Struggling US luxury retailer Nordstrom may go private due to industry sales slowdown

PUBLISHED : Friday, 09 June, 2017, 3:13am
UPDATED : Friday, 09 June, 2017, 3:13am

Department store operator Nordstrom said on Thursday that some members of the Nordstrom family were considering taking the company private as it struggles with an industry-wide sales slowdown.

Going private, which would involve raising debt, would be a risky but potentially profitable bet by Nordstrom’s founding family and largest shareholder bloc that the company can reshape itself and emerge from the retail meltdown stronger.

Shares of the Seattle-based clothing and accessories retailer were last up 10.5 per cent at mid-afternoon after having surged as much as 18 per cent in their biggest intraday percentage gain since February 2009. The company has a market value of about US$7.4 billion.

US malls have been struggling with slowing customer traffic and mall anchors like Nordstrom and Macy’s are trying to revive sales.

Nordstrom in May reported first-quarter same-store sales that fell short of estimates, triggering a drop in its shares.

Once it goes private, Nordstrom may be able to restructure its business, which is more difficult as a public company, said Erich Joachimsthaler, chief executive of Vivaldi, a consulting firm that works with retail brands. “It’s the right move,” he said.

At a share price of US$46, the retailer would need to raise US$5.45 billion to US$8.19 billion of additional debt to fund the takeout, said Chuck Grom, analyst with Gordon Haskett. Such a move would come amid a wave of store closures and bankruptcies in the retail industry.

High-end department store chain Neiman Marcus, which went private in 2005, said in March it is exploring options as it seeks relief from its swelling debt pile.

Analysts and consultants were divided on how successful Nordstrom could be in going private.

UBS Group AG analysts said in a report that they were cautious about Nordstrom’s ability to secure financing given problems in the retail sector. They also flagged a bid by the founder of electronics retailer Best Buy to take the company private that failed in 2013 when he was unable to raise US$2.5 billion-$3 billion in debt.

Other analysts said that going private may be slightly easier for Nordstrom.

“Nordstrom is not highly levered, they have quite a bit in their way of real estate assets so is it probably easier for them to actually get this transaction done,” said Jan Rogers Kniffen, chief executive of retail consultancy J Rogers Kniffen WWE.

The department store operator said the group formed to consider going private had not made a formal proposal.

The group comprises Chairman Emeritus Bruce Nordstrom, his sister Anne Gittinger, President James Nordstrom and co-Presidents Blake, Peter and Erik Nordstrom.

The group, which owns 31.2 per cent of the company, said it was not interested in selling its stake to third parties or voting for an alternative deal.

“Because of the changing dynamics in the retail environment, the group is evaluating whether the long-term interests of the issuer (Nordstrom) are better served as a privately held company,” the members of the Nordstrom family said in a filing.

The company’s board has formed a committee of independent directors to explore the possibility of any transaction that could be made by the group.