Just about a month after the amplified use of store credit signaled that retail stores like Macy's (NYSE: M) were facing rocky waters, a once-strong Nordstrom (NYSE: JWN) has displayed signs that it, too, is buckling.
This Thursday, members of the Nordstrom, Inc. family involved in its establishment in Seattle over a century ago revealed that they were in talks with buyout firms to enable the company to go private. These firms could take the form of private equity firms or sovereign wealth funds who still retain some degree of faith in large retailers that can generate a large amount of revenue over longer periods of time.
Nordstrom, Inc.'s share price suffered a steep decline around May 12 and its stock price had remained low until about Thursday, where it has been on the rise once again by 10%, increasing market value to $7.5 billion. The decline could be attributed to the biting competition from e-commerce companies like Amazon (NASDAQ: AMZN), eroding in-store sales and investor confidence. It could also stem from the stock being undervalued due to investors clumping Nordstrom, which is significantly better off than other retailers like Macy's, with more troubled brands.
Yet, Thursday's announcement may have been enough to boost this very confidence again, as going private would allow Nordstrom to evade the attention of public shareholders whilst relieving pressure to perform in the short-term by acquiring quick profits that simply aren't probable considering the waning demand for retail.
"This is a clear signal that the changes that retailers need to make are much more extensive and expensive than public shareholders have the appetite for," said Joel Bines, a managing director focused on retail at AlixPartners, an advisory firm.
The family group, which owns 31.2% of Nordstrom, aims to raise $1-$2 billion in order to take the retailer private. This hefty sum would possibly be funneled into retaining jobs and expanding e-commerce, as Nordstrom was clever enough to develop its online business early on in the game. It would also help Nordstrom avoid the fate of the Canadian company that owns Saks Fifth Avenue and Lord and Taylor, which said it would lay off around 2000 jobs to compensate for losses.
Since the brand is also renowned for stellar customer service, investments may further be made to improve these services and build upon existing stores instead of opening new ones. That being said, stunting the growth of physical stores has serious ramifications for the American economy. The sector employs 1 in 10 Americans and has taken over millions of square feet of commercial real-estate. As a pioneer in retail and one of the stronger brands in this all-encompassing sector decline, any move Nordstrom makes could very well be spotlighted as an example for other companies to follow: therefore, its mistakes are also very capably of destabilizing the whole economy itself.
Overall however, considering that Nordstrom only carries about $2.7 billion in long term debt, going private is most definitely a move the company can afford unlike many of its competitors including Neiman Marcus. Whether this additional debt will be justified, only time will tell.