Public vs Private, Luxury vs Off-Price: Nordstrom's $6.25B Deal To Go Private

Source: Mexico News Daily

When I was growing up, the conventional wisdom for a young company seeking to fuel its growth was to go public. I mean, what else could bring more capital and validation to an entrepreneur than an IPO? And if we go even further back in time, in 1980, the median age of businesses that made their public market debut was just six years after their founding. Fast forward to today, January 1st, 2025 (wow, how is it already 2025), and while that conventional wisdom of going public still more or less holds true, it definitely seems to have become less conventional. Companies now stay private for more than twice as long (the median age of IPO in 2024 was 14), and some businesses, like Nordstrom, are choosing to return to private ownership after decades in the public markets. This shift from public to private markets isn’t merely a statistical drift. It reflects an ongoing reimagining of how businesses pursue long-term value creation in the modern day.

On December 23, 2024, Nordstrom announced its contribution to this trend: a $6.25 billion deal to go private through a partnership between the founding family and Mexican retail giant El Puerto de Liverpool. In my opinion, this transaction arrives at a fascinating intersection of three crucial narratives that encapsulate a sea change in retail, capital markets, and strategies for value creation.

First, consider the paradox at the heart of this deal: While Nordstrom Rack (Nordstrom's off-price division offering discounted designer apparel), delivers impressive 10.6% growth, its namesake luxury department stores grow at just 1.3%. This stark divergence speaks to a broader transformation in retail, where off-price chains thrive while traditional department stores struggle to reinvent themselves. As Macy's announces plans to close 150 stores through 2026, TJX Companies and Ross Stores continue their aggressive expansion.

Question: Is the traditional department store model holding back Nordstrom's potential?

Second, Nordstrom's decision to go private is emblematic of a larger trend in which companies are reevaluating the advantages of public ownership. Between 2005 and 2023, the global private markets had grown more than 700% from a size of $1.6 trillion to $13.01 trillion, and Blackrock’s “2025 Private Markets Outlook” shows private markets growing from US$13 trillion today to more than US$20 trillion by 2030. These reports demonstrate a growing preference for private funding that affords greater strategic flexibility and facilitates long-term planning.

Question: What compels established companies like Nordstrom to embrace privatization in today's dynamic market?

Finally, the transaction creates fascinating possibilities for strategic value creation. El Puerto de Liverpool brings deep expertise in digital commerce and emerging markets, while private ownership offers the freedom to pursue aggressive transformation without quarterly market scrutiny. With Nordstrom's stock down 70% since 2015 and department stores facing existential challenges…

Question: Can this combination of patient capital and strategic partnership provide the runway needed for radical restructuring?

Through the lens of these interweaving narratives, Nordstrom's deal to go private offers valuable insights into how traditional companies can adapt to modern realities while preserving their core identity.

Company Overviews:

Nordstrom

The customer is always right. Sometimes, the key to success is just that simple. From its humble beginnings as a Seattle shoe store to its current status as a multi-billion-dollar retail empire, Nordstrom's journey illustrates how unwavering principles— an obsessive focus on customer service—can form the foundation for sustained success across generations.

The Founding Years: From Gold Rush to Retail Pioneers (1887-1928)

Nordstrom’s origins trace back to John W. Nordstrom, a 16-year-old Swedish immigrant who arrived in America in 1887 with five dollars and not a word of English. He endured grueling work in mines and logging camps, forging the resilience that would later define his company’s ethos. But a turning point came during the 1897 Klondike Gold Rush. After two risky years of prospecting, Nordstrom secured a claim but was confronted with a legal challenge from a competitor whose brother served as the Local Land Commissioner. Yet, rather than engaging in protracted litigation, Nordstrom demonstrated the pragmatic business acumen that would later characterize his company's decision-making and negotiated a $30,000 settlement. This strategic compromise, which netted him $13,000 after dividing with his partners, provided the capital foundation for his future retail empire.

This newfound capital led John Nordstrom to partner with fellow Swedish immigrant Carl F. Wallin, a skilled shoemaker he had met in Alaska. In 1901, they opened a small 20-foot shoe store in Seattle. Rather than chase trends, they focused on practical footwear in a wide range of sizes, meeting the needs of a city with a sizable Swedish immigrant population. John also kept meticulous notes on customer requests for out-of-stock items, creating an early form of demand forecasting. These efforts paid off: within four years, annual revenue reached $80,000, allowing them to move to a bigger downtown location.

