Why The Nordstrom Family Upped Its Stake
Shares of Nordstrom (NYSE: JWN) jumped last week on the news that members of its namesake family were drafting a proposal to increase their stake in the department store chain.
The Nordstrom family currently owns about one-third of the company, a stake which has remained fairly constant for two decades. But the Nordstroms have other ideas now, with plans to boost that stake to more than 50% in a bid to override the whims of investors.
Much of the rationale behind the move is purely business-driven, but Nordstrom — like Wal-Mart (NYSE: WMT) and Dell (NYSE: DELL), among others — has long been a profoundly family-oriented business, almost a dynasty, with each successive generation taking the helm like young monarchs, ascending to the throne.
Established way back in 1901, the company has been a staple of the fashion world for over a century. Originally a shoe store, Nordstrom only began selling apparel in the late 1950s, by which time it had expanded to eight outlets. Ownership of the company was passed down through four generations until 1997 when John Whitacre became the first executive outside of the Nordstrom clan to serve as CEO. Whitacre’s tenure was a short-lived departure from the norm: within two years, the family had reasserted control. The company now operates almost 400 stores across North America.
Furthermore, it’s no secret that the Nordstroms have long been seeking to take the company private. A family-led buyout offer of $50 per share was rejected last year after the price was judged too low. Lenders had asked for 13% interest, which was about twice the standard rate for retailers.
One of the arguments behind the proposal is that Nordstrom has been inaccurately compared by investors to other department stores like Macy’s (NYSE: M) and J.C. Penney (NYSE: JCP), both of which have lately been feeling the pressure from the so-called ‘retail apocalypse.’ As e-commerce continues to gather market share, as mall attendance declines and consumer spending habits shift away from material purchases, many of the mightiest names in brick-and-mortar shopping have sustained massive losses. In 2018 alone, two of America’s most iconic retailers -- Sears and Toys’R’Us -- separately filed for bankruptcy.
Nordstrom has not been unaffected by these societal and technological changes, as its thwarted take-private episode demonstrates. However, the company has largely been doing the right things to offset the more damaging implications of these trends, ensuring along the way that it isn’t bypassed by the e-commerce revolution.
With a new distribution center specifically for fulfilling online orders, a beefed-up rewards program, and seamless in-store technology upgrades, Nordstrom is spending smart money that will continue attracting and expanding a loyal customer base. In recent years, it has even managed to appeal to the younger generation by emphasizing the experiential and service-oriented aspects of shopping rather than narrowly focusing on ‘deals’ and ‘savings’.
In 2017, Nordstrom took this logic to its extreme by opening its first inventory-free concept store. Located in Los Angeles, the store had a nail salon, a seamstress, plush fitting rooms, and even a fully-stocked bar. While a customer could order a glass of Pinot Noir as they liaised with a personal stylist, what they couldn’t do in the space was actually buy any clothes. That the location was also chic and Instagrammable certainly didn’t do any harm.
Another reason for going private — and one briefly considered by Elon Musk during last year’s SEC scandal — is not having to file quarterly reports, which of course are legally required for all public companies in the U.S. Reports of this kind put pressure on companies to perform quarter-to-quarter, often at the expense of long-term thinking. For a family business, with its emphasis on passing down an excellent brand from one generation to another, the short-termism of quarterly reports can run against this ethos.
In short, the impetus behind the Nordstroms’ move is to continue down the road of innovation and distinctive brand-building, driven by a strong proprietary sense toward the family brand. As far as Nordstrom is concerned, the less it has to consider the opinions of outside investors, the better.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Dell and Nordstrom. Read our full disclosure policy here.