Nordstrom going to Private Equity?

[c95xrk]

I'd been thinking about this for a while, remembering their stock price when they previously attempted to take the company private. That was pre-COVID, so many of the store closures they likely would have had to make are now completed, but the company's reliance on the Rack for revenue just isn't sustainable. Considering the PE playbook, I wonder if we might see an IPO / spinoff of the Rack as time goes on? The company definitely needs to focus on their full-line stores, and may finally have the freedom to do to that if they get taken private.

[storewanderer]

I think going private with a refocus on the full line stores is a great idea. The question at this point is, can the full line stores sustain themselves? I feel like Rack has been carrying the company for a number of years and the full line stores are just sort of withering away. Maybe they have closed enough of the marginal full line stores that they are down to productive full line stores?

[ClownLoach]

I think they've cleared out almost enough Nordstrom full line stores, there may be a few problem stragglers like the smaller format Irvine store that has been rumored to be closing for years (the landlord has done multiple customer surveys asking what they would like to see replace it). For the most part the closures were in markets they never should have tried to open in, or they were in markets that have deteriorated too much to sustain a high end business like Nordstrom. I really wonder how the NYC flagship is doing, we haven't heard much about it.

I see the larger problems at the moment being Rack and the depth of inventory at the main lines. Rack is supposedly being dealt with as the management was just changed out weeks ago. I doubt we will see changes for the next year or so.

Rack is an oddity. It serves a purpose as the full line stores are not a good place for clearance or returns to accumulate. There definitely is a large, dedicated base of Rack shoppers who go there because they believe if they sift through all the dirt they'll find a diamond and probably have done so many times. But it is a more volatile sector and thus becomes the "tail swinging the dog" for the company. I am convinced that they have grossly over expanded the concept and as a result they had to change the assortment by padding the stores with "made for outlet quality" goods which outnumber the actual "from the mainline stores" goods. Now there's a lot more dirt and fewer diamonds. I think they may need two different concepts each with a different "flavor" similar to what TJX does with Marshall's and TJMaxx, or Gap and Old Navy. One will need to skew more heavily towards the "made for Rack" goods and the other will need to be the real home of the higher end store goods as was in the past. The majority of the Rack fleet will be this more "Old Navy" type operation that better competes with the TJX stores with mainly product sourced for them directly. Then a select few become the "Super Rack" stores, what the concept was originally, the clearance center from the real stores with higher end goods.

As discussed the mainline stores are operating in a manner that is counterintuitive to the rest of SKU intensive omnichannel retail. Nordstrom made a mistake and invested in e-commerce warehouses, reducing the depth of inventory (sizing mainly) from the stores and moving it to these warehouses. Now they have the added overhead of the warehouses while stock rooms at the stores sit empty and inventory turns decrease at store level. Macy's and basically everyone else solved these problems by closing most or all of the e-commerce warehouses, then implementing store-to-customer shipping. Nordstrom will need to close these warehouses and reverse course as the industry has proven that store-to-customer is the winner, better utilizing the existing store overhead and also in most cases saving drastically on labor by reducing store employee downtime. A store like Nordstrom could probably pack and package a couple hundred orders a day with the existing store labor budget. They could possibly come up with some sort of incentive for the commissioned employees to assist in this task, maybe they get a cut of the sale if they pull and package it for shipping.

What makes Nordstrom different is that I believe they have become so lost in trying to learn how to apply the technology and logistics of the omnichannel stuff that they forgot how to run good stores, they are so lost trying to buy cheap stuff to fill the Rack stores they forgot how to buy good stuff for the mainline stores... They are distracted and lack experience in these new business areas they want to be in, so they flounder and make bad choices like that expensive new e-commerce warehouse in Fontana. I do think that private equity type firms that have a good track record of correcting operations in retailers with the intent of fixing then doing an IPO (Blackstone for one). Such a strategy could make a difference at Nordstrom. Bring in the experience and owned proprietary systems/processes needed to remove the distractions from management that's trying to learn how to change without having anyone to teach them. Reduce overhead by improving processes and procedures; it's pretty apparent they are archaic and need updating. Then refocus the buyers, merchants, merchandisers etc on doing their jobs better.

[c95xrk]

I think they've cleared out almost enough Nordstrom full line stores, there may be a few problem stragglers like the smaller format Irvine store that has been rumored to be closing for years (the landlord has done multiple customer surveys asking what they would like to see replace it). For the most part the closures were in markets they never should have tried to open in, or they were in markets that have deteriorated too much to sustain a high end business like Nordstrom. I really wonder how the NYC flagship is doing, we haven't heard much about it.