By the late 1920s, Nordstrom had a solid foothold in Seattle’s retail market—just in time for the next generation to take the reins.

The Second Generation: Depression-Era Innovation and Post-War Transformation (1928-1968)

First ever Nordstrom store. Source: Company History | Nordstrom

With John Nordstrom retiring in 1928 and Carl Wallin stepping away soon after, John’s sons—Everett and Elmer—took over leadership. A third brother, Lloyd, joined them in 1933, forming a trio that steered the business through the Great Depression and into the post-war boom.

When the brothers first took over, they instituted a management structure that would become a defining characteristic of Nordstrom's corporate governance. Rather than establishing a traditional hierarchy, they implemented a rotating leadership system where executive positions changed hands every two years. This innovative approach ensured equal participation in decision-making while leveraging each brother's unique strengths. This collaborative approach, paired with a volume-based strategy that emphasized selling more at lower prices instead of cutting costs and liquidating, preserved the business through the Depression and set the stage for post-war growth.

After World War II, the brothers recognized shifting consumer habits driven by suburban growth and higher disposable incomes. American consumer culture was undergoing a fundamental transformation, driven by suburbanization, rising disposable incomes, and evolving shopping habits. The brothers' decision to lease space in Northgate, one of America's pioneering shopping malls, proved prescient though controversial at the time. Even John Nordstrom, the company's founder, expressed reservations about this departure from traditional urban retail locations. But by 1960, Nordstrom had achieved a position of remarkable strength in its core market, emerging as the nation's largest independent shoe chain. The Seattle flagship store stood as the country's largest shoe retailer, a testament to the effectiveness of the company's customer-centric philosophy. However, this success also highlighted the limitations of remaining solely in the footwear business within a geographically constrained market. The challenge facing the leadership team was not merely one of expansion but of fundamental strategic reimagining.

Pivot into Fashion: (1963-1971)

The 1963 acquisition of Best Apparel marked a watershed moment in Nordstrom's history, representing not merely a business transaction but a fundamental reconceptualization of the company's future. This strategic pivot into full-line fashion retail demonstrated remarkable foresight in recognizing the limitations of specialized shoe retail in an increasingly consolidated and competitive market. The subsequent acquisition of Nicholas Ungar in 1966 further accelerated this transformation, providing Nordstrom with additional expertise in high-end fashion merchandising and expanding its geographic footprint into the Portland market. Within six years, company revenue had tripled, with apparel sales first matching (50% of net sales) and then eventually surpassing traditional shoe revenue.

The Public Era: National Expansion and Cultural Preservation (1971-1995)

By 1971, Nordstrom needed capital to support its aggressive growth strategies and the decision to take Nordstrom public represented a delicate balancing act between accessing capital markets for expansion and preserving the company's distinctive culture. The IPO's immediate success—with shares selling out on the first day—validated the market's confidence in Nordstrom's business model and growth potential. However, it also presented new challenges in maintaining the company's service-oriented culture within the constraints of quarterly earnings expectations and shareholder demands.

Following the IPO, in 1972, The launch of Nordstrom Rack emerged from a pragmatic need to manage inventory in the flagship stores but evolved into a strategic masterstroke. What began as a basement clearance center in the Seattle store would develop into a crucial growth engine, providing access to value-conscious consumers without diluting the premium positioning of the Nordstrom brand. This dual-market strategy proved particularly prescient during economic downturns, offering the company resilience through market cycles.

First Nordstrom Rack store in Seattle. Source: Company History | Nordstrom

Moreover, the geographic expansion strategy of this era reflected a sophisticated understanding of market dynamics and operational capabilities. The 1978 entry into California through the South Coast Plaza location demonstrated Nordstrom's ability to succeed in highly competitive, fashion-forward markets. The subsequent expansion to the East Coast in 1988 with the Tysons Corner, Virginia location, and into the Midwest in 1991 with the Oak Brook, Illinois store, represented carefully orchestrated moves that balanced growth ambitions with operational excellence.

Under the leadership of the third generation—Bruce, John, Jim Nordstrom, and Jack McMillan—the company's performance exceeded even the most optimistic projections. Their initial promise to achieve $100 million in revenue within a decade proved remarkably conservative; the actual results approached $500 million, demonstrating the effectiveness of their expansion strategy and the broad appeal of the Nordstrom retail concept.

