Nordstrom could go private. Will anyone want to take it there?

MW Nordstrom could go private. Will anyone want to take it there?

By Bill Peters

Retailer joins Gap, Urban Outfitters, Under Armour in making big moves to counter weaker demand

Shares of Nordstrom Inc. rallied on Tuesday following a report that the department-store chain could be looking to go private, the latest effort by a major retailer to shake up business after two years of weaker demand for clothing.

Shares of the retailer finished 9.4% higher on Tuesday. But after uneven sales trends, growth plans that haven't always impressed investors, and efforts to cut back - like shuttering its Canadian stores and its Trunk Club styling service - at least one analyst had questions about how much interest the chain could garner from private equity.

Reuters reported earlier Tuesday that Nordstrom's $(JWN)$ founding family was behind the bid to go private, and that the company had tapped Morgan Stanley and Centerview Partners to ask private-equity firms about their interest in such a deal.

The news outlet, citing people familiar with the matter, said that a deal was not guaranteed. Nordstrom did not respond to a request for comment.

The move would follow an unsuccessful attempt to take the company private in 2018, amid concerns about the retail industry's ability to adapt to the rise of online shopping. Earlier this year, department-store chain Macy's Inc. $(M)$ rejected a bid to take it private by Arkhouse Management and Brigade Capital Management.

After rebounding from the pandemic, rising food prices over the past two years have crimped consumer spending on more discretionary purchases, like shoes and clothing. For Nordstrom, whose roots go back to a shoe store that opened in 1901 in Seattle, there have also been questions in recent years about whether the chain will stay in the family after its fourth-generation executives leave it.

William Blair analyst Dylan Carden, in an interview on Tuesday, said that with stronger, steadier growth harder to come by in a more mature company, Nordstrom could be turning toward cleaning up its cost structure and running it for free cash flow and returns on existing investments.

"That's a lot easier to do away from the public markets," he said. "Where this gets complicated is why would a private-equity firm bite on that kind of opportunity?"

"A private-equity firm, given the historical model, would want to take something off the table for now and come back in three or five years and say 'Hey, look at this brand new shiny object that you can now make a bull case for in the next five, 10n years,'" he said. "It's hard to see how you would so dramatically change the business such that that kind of strategy would be feasible."

Nordstrom, in reporting quarterly earnings this month, said it continued to see a "cautious consumer that is mindful of discretionary purchases in light of inflation, higher interest rates and the resumption of student-loan payments."

The chain at that time said it wants to drive more growth at its banner locations and its off-price Rack stores. It also wants to find different ways to reach customers online and speed up deliveries.

Sales last year fell 5.4% to $14.7 billion.

Weaker sales trends over the past two years have led other retailers and clothing makers to think harder about how to rejuvenate demand while satisfying shareholder pressure for profits.

Elsewhere, Gap Inc. $(GPS)$ recently brought aboard fashion designer Zac Posen as it looks to regain fashion relevance. It has also made leadership changes. Urban Outfitters Inc. $(URBN)$ last month said it was reviewing "all areas" of its ailing namesake stores and recently hired a new president of its Urban Outfitters brand for North America.

Nike Inc. $(NKE)$, which reports quarterly results this week, is cutting costs and laying off staff. So is jeans maker Levi Strauss & Co. $(LEVI)$, which has tried to counter weaker demand with an assortment of new pants and other items. Athleisure giant Under Armour Inc. $(UA)$ $(UAA)$, in a surprise move last week, said founder Kevin Plank would return as chief executive.

-Bill Peters

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March 19, 2024 19:53 ET (23:53 GMT)

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