many and you wouldn’t need to be getting as specifically detailed on the company and its performance.
“You’re not living life quarter-to-quarter. Thirteen-week report cards don’t really work in retailing. It’s too much of a game. As a CEO in a private company, you can have a strategic vision for evolving the company a few years out and not get distracted. That’s why private equity can work well. They sometimes hold onto a retailer for four or five years before looking to cash out. You can also enjoy your own life more if you are running a private company. Going private frees up your bandwidth.”
Dealing With Investors
Terry Lundgren, CEO of TJL Advisors and former chairman and CEO of Macy’s Inc., said dealing with the investor community “for the most part, didn’t take up a huge amount of my business day. In any given quarter, it would be maybe 5 percent of my time,” Lundgren estimated. “I had a great CFO: Karen Hoguet. I spent a lot of time with her and my finance team, which is important to say. But she spent the majority of time with investors and was very capable of answering all their questions. If there was ever an issue or something that she couldn’t answer, she came to me.”
Things temporarily changed when corporate raider Carl Icahn upped his stake in Macy’s (then called Federated) in 2006 and advocated for a leveraged buyout. Lundgren started meeting with Icahn.
“I didn’t want to leverage up the company, which he was saying he wanted to do. I wanted the freedom to continue to invest in the business. We were at that point where we were doing pretty well,” Lundgren said. Icahn eventually reduced his stake in Macy’s, and Lundgren said in that kind of situation, a CEO could spend as much as 30 or 40 percent of his or her time in situations with an activist investor. “Activists will have a lot of questions about what the company’s future looks like, what the assets look like and what the operating expenses are,” he said.
The Nordstroms’ Stake in Nordstrom Inc.
Last April, Nordstrom Inc. CEO Erik Nordstrom, and his brother Pete, president and chief brand officer, confirmed they want to take the retailer private and that a special committee was formed to evaluate their proposal and any others that could arise. The brothers own approximately 9.5 percent of the stock, while the Nordstrom family owns approximately one-third. The board indicated that a range of possible avenues, including taking the company private, for advancing shareholder value would be examined. The family and any partners would have to own more than 50 percent of the voting shares to go private.
The Nordstroms tried to take their company private in 2017, offering to pay $50 a share, or $8.4 billion, with the backing of Leonard Green & Partners. That offer was considered too low and rejected by a special committee of the board.
This time around, the Nordstroms would offer less, possibly with Leonard Green as a partner again, as the company’s current market capitalization stands at $3.74 billion. The stock priced closed Tuesday up 4.17 percent at $23.75. There’s been speculation that Sycamore Partners private equity firm could get involved.
“The Nordstroms feel they would be better off going private and not having quarter-to-quarter pressures from the public markets. If they went private without putting on excessive debt, it allows them to invest with a longer-term mindset,” one senior level retail executive said, also requesting anonymity. “Investing in the business for long-term growth might cause some earnings shortfall short early on, but building a strategy toward a longer-term growth strategy, the future, is hard to do when you’re a public company because you’re reporting every quarter and you’re going to be criticized for your shortcomings. But if it’s leading toward a logical, sensible, long-term strategy, the insiders would support that.
“Secondly, it allows them to realize value that the public markets don’t. The public markets have beat up on department stores. They don’t believe in the future of department stores. The valuations are horrible. Whatever the Nordstroms offer for the stock, they’ll need financial partners. The board will have to approve it and shareholders will have to vote on the offer. It will be some premium to the stock price. They will have partners who loan them money or put in equity and get board seats. It’s typically some combination of debt and equity. The Nordstroms will structure a deal where they’re still in control. If they do take the company private, it suggests they want to be more engaged.”
Some retail experts contacted by WWD believe taking the company private could be a path for developing a succession plan. Erik is 60 and his brother Pete is 62. Their children are not involved in the company. The father of Pete and Erik, Bruce Nordstrom, who led the company for four decades, died in May.
One likely candidate for Nordstrom’s next CEO is Jamie Nordstrom, currently chief merchandising officer. He’s the cousin of Erik and Pete. The 51-year-old Jamie has nearly three decades of experience working across almost every aspect of the business and has held leadership roles in merchandising, stores and digital. Before becoming chief merchandising officer, he was chief stores officer.
Dana Telsey, CEO and chief research officer at the Telsey Advisory Group, explained that if a company is undergoing a high degree of operational and merchandising changes — which Nordstrom is — impacting the top and bottom lines and expense structure, “it becomes difficult to provide quarterly and annual sales and earnings outlooks to Wall Street.” Going private eliminates that burden.
The Pros and Cons of Going Private
As stated in its annual report, the $14 billion Seattle-based Nordstrom is expanding its Rack off-price chain, increasing its digital velocity, and increasing the breadth of selection through alternatives to traditional wholesaling, i.e. drop shipping, concessions and its new marketplace format. Nordstrom is putting more resources into its department stores in key markets and building up its media network, which generates revenues by enabling brands to advertise through different Nordstrom channels. Still, such strategies can take a long time to bear fruit, testing the patience of Wall Street.
While those contacted by WWD see advantages in taking Nordstrom private, a former specialty retail CEO said, “When we went private, I was very much against it. The private equity partners took on huge debt, which hurt the business and they paid themselves a lot of money. They took dividends. None of the financial people knew about merchandising. I think the Nordstroms would be nuts to leverage their balance sheet, but then again, Wall Street does not have much confidence in the department store sector. Dillard’s is the only one that’s rock ‘n’ rolling. Dillard’s stock has gone through the roof.” The stock is currently trading between $450 and $460 a share, but is not widely traded with close to 40 percent controlled by the Dillard family and the rest largely held by institutional investors.
“Like all retailers that sell other people’s goods, Nordstrom needs to ensure they are giving shoppers a reason to come to them rather than going elsewhere. That can be done through curation, experience, service and other reasons that inspire loyalty,” said Simeon Siegel, managing director, BMO Capital Markets.
“They need to put the inventory where it needs to be so they’re well assorted, continue to enhance the brand availability at Rack, and must work to drive traffic,” Telsey said. “They must continue to invest in personnel, connecting with customers to stay true to their legacy of service, and need to do what all department stores need to do: capture that younger customer.”
Though he believes department stores will endure, Lundgren said department stores generally are too big and too numerous, given today’s opportunities to shop online, specialty stores and off-price retailers. “You need a base of stores in the great cities where the population is growing, which generally means the North, South and East and West Coasts.”
He suggested Nordstrom “rationalize” its store base, further integrate online and stores for easier shopping, and not be all things to all people. As of the end of the first quarter this year, the company had 93 department stores, 262 Rack off-price stores, six Nordstrom Local service hubs and two clearance units. “They need to stand for something. In the old days, Lord & Taylor stood for dresses. The problem was they didn’t evolve from there and everybody else got on the dress bandwagon. Nordstrom stood for shoes. They had the best assortment but others caught up. Is the men’s suit business dead? Probably not. Especially suit separates with open collar shirts. Nordstrom needs to be the go-to place for men’s suits because they were so good at that.…It’s just finding what those pockets are, and what they should stand for and own with conviction.”
