Dive Brief:
Nordstrom pondering potential separation of discount Rack division
Nordstrom might be mulling over a spin-off of its Rack business, rumors suggest, as the retail giant has reportedly called upon AlixPartners to investigate the matter. This comes hot on the heels of a string of secretive moves by the company.
Sources close to the matter, speaking anonymously, have spilled the beans to Bloomberg, with Nordstrom and AlixPartners themselves neither confirming nor denying the claims. Erik Nordstrom, the company's CEO, had previously mentioned that external consultants were onboard to beef up the Rack's performance, hike profits, and optimize the supply chain.
AlixPartners has a penchant for offloading e-commerce wings, having recently assisted the spin-off of Saks Fifth Avenue's e-commerce arm and merging with Macy's to explore growth opportunities.
Dive Insight:
Such a breakaway would mark a drastic turnaround for Nordstrom, which in recent times has been trying to integrate its full-line and off-price, local, brick-and-mortar, and online operations, aiming to create a harmonious, omnichannel shopping experience.
Erik Nordstrom reaffirmed the value department in last month's quarterly meeting with analysts, stating that customers tend to spend a whopping 12 times more when they engage with more than one channel or storefront.
However, analysts from William Blair believe that this rumored separation could toe the line with the company's broader strategy, backed by remarks that Rack has long been instrumental in generating new customers. The Rack's off-price channel, it seems, has been a crucial customer acquisition tool, with a third of those new customers migrating to full-price stores within a year.
But desperate times call for desperate measures, it seems, as Nordstrom grapples with a Rack recovery lagging expectations. Competition in the off-price sector is heating up, and consumer behavior is a fickle beast in these ever-changing pandemic times. Will they stick with a struggling Rack or focus their energies on their main brand?
An industry veteran, Mark Cohen, from Columbia University, is of the opinion that Nordstrom may be rethinking their stance on the Rack, suggesting that the Rack might have reached its sell-by date. While Cohen acknowledges the Rack's role in keeping the business afloat for years, he points out that the company may feel it is not the ideal companion for their repositioning efforts post-pandemic.
If a spin-off does take place, the strategic impact would need careful consideration, as further examination reveals:
- Operational Focus: A spin-off could enable the main Nordstrom brand to zero in on its full-line stores and e-commerce, streamlining operations and boosting margins.
- Financial Flexibility: Separating the Rack business could potentially unleash value for shareholders if the segment is seen as undervalued or dragging down overall profitability.
- Market Perception: An IPO could send a clear message that Nordstrom is considering a restructuring push and is committed to enhancing shareholder value, but it could also be perceived as a signal that the Rack business is struggling.
- Challenges: The Rack has faced increased off-price competition and shifting consumer trends, making a successful stand-alone entity quite the challenge.
While no official announcements have been made, the pressures on the Rack business and prevailing retail trends suggest this spin-off might just be a matter of time. Stay tuned!
[1] Nordstrom's Common Stock Ceased Trading Due to a Different Transaction, Not Specifically Involving a Rack Spin-Off.[5] Filed WARN Notice Signals Retrenchment or Restructuring in the Off-Price Segment of Nordstrom.
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