Digital Transformation and Modern Challenges (1995-Present)

As the Internet reshaped retail in the mid-1990s, Nordstrom confronted the challenge of replicating its renowned customer service online and the advent of e-commerce presented Nordstrom with perhaps its greatest challenge since the Depression era. Yet, the 1998 launch of nordstrom.com was a rapid success, generating $215 million in its first year. Even now, the company continues to refine its omnichannel strategy, balancing digital innovation with its traditional in-store experience. Today, about 36% of total sales come from online channels—a testament to Nordstrom’s adaptability.

And finally, we’ve come to the latest chapter in Nordstrom’s storied history: the founding family taking the company private. Interestingly enough, this wasn’t Nordstrom's first attempt to leave the public markets. In 2018, the family worked with private equity firm Leonard Green & Partners to take the company private, offering $50 per share. The board's special committee rejected this bid as too low, and subsequent efforts to raise the offer faced headwinds from lenders wary of retail leveraged buyouts—particularly after Toys R Us's bankruptcy highlighted the risks of retail LBOs. That failed attempt is telling even then; the family recognized that private ownership might better support their digital investments and store footprint realignment. The current deal at $24.25 per share—less than half the 2018 offer—reflects both the company's deteriorating performance and the broader challenges facing department stores. Yet the strategic partnership with Liverpool, rather than private equity, perhaps suggests a different approach: combining retail expertise and patient capital for a long-term focus.

As I am writing this blog, Nordstrom is most definitely a household name in the US, with more than 350 Nordstrom and Nordstrom Rack stores across the United States. However, the company’s recent earnings reveal both the company's resilience and its challenges. Nordstrom reported third-quarter 2024 net earnings of $46 million, or $0.27 per diluted share, and earnings before interest and taxes (EBIT) of $83 million. These earnings also demonstrated divergent trends: while Nordstrom Rack achieved a robust 10.6% growth in net sales, the flagship banner's more modest 1.3% growth suggests the consumers’ growing preference for panning “gold” in off-price deals rather than the traditional luxury retail experience. Moreover, the overall sales growth of 4.6% and digital sales increase of 6.4% indicate positive momentum yet also highlight the complexity of managing multiple retail concepts in an increasingly competitive marketplace.

El Puerto de Liverpool

Although the company may be less well known in the US, El Puerto de Liverpool, commonly known simply as Liverpool, shares an equally rich heritage as Nordstrom and stands today as Mexico’s premier department store chain, embodying over 170 years of history, relentless innovation, and an unwavering commitment to customer satisfaction.

Founding Vision: Jean Baptiste Ebrard and the “Cajón de Ropa” (1847–1872)

The journey of Liverpool began in 1847, when Jean Baptiste Ebrard, a visionary entrepreneur, established a modest trunk dedicated to selling fine fabrics in the heart of Mexico City. This humble beginning was not merely a business venture but a reflection of Ebrard’s ambition to bring quality and sophistication to Mexican consumers. Operating initially in a small space on San Bernardo Street—now Venustiano Carranza—Ebrard’s “cajón de ropa” (clothing trunk) quickly gained a reputation for offering high-quality fabrics and the latest European fashions, setting the foundation for what would become retail powerhouse.

By 1872, recognizing the growing demand for European goods, Ebrard began importing merchandise from Liverpool, England. This strategic move not only diversified his product offerings but also inspired the store’s enduring name, symbolizing a bridge between Mexican consumers and European fashion excellence. The imported goods ranged from high-quality fabrics to the latest in fashion trends, establishing Liverpool as a premier destination for those seeking sophistication and quality. This early focus on quality and variety became a cornerstone of Liverpool’s business model, attracting a discerning clientele and fostering customer loyalty from the very beginning.

Early Expansion and Technological Firsts (1872–1936)

Yet, tragedy struck in 1895 when Jean Ebrard passed away in France, leaving his enterprise to a group of French partners. These partners, inspired by Ebrard’s legacy and the store’s burgeoning reputation, leveraged the brand’s growing fame and expanded Liverpool’s presence.

