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Nordstrom shelves its months-long plan to go private

A Nordstrom sign outside an Indianapolis shopping mall. (Darron Cummings/AP)

Nordstrom, for years, has been a bright spot in an industry roiled by mounting bankruptcies and store closures.

But, it seems, not even the 116-year-old retail darling is immune from worries in the broader industry. After failing to find financiers, company executives announced this week that they were calling off efforts to go private — at least for now.

Seattle-based Nordstrom said it “intends to continue its efforts … after the conclusion of the holiday season.”

Shares of the company’s stock tumbled more than 5 percent following the announcement Monday  — to its lowest point in more than a year  — before recovering about half that Tuesday. Other department store stocks also took a hit, including Dillard’s (down about 3 percent) and Macy’s (down 2 percent).

“Investors are finally starting to understand the risks associated with this sector,” said Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates. “They’re realizing that financing another loony private-equity deal with billions in debt is a terrible idea.”

Toys R Us, the Limited and David’s Bridal are among more than a dozen high-profile private-equity-backed retailers to file for bankruptcy this year, raising questions about the long-term impact of debt-heavy arrangements.

Toymakers say there is ‘widespread panic’ following Toys R Us bankruptcy

Members of the Nordstrom family — who together own 31 percent of the company — announced this summer that they were looking to buy the remainder of the company and take it private. The news sent Nordstrom’s stock soaring 17 percent.

But in the months since, the family was reported to have faced challenges in financing a takeover of the $7 billion company, with lenders demanding interest rates as high as 12 percent, according to the New York Post.

For Nordstrom, analysts said the motivations for going private are twofold. First, a sale would allow members of the fourth-generation Nordstrom family to cash out if they were interested. Secondly, it would free the retailer from Wall Street’s expectations for short-term financial results. The company has roughly 350 stores around the country and is run by family members, including company co-presidents Blake, Pete and Erik Nordstrom.

“Not having to worry about quarterly earnings means you can take some chances and make changes without being in the public eye,” Davidowitz said. “But at the same time, taking on billions of dollars of debt at a time like this — well, that could very well put Nordstrom at risk.”

The focus now, analysts say, will be on Nordstrom’s performance in the crucial coming months.

“In the short term, this means one thing: They have to have a successful holiday season,” said Mark Cohen, director of retail studies at Columbia Business School and former chief executive of Sears Canada. “That’s crucial if their going-private strategy is going to come off the shelf again.”

More than 300 retailers have filed for bankruptcy this year as brick-and-mortar chains struggle to keep up with Americans’ changing shopping habits. Traditional department stores have fared particularly badly amid increasing competition from online retailers such as Amazon, which this year is on track to surpass Macy’s as the country’s largest seller of clothing. (Jeffrey P. Bezos, the founder and chief executive of Amazon, also owns The Washington Post.)

Nordstrom, founded in 1901 as a shoe store, has fared better than many of its competitors by building up its online and off-price businesses. It was one of the first major retailers to offer free shipping and returns on all online orders, and it has been aggressive in expanding its discount Nordstrom Rack website, which last quarter posted a 27 percent increase in sales.

And, analysts said, the chain hasn’t been afraid to experiment with new approaches: This month, for example, Nordstrom opened its first merchandise-free store, staffed with stylists, tailors, manicurists and bartenders (customers would be directed to buy outfits and accessories they like from the company’s website). The company also owns flash-sale site HauteLook and online styling company Trunk Club.

Nordstrom’s plan to attract shoppers: Wine, manicures — but no merchandise

“So far, Nordstrom has been successful in almost everything they’ve done,” Davidowitz said, “but there’s no guarantee that will continue when you pile on the debt.”

He pointed to Neiman Marcus — another upscale department store chain that was on the upswing before being acquired by a private-equity firm in 2013 — as a cautionary tale. Earlier this year, the Dallas-based retailer said it was considering putting itself up for sale after more than a decade of attempting to pay down its debt. The company, which owes nearly $5 billion, has since called off plans for a sale.

“That was another company that could do no wrong,” Davidowitz said. “But look at it now.”

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