IIRC the NYC flagship was not a tremendous success, partially due to its location away from the major shopping streets. Nordstrom owns their building, so I suppose they could monetize it somehow if need be.

Your tidbit about Irvine is interesting. The wing of shops around the Nordstrom store at the Spectrum is sort of a dead zone, and i've been wondering if there was some sort of redevelopment planned. I suppose we'll find out next year, since that'll be the 20 year mark and the operating agreement may be expiring. I always found that store to be odd, especially with its scuffed up wood floors covering the entirety of the first level. I know they've closed off the third floor of the Galleria Dallas location, so I suppose that could be on the chopping block at some point as well, and the ongoing decline of Beachwood Place may lead to something too.

[ClownLoach]

I think they've cleared out almost enough Nordstrom full line stores, there may be a few problem stragglers like the smaller format Irvine store that has been rumored to be closing for years (the landlord has done multiple customer surveys asking what they would like to see replace it). For the most part the closures were in markets they never should have tried to open in, or they were in markets that have deteriorated too much to sustain a high end business like Nordstrom. I really wonder how the NYC flagship is doing, we haven't heard much about it.

IIRC the NYC flagship was not a tremendous success, partially due to its location away from the major shopping streets. Nordstrom owns their building, so I suppose they could monetize it somehow if need be.

Your tidbit about Irvine is interesting. The wing of shops around the Nordstrom store at the Spectrum is sort of a dead zone, and i've been wondering if there was some sort of redevelopment planned. I suppose we'll find out next year, since that'll be the 20 year mark and the operating agreement may be expiring. I always found that store to be odd, especially with its scuffed up wood floors covering the entirety of the first level. I know they've closed off the third floor of the Galleria Dallas location, so I suppose that could be on the chopping block at some point as well, and the ongoing decline of Beachwood Place may lead to something too.

The original plan was for Bass Pro to replace the Nordstrom wing based on the Irvine Co. customer survey. Then Walmart closed and it was obviously a better fit. I believe Nordstrom owns their building.

[ClownLoach]

Sounds like they're still trying to go private.

https://www.retaildive.com/news/nordstr ... ail%20Dive

[buckguy]

The NYC store is a very odd location, but it would be difficult for them to locate where their customers are. The high end retail has migrated to a stretch of Madison Avenue that is perfect for boutiques and full line men's or women's retailers but not for even a modestly large store. The high end retail on Fifth Avenue (a couple avenues away from them) has mostly been replaced by touristy stuff but there are some large spaces there stores like Bergdorf Goodman has stayed , so it would have made some sense for them. They're in a neighborhood that used to have a lot of art galleries and does have some draws like Carnegie Hall and is a few blocks from Columbus Circle (which has a vertical mall), but there usually isn't a lot of foot traffic around it.

Many of their closures have been small markets in the Pacific NW that probably date back to when they bought Best. I'd imagine these either had cheap long-term leases or were owned by them but never generated much volume.

They've probably hit a tipping point with the Rack stores where they can't add much more made-for-outlet stuff, although they are more interesting to visit than Marshall's. The problem for all these places is that outside of the bubble that occurred around COVID because of bottlenecks, there is less and less true outlet merchandise coming to market, as logistics operations get better. If Nordstrom was to eliminate the e-commerce channel, they might have even less available to the outlets. The last true outlet I visited was a Dick's Going Going Gone---which had the odd sizes, odd colors, low profile brand names, etc. that used to fill outlets---people either bought a lot of stuff and seemed to enjoy the treasure hunt or they were in and out quickly because they probably were looking for one thing. I was just killing time and bought something to drink.

[babs]

Many of their closures have been small markets in the Pacific NW that probably date back to when they bought Best. I'd imagine these either had cheap long-term leases or were owned by them but never generated much volume.

The Best stores were only in Seattle with one store in Portland. They may have also had a store in Spokane.

The reality is that their store real estate strategy changes after opening stores in the Northwest and California. Their original plan was to go into any mall that could support them. When they decided to go national, they changed their strategy to open only one or two large stores per market. That's how they ended up with so many, often smaller, stores on the west coast and fewer but larger stores elsewhere. For instance, Oregon would have been a 1 or 2 store market, which they are down to now but at one point they had 6 full line stores.