Nordstrom's New Chapter: What Going Private Means for the Retail Giant

Nordstrom Inc., the iconic Seattle-based retailer, is set to embark on a new chapter as it goes private in a $6.25 billion deal. The move, approved by the company's board of directors, will see the Nordstrom family and Mexican retailer El Puerto de Liverpool acquire all outstanding shares, with the family retaining a 50.1% stake. This article explores the implications of Nordstrom's privatization and what it means for the future of the retail giant.



A Shift in Focus

Going private allows Nordstrom to prioritize long-term growth over short-term market pressures. The company's focus on aggressive expansion of the Rack off-price chain and digital growth is expected to continue post-privatization. This strategy has shown promise, with increases in operating profits and sales revenues despite a third-quarter drop in net earnings. With the scrutiny of public markets lifted, Nordstrom can invest more in merchandise improvements, store upgrades, and fashion risks, potentially leading to improved merchandising at Nordstrom and further boosting its upscale department store business.



The Family's Influence

The Nordstrom family's majority ownership will significantly influence the company's merchandising and store upgrade strategies. Neil Saunders of GlobalData expects the family to "run the business as a retailer rather than as some kind of financial plaything," enabling necessary investments in merchandising, operations, and store standards. This includes accelerating investments in the Manhattan flagship store and taking more fashion risks. Jefferies Equity Research highlights key long-term growth drivers such as improved merchandising at Nordstrom, continued omnichannel execution, and supply chain cost optimization.

The Liverpool Partnership

The partnership with El Puerto de Liverpool could significantly enhance Nordstrom's brand offerings and expansion into new markets. Liverpool's extensive retail expertise and financial backing can help Nordstrom introduce new brands to its portfolio, potentially including popular activewear brands like Alo or Vuori. This could attract a broader customer base and boost sales. Additionally, Liverpool's presence in Mexico and other Latin American markets could facilitate Nordstrom's expansion into these regions, opening up new revenue streams and growth opportunities.



Managing Increased Debt

Nordstrom's going private will indeed increase its debt load, but the company has a plan to manage it effectively. The transaction will be financed through a combination of rollover equity by the Nordstrom family and Liverpool, cash commitments by Liverpool, up to $450 million in borrowings under a new $1.2 billion asset-back loan, and company cash on hand. Nordstrom has $2.7 billion in debt, and at the $24.25 per share price in the deal, the equity value amounts to $4.1 billion, with the enterprise value, including debt, coming to $6.3 billion. To ensure timely repayment, Nordstrom will likely focus on cost optimization, supply chain efficiency, and strategic investments to drive growth and improve profitability.

In conclusion, Nordstrom's privatization opens up new opportunities for the retail giant to focus on long-term growth and strategic investments. The family's majority ownership and the partnership with Liverpool position Nordstrom well to enhance its brand offerings, expand into new markets, and improve its merchandising and store upgrade strategies. While increased debt is a concern, Nordstrom has a plan to manage it effectively and ensure timely repayment. As Nordstrom embarks on this new chapter, investors should closely monitor the company's progress and evaluate its long-term potential.