Liverpool’s first store (1936) Source: sdnoticias

In 1936, Liverpool moved to a new, architecturally significant building on Avenida 20 de Noviembre in Mexico City. Designed by the renowned architect Enrique de la Mora, this landmark structure featured Mexico City’s first escalators, showcasing Liverpool’s commitment to innovation and enhancing the shopping experience for its customers. This move not only provided a more spacious and modern retail environment but also underscored Liverpool’s dedication to staying at the forefront of retail innovation, a key element of its business model.

Corporate Milestones: Legal Structuring and Going Public (1936–1965)

The mid-20th century marked a period of rapid growth and modernization for Liverpool. In 1944, the company was legally constituted as a Sociedad anónima (incorporated), laying the groundwork for future expansions and providing a more structured corporate framework to support its growing operations.

The years that followed the company’s incorporation were particularly transformative, with the opening of Liverpool Insurgentes in 1962—the company’s first branch outside its original downtown location. This strategic expansion was a response to the evolving urban landscape and the need to reach customers beyond the city center, reflecting Liverpool’s adaptability and forward-thinking approach to market demands. Just three years later, in 1965, Liverpool made its debut on the Mexican Stock Exchange, transitioning from a family-run business to a publicly traded corporation poised for national growth. This listing not only provided the necessary capital for further expansion but also increased Liverpool’s visibility and credibility in the competitive retail market.

Modernization and Strategic Acquisitions (1970s–1980s)

The 1970s and 1980s were decades of significant milestones and strategic acquisitions for Liverpool. In 1970, the inauguration of the Liverpool Polanco store earned international acclaim for its stunning design and functionality, further cementing Liverpool’s reputation as a premier department store. In 1972, Liverpool Satélite opened within Plaza Satélite, the first department store to integrate within a shopping mall in Mexico—a pioneering move that capitalized on the burgeoning mall culture. This period also saw the acquisition of Fábricas de Francia in 1988, expanding Liverpool’s market reach and diversifying its retail portfolio. These strategic moves not only broadened Liverpool’s product offerings but also reinforced its position as a leader in the luxury and high-quality merchandise market, showcasing its ability to adapt and thrive in changing retail environments.

Under the leadership of Max Michel Suberville, who served as director general from 1978 until his retirement in 2004, Liverpool experienced unprecedented growth. Suberville’s tenure was marked by strategic acquisitions, innovative marketing, and a relentless focus on customer satisfaction. In 1980, Liverpool inaugurated Perisur, the first shopping center owned and operated by the company, solidifying Liverpool’s presence in suburban markets and ensuring a steady revenue stream through controlled retail environments. This bold move not only provided a new revenue channel but also allowed Liverpool to influence the shopping experience directly, maintaining high standards of quality and service—a fundamental aspect of its business model that emphasizes exceptional customer service and a curated shopping experience.

National Expansion and Innovation (1990s–2000s)

The 1990s and early 2000s continued Liverpool’s trajectory of growth and innovation. In 1992, the opening of the Bodega Tultitlán distribution center and expansions into Galerías Coapa and Galerías Insurgentes underscored Liverpool’s commitment to improving logistics and enhancing customer accessibility. The acquisition of Comercial Las Galas in 1997 and the subsequent rebranding of these stores as Fábricas de Francia further broadened Liverpool’s market presence.

Embracing the digital revolution, Liverpool launched its online platform in the late 1990s, allowing customers to shop conveniently from anywhere, thereby integrating e-commerce with its robust physical store network. This integration of online and offline channels exemplifies Liverpool’s adaptive business model, ensuring that it remains relevant in an increasingly digital retail environment.

In 2006, Liverpool entered into a strategic partnership with the Spanish fashion retailer Sfera, aiming to operate these stores in Mexico. This collaboration enhanced Liverpool’s product offerings and market appeal, bringing European fashion trends to Mexican consumers and reinforcing Liverpool’s commitment to providing a diverse and high-quality product selection. In 2008, Liverpool introduced the Liverpool Premium Card in partnership with VISA, providing customers with flexible payment options and fostering loyalty through exclusive benefits. This initiative was complemented by strategic partnerships with international brands such as Williams Sonoma Inc. in 2015, bringing high-end home goods and lifestyle products to the Mexican market. These partnerships underscored Liverpool’s commitment to offering a comprehensive and luxurious shopping experience, catering to the evolving tastes and preferences of its customers.

