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Retail Giants Nordstrom and Macy’s Consider Private Ownership
In a move set to drastically shake up the American retail landscape, major department store chains Nordstrom and Macy’s could soon find themselves under the ownership of private equity firms or hedge funds. This potential shift marks a departure from the traditional retail model and hints at significant transformations in the industry.
Recent data from Dealogic reveals a notable trend: Investments in retail and consumer companies accounted for only 7% of the total U.S. private equity deal volume ($2.6 trillion) over the past decade. However, deals involving retail giants could reverse this trend, sparking renewed interest in private ownership of major U.S. retailers.
One such example is Nordstrom, where the founding family is eyeing a bid to take the company private. The move stems from a desire to retain control over the chain while alleviating the pressure of quarterly performance evaluations, allowing the company space to strategize effectively.
Nordstrom’s expansion plans, particularly through its discount-focused sister chain Rack, underscore its commitment to growth. In contrast, competitors like Macy’s are pivoting toward a different strategy, focusing on the expansion of its upscale brands Bloomingdale’s and Bluemercury.
The retail landscape is fraught with challenges, including subdued consumer demand and intense competition from off-price retailers like Burlington and TJX Companies. Nordstrom’s push into its discount Rack business aims to capture a broader market while diversifying its presence beyond traditional mall locations.
Despite successes in certain areas, challenges persist for Nordstrom, particularly in balancing inventory and attracting shoppers across its different segments. However, strategic adjustments, such as incorporating well-known brands into its Rack assortment, indicate a commitment to meeting customer demands.
Meanwhile, Macy’s is navigating a different path, facing an unsolicited bid from investment firms Arkhouse and Brigade Capital. This Tuesday, around two weeks after the firms raised their initial offer, Macy’s told Reuters that “it will open its books to Arkhouse and Brigade Capital, a potential breakthrough in the investment firms’ $6.6 billion bid to take the U.S. department store operator private.”
The major difference between Nordstrom and Macy’s, according to Reuters’ sources, is that “while the Nordstrom family is pushing for private ownership, Macy’s faces an unsolicited hostile bid. And because Macy’s is a better operator with less leverage than Nordstrom, it’s easier to finance.”
The goal of going private is often to reposition the business for future sale, leveraging improved market conditions. Macy’s could potentially return to public markets in a different form, balancing short- and long-term goals. Robert Burke, a luxury retail analyst, believes going private will provide Macy’s the time it needs to adapt to the evolving retail landscape.
Shielded from quarterly earnings analysis, private companies can focus on creating shareholder value through avenues beyond just driving profitable growth. Real estate value becomes a primary focus, offering a different perspective on shareholder value creation.
The trend toward going private reflects a soft public market, according to Neil Saunders, managing director of GlobalData, where valuations are cautious and investor sentiment is pessimistic. Multibrand retailers must weigh their options: risk undervaluation by staying public, or “go private for a lower price.”
Saunders added that public pressure can be beneficial because “it forces multibrand retailers to be disciplined and have a clear strategy.” He also highlighted the fact that “investors taking business private are often focused more on financials and maximizing returns than they are on trading. That does not always bode well for the long-term health of a retailer.”
Whether for Nordstrom, Macy’s, or another retailer, going private may offer the opportunity to navigate challenging market conditions and focus on long-term value conditions, but the decision ultimately depends on the company’s strategic goals and its assessment of market conditions.
Discussion Questions
How might the shift to private ownership of major retail chains like Nordstrom and Macy’s redefine the metrics of success in the retail industry, moving beyond short-term performance to prioritize long-term sustainability and shareholder value?
Amid subdued consumer demand and fierce competition, how do Nordstrom and Macy’s differing strategies reflect changing consumer preferences and the evolving retail landscape?
As multibrand retailers weigh the advantages of going private to escape public market pressures, how can they balance short-term gains with the imperative to invest in innovation, customer experience, and long-term growth to stay competitive?
Poll
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Carol Spieckerman
President, Spieckerman Retail
Jeff Sward
Founding Partner, Merchandising Metrics
I salute Dennis’ well cultivated sense of humour – moving beyond short-term performance to prioritize long-term sustainability and shareholder value (?!?!) – ’cause these things always end so well, right? Anyone who were to actually believe this needs to avoid operating a motor vehicle or heavy machinery (a keyboard, I guess, is safe).
I, too, was laughing at “moving beyond short-term performance to prioritize long-term sustainability and shareholder value.”
There is a big difference between these two ‘privatizations.
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The Nordstrom family want to take their business private so they can run it with a long-term vision away from the scrutiny and short-termism of public markets. This makes some sense and, despite recent issues at Nordstrom, will probably strengthen the retailer.
