Industry Commentary: Nordstrom
Greg Portell, lead partner in the retail practice of A.T. Kearney, a global strategy and management consulting firm, answers a few questions regarding the news that Nordstrom may go private.
What does this move mean for Nordstrom — how might it play out?
For investors, it will be great, because they’re going to get a premium on their investment. But from Nordstrom’s standpoint, there’s no doubt that retail will be undergoing dramatic transformation in the near future. It’s not unlike being an awkward teenager — no one enjoys their teenage years, because everything is changing, and to do that in the public eye is very difficult and in many ways counterproductive.
Given the types of changes that retailers have to go through, the ability to take a company private and get out of the limelight of the public market has a lot of appeal — it’s very difficult to do in a publicly traded environment.
Consequently, Nordstrom is taking a business that is profitable now and for the foreseeable future, and putting themselves in an environment where they can make the changes and types of investments that are needed to be successful five, six and seven years out.
Is Nordstrom’s escape hatch an exit available to others?
The appeal of a family connection to the stock is definitely hard to overestimate. In the cases of Dillard’s and Nordstrom, those families have a clear connection to the businesses they’re looking to go in and create the exit hatch for. For some specialty retailers, you could probably find connections, but to find specialty retailers that have that much investment capital behind them, or have the ability to borrow that much investment capital — I’d imagine you’d get a thin list pretty fast.
The private equity model in retail has struggled because those are bankers buying retailers. Here you have retail buying retail. This is a retailer who has an investment creating a unique and sustainable retail experience that now will have the freedom to do that. It’s a much different situation than a banker buyer a retailer and trying to manage it as an asset.
What might Nordstrom might do, away from the glare of the public markets?
The biggest unique challenge they face is taking their high-service, high-touch retail experience from the physical to the digital. This will require some experimentation—the luxury to make bets that may or may not work. That concept that no one likes to talk about — fail fast — is a lot easier to execute under the private eyes than in the public glare.
I would expect them to experiment more, to take more mobile and digital risks than they probably would in a public environment, to play more with their in-store retail concept, knowing it may not work.
What about the Nordstrom family as retailers?
Their commitment to a quality retail experience is admirable. It’s something that’s sorely missing in much of retail today. If you were to bet on a team of owners who were out to reimagine a positive retail experience, the Nordstroms would be high on the list of names that you’d place that bet on. You could go through the owners of large department stores and come up with exactly the opposite profile pretty fast.