In a bold move that underscores the challenges facing traditional department stores, Nordstrom’s founding family has renewed its efforts to take the company private. After nearly a decade of attempts, the Nordstrom family is putting forth a new proposal to acquire the retailer for $3.8 billion, or $23 per share, with support from the Mexican retailer El Puerto de Liverpool. This offer comes at a time when Nordstrom’s performance has waned significantly, highlighting a strategic shift that aims to steer the company back to stability away from public scrutiny.
The latest bid follows a rejected $8.4 billion offer in 2017, reflecting just how far Nordstrom’s market value has plummeted. Once valued at significantly more, the current bid represents a dramatic drop, placing some pressure on the special board committee to consider the offer. The landscape for department stores has shifted dramatically, with many once-reputable brands opting to sell directly to consumers, leaving traditional retailers struggling to keep pace.
Nordstrom’s financial performance in recent years has illustrated these challenges. In 2023, the company reported $14.2 billion in net sales—a decrease of 6% from the previous year, and down 8% from 2017 levels. Notably, the only segment experiencing growth is Nordstrom Rack, the off-price division, which is not indicative of the health of the luxury department store business that Nordstrom is traditionally associated with.
Navigating a Competitive Retail Environment
The context of this move is made more complex by the competitive landscape of retail, where rivals like Saks and Neiman Marcus are merging, and Macy’s is expanding its luxury segment through its Bloomingdale’s brand. For Nordstrom, shifting consumer preferences, particularly towards online shopping, have accelerated the decline. Brands that once showcased their products in Nordstrom stores are now favoring direct-to-consumer models, further eroding foot traffic in physical stores.
Retail analyst Neil Saunders from GlobalData Retail notes that taking Nordstrom private could allow the family to refocus the company on long-term strategy rather than short-term profit goals mandated by public shareholders. He explains, “As a private company, they can say, ‘We don’t care if we don’t make profit for the next five quarters; what we really care about is getting stores back on track.’” This shift could facilitate more innovative and flexible approaches to merchandising and marketing, which public companies often struggle to implement due to quarterly earnings pressures.
Historically, Nordstrom has excelled on the sales floor, offering a high-quality shopping experience that set it apart from competitors. Nonetheless, recent reports suggest that the execution has become more mediocre, reflecting a need for transformation. Remodelling stores will only be one part of the solution; finding the right product mix and attractive brands to draw consumers back into stores will be essential. There is a clear parallel with Macy’s current strategy, which is actively bringing in new brands and closing underperforming locations while launching smaller, luxury-oriented stores to appeal to its customer base.
Strategic Investments are Critical
Investments in the Nordstrom Rack format are also crucial. The current management has acknowledged that they have fallen behind in strong merchandising strategies, and customers are drawn to stores that provide a “treasure hunt” experience, a characteristic perfected by off-price retailers like T.J. Maxx. The consumer demographic is evolving, with rising inflation tightening budgets and leading shoppers toward bargain-hunting behaviors.
The recent earnings calls from Nordstrom highlighted ongoing efforts to expand Nordstrom Rack, with plans to open 19 new stores in 2023, followed by another 24 in 2024. Results indicated an 8.8% increase in net sales for the Rack segment—but this might not be enough without redefining the overall brand strategy to focus more effectively on consumer needs.
The Road Ahead
While the Nordstrom family’s proposal has its skeptics—given that shares hovered at around $22 at the time of the bid—analysts deem the offer reasonable in light of the company’s challenges. For the Nordstrom family, reclaiming control of a company founded in 1901 could represent both a return to their roots and a chance to restore the brand’s former glory. Should the proposal gain traction, stakeholders inside and outside the company will be watching closely to see if this transformation materializes.
In conclusion, the Nordstrom family’s latest attempt to take the company private is less a sign of defeat and more an acknowledgment of the complexities facing modern retail. With the backing of significant financial partners and a commitment to long-term growth without the constant pressure of public markets, there exists a potential path for Nordstrom to revitalize its brand and redefine its market approach.