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The groups trying to take Macy’s private want to do so in order to monetize assets and generate cash. By definition, this is a short-term play that will leave Macy’s in a weakened state and, in fact, will probably be the beginning of the end of the brand.
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The commonality between the two potential deals is that they focus on a challenged part of the retail market that is ripe for some form of disruption.
Concise and could NOT say it better!!! This could work WELL for Nordstrom If they can get Rack with a dependable and correct focus and perhaps pull back a little on the legacy stores to return service and culture to what Nordstrom was always known for, could be terrific, For Macy’s, time will tell as to what Arkhouse & Brigade do via the real estate and possible improvement of, or negligence of, the running of the stores.
Agreed, right thing for Nordstrom for the right reasons. They still need to define the right strategy and execute it. As for Macy’s, I think the writing has been on the wall for a number of years and I see their most likely path following the Sears/Kmart path of the last 20 years, resulting in no real value for consumers.
I think there are two visions for Macy’s. One is new CEO Tony Spring’s view of revitalization. The other is the activist investor view of monetizing the company – this is definitely following the playbook of Sears!
The back-and-forth dance of private vs. public continues. Go private to eliminate Wall Street’s quarterly scrutiny and give the business time to focus; go public to generate the capital needed to grow and expand. Macy’s hand is being forced by an activist shareholder that appears to be trying to force their will with an eye to monetizing the significant real estate portfolio Macy’s holds. As Neil Saunders rightly notes, this approach rarely bodes well for the retail business itself. Nordstrom appears to be simply looking to eliminate the scrutiny of Wall Street to conduct their business without having to explain every move and suffer the vagaries of the public market. There’s a good reason that investments in retail and consumer companies accounted for only 7% of the total U.S. private equity deal volume – there are better places to invest their money to get higher, more reliable returns.
“ drastically shake up the American retail landscape.” I don’t think so.
As Neil pointed out, these are two different situations. For Macy’s, it is the typical Private Equity LBO, and Macy’s is the perfect candidate. Leverage the buyout, charge egregious closing and management fees, rip the heart out of the company, spin-off Blue Mercury and Bloomies, and then take it public again with plenty of fanfare. This is a pure financial play.
I have always admired Nordstrom. I am pleased to see the family take this strategy. This is absolutely not a typical PE play. This is a play for growing retail. The family has been in retail since 1901. Their name is on the door. They could get out tomorrow, but they reasonably see the future. They recognize the place of the department store with today’s shoppers. They will stabilize their department store business, even if it means striking it a bit. They will focus on the Rack, making it more attractive than the other off-price retailers. Seeing the family target an unnamed retail market segment would not surprise me.
For Macy’s, too bad. Where is R.H.Macy when you need him?
Nordstrom’s intentional privatization = Bolder moves with less scrutiny.
Macy’s forced privatization = Deconstruction with potential destruction.
I believe that these two companies are not a typical target for P-E firms, they not need money to grow. Most important reason for these companies to go private is to relive both from the pressures of having to perform to the expectations of public shareholders. The caveat is that the P-E investors should not be those intent in liquidating real estate assets to derive value for its investors. Neither of these companies is in the real estate business.
PEs are notorious for extracting short term return on their investment at the expense of longer term investments. If this move truly means they’ll be able to focus more on longer term investments in tech that help increase inventory turns, operational efficiency, competitive differentiation, and customer experience, then great! If not, more store closures and financial troubles will result.
“Private ownership” certainly is a broad umbrella. Nordstrom WANTS to go private and RETAIN CONTROL of the business. Macy’s is FIGHTING going private, and if they do go private they will LOSE CONTROL of the business. Nordstrom wants to invest in the future of the brand and Macy’s will see dollars siphoned off and could have difficulty investing in the brand. I’m stating it at the extremes to illustrate the vast differences in the two scenarios. It’s one thing when real estate is a bedrock of the balance sheet, but quite another when the real estate is worth more than the parent business.
I worked for Macy’s and very much want Macy’s and the whole middle market to survive. But this scenario has been predictable for many years. The instant the real estate value exceeding the brand value, Macy’s was in play. It was never a question of if, only a question when. The % of square feet versus the % of sales dichotomy has existed for years. And that dichotomy was never going to bounce back. And yet there doesn’t appear to have been a contingency plan for the inevitability of today’s circumstances.
I do wonder if the real estate is worth as much as the activist investors seem to think. There are a lot of Macy’s owned locations in malls that still have empty Sears stores and many other empty units. If demand isn’t there, the value isn’t there either!
Private ownership for Macys and Nordstrom would be a major advantage, and in fact, I think the same is true or most other retailers.
Not being a traded stock allows retail to expand the three-month mentality to longer range marketing and operations. That is healthier for the retail business. Db