hnnhcronin Luxury department stores, including Nordstrom and Saks Fifth Avenue, are exploring the possibility of private ownership. Declining traffic and consumer interest has hurt sales at both retailers. Despite both companies’ quick adaptation to the changing retail environment and impressive online presences, the “Amazon-ation” of the retail space is taking its toll on even the best of traditional bricks and mortar retailers.
In an attempt to focus on the survival of the company without pressure from investors to meet or exceed analysts’ expectations for earnings, the Nordstrom family announced that they were considering deals with private equity firms. Despite the challenging retail environment, Nordstrom is actually doing well in comparison to most department stores, private equity firms could find investing in Nordstrom as a unique property with compelling opportunity. Some speculate that Nordstrom’s stock is undervalued because the retail sector as a whole is faring much worse than Nordstrom. Nordstrom has not had to close a major number of store locations, and has experienced a 19% increase in online sales. On June 8th, shares of Nordstrom were up 10% after the news broke that Nordstrom was considering private ownership. If Nordstrom were private, the company would be free to make more notable changes to its business strategy without the pressure of satisfying investors.
Retail giant, Hudson’s Bay Company(HBC), which owns department stores Saks Fifth Avenue and Lord and Taylor, received a letter from an activist investor, Jonathan Litt, who encouraged the company to go private and sell its real estate holdings in order to increase profit. Jonathan Litt runs Land and Buildings Investment Management, which offers real estate advice to companies. Hudson’s Bay Company announced a loss of $1.19 per share causing the stock to drop 12%. The department stores under the company have experienced declining sales over the past few years, prompting Hudson’s Bay Company to announce a cost-saving plan that includes 2,000 job cuts. The letter mentioned that the value of the real estate, including the Saks flagship on 5th Avenue, under HBC is worth four times more than the current share price.
The need for these companies to consider alternatives to their current business strategies exemplifies the difficulty of thriving in the current retail environment. Investors lack confidence in department stores, and the pressure to turn profits each quarter has left department stores unable to seriously reevaluate their e-commerce and real estate. A more promising future for department stores could very well be the private route.
Source:
Camhi, Jonathan. “Nordstrom Explores Going Private.” Business Insider, Business Insider, 12 June
2017, www.businessinsider.com/nordstrom-explores-going-private-2017-6.
Corkery, Michael, and Michael J. De la Merced. “Nordstrom to Explore Deal to Go Private as Retail
Sector Reels.” The New York Times, The New York Times, 8 June 2017, www.nytimes.com/2017/06/08/business/dealbook/nordstrom.html.
Fox, Michelle. “Hudson’s Bay Needs to Monetize Its Real Estate or Go Private, Activist Investor
Says.” CNBC, CNBC, 19 June 2017, www.cnbc.com/2017/06/19/hudsons-bay-needs-to-monetize-its-real-estate-or-go-private-activist-investor.html.
Wahba, Phil. “Saks Fifth Avenue Manhattan Store May Be Better Off As A Hotel.” Hudson’s Bay Co.
Facing Investor Pressure to Go Private | Fortune.com, Fortune, 19 June 2017, fortune.com/2017/06/19/hudson-bay-saks-activist/.
