Nordstrom to explore going private, shares soar 20%

Dive Brief:

Department store chain Nordstrom announced on Thursday that members of the Nordstrom family are exploring the possibility of taking the company private, according to a company press release. Nordstrom did not immediately respond to requests from Retail Dive to comment further on the news.
The group considering the move includes: Company Co-Presidents Blake Nordstrom, Peter Nordstrom, and Erik Nordstrom, President of Stores James F. Nordstrom, Chairman Emeritus Bruce Nordstrom and Anne E. Gittinger. The group has retained Centerview Partners LLC to serve as its financial advisor and Sidley Austin LLP to serve as its legal counsel.
Although the company has not officially filed any proposal to take the company private and has made no guarantees it will do so, the company’s stock jumped 20% on Thursday morning following the news, CNBC reports.

Dive Insight:

Nordstrom's move to explore taking the company private comes during an especially fraught time for upscale department store retailers.

For some time, Nordstrom was seen as the golden child of the space, seemingly immune to the struggles others faced. But like the other major players in the space, Nordstrom has been reporting weak sales for several quarters now, although it has avoided the mass store closures announced by the likes of Macy’s, Sears and J.C. Penney.

In mid-May, the company reported that first quarter net sales for its flagship unit fell 1.7% as same-store sales fell 2.8%. The department store chain continues to be buoyed by its off-price Rack unit, but experts have raised concerns that the success of Rack could be cannibalizing sales at its full-price stores. In Q1, net sales at Nordstrom Rack, including Rack stores as well as the Nordstrom Rack and HauteLook websites, rose 8.7% and same-store sales rose 2.3%. Margins were hit by markdowns on slower-moving items.

Going private may give Nordstrom more flexibility in reorganizing its finances. Earlier this year, Neiman Marcus pulled the plug on plans to file an initial public offering as its $2 billion debt burden ballooned and it began exploring strategic alternatives, including a potential sale of the company.

Going private is the right move for Nordstrom, according to Erich Joachimsthaler, CEO of growth strategy firm Vivaldi. “The department store business is in plain disruption and it is a highly asset intensive business and rather razor-thin margins. Because of this, they can’t really move fast enough and compete in today’s digital world where everything is connected,” Jaochimsthaler told Retail Dive in an email.

“Nordstrom goes private in order to massively restructure its business which is impossible as a public company. It is the right move," he said. "Either you disrupt or you are the disrupted. As a public company with the asset heaviness of the department store business and low margins, they cannot disrupt. This is the precursor of massive changes in retailing.”

According to Gordon Haskett analyst Chuck Grom, who emailed Retail Dive his initial thoughts on the news: "In terms of the rough math, at ~$46, the Group would need to raise ~$5.45 billion of additional debt to fund the takeout, which would imply an EBITDA multiple of 6.8x. Indeed this is ~28% lower than average retail LBO of 9.4x (since 2006), which could entice others (i.e. P/E, Hudson Bay, etc.) to get involved with Nordstrom now officially 'in play'."

Speaking across the department store landscape, Grom said Dillard's is most likely the next candidate to follow a similar path to go private, given the degree of family ownership of the company.