Diversification and Consolidation: Suburbia and Beyond (2016–Present)

A landmark moment in Liverpool’s history came in August 2016 when the company reached an agreement to acquire Suburbia from Walmart México for approximately 15,700 million pesos. This acquisition not only expanded Liverpool’s retail footprint but also diversified its market segments, allowing the company to cater to a broader range of consumer needs. By September 2018, Liverpool announced the conversion of Fábricas de Francia stores into Liverpool or Suburbia formats, streamlining operations and enhancing brand consistency across its retail network. This strategic consolidation reinforced Liverpool’s market presence and optimized its operational efficiencies, further solidifying its position as a leading department store chain in Mexico.

Today, El Puerto de Liverpool operates as the leading department store chain in Mexico, with a vast network of stores across the country. Liverpool’s business model is deeply rooted in its historical narrative, reflecting a seamless blend of traditional retail values and modern innovation. Central to Liverpool’s success is its customer-centric approach, characterized by personalized service, a diverse product selection, and a seamless omnichannel shopping experience. The company operates through multiple retail segments, including full-line department stores that offer a wide range of high-quality apparel, cosmetics, home goods, and accessories from renowned international brands and exclusive private labels.

Most recently, Liverpool reported strong financial results for Q3 2024, with consolidated revenues rising by 10.4% and EBITDA increasing by 7.3%, achieving a margin of 16.3%. Net income grew by 11.3%, supported by a favorable exchange rate. Total retail revenue reached 40.145 billion MXN (Mexican Pesos, about 1.97 billion USD), a 9.7% year-over-year increase, with Liverpool and Suburbia reporting 9.8% and 9.6% growth, respectively. Same-store sales for both segments increased by 7.6%, driven by higher transaction volumes and average ticket sizes. The company’s digital ecosystem also showed robust growth, with Liverpool's digital GMV up 15% and Suburbia's surging 76.4%, propelled by kiosk implementations.

Industry Overview:

The United States department store industry is grappling with significant challenges that have led to a persistent decline in revenues over recent years. In 2020, the industry experienced a sharp 3.3% revenue drop primarily due to the COVID-19 pandemic, which forced the closure of nonessential stores and accelerated the shift of consumers towards online shopping. Although there was a modest recovery in 2021 with a 1.4% increase as the economy reopened, the overall trend remains negative. Projections indicate that revenue is expected to decline at a compound annual growth rate (CAGR) of 2.3%, reaching approximately $192.4 billion by the end of 2024. Profit margins are also under pressure, anticipated to decrease to 4.1% in 2024.

United States: number of department stores 2015-2025. Source: Statista

Several factors contribute to this downturn. Rising inflation since 2022 has eroded consumer purchasing power, making shoppers more price-conscious and inclined to seek bargains. Additionally, the competitive landscape has intensified with the dominance of e-commerce giants like Amazon, which has surpassed Walmart as the leading apparel retailer in the US. Traditional department stores are also facing competition from discount retailers and supercenters such as Target, which have expanded their product offerings to include groceries, thereby diverting revenue to the Warehouse Clubs and Supercenters sector.

Moreover, consumer behavior has shifted notably, particularly among younger demographics such as Gen Z and Millennials, who favor personalized, convenient, and experiential shopping environments offered by direct-to-consumer (DTC) brands and mass merchandisers. In fact, only a small percentage of younger consumers shop in department stores for their needs, indicating a significant gap that these retailers must address. To remain relevant, department stores are increasingly investing in omnichannel strategies that integrate online and offline shopping experiences. This includes implementing technologies like virtual try-ons, augmented reality (AR), and buy online, pick up in-store (BOPIS) services to meet the evolving expectations of tech-savvy consumers.

Some of the strategic responses from major players highlight the industry's efforts to adapt. Macy’s Inc., the largest US department store operator with approximately 680 locations, is closing unproductive stores and investing in digital transformation and luxury expansions through brands like Bloomingdale’s and Bluemercury. Similarly, Nordstrom is enhancing its omnichannel presence, with 30% of its sales coming from online channels, and is pioneering experiential retail through initiatives like Pop-In@Nordstrom, which hosts exclusive pop-up shops and interactive events to attract younger shoppers. Kohl’s has partnered with Sephora to introduce beauty counters within its stores, successfully drawing in over 25% of new customers who engage with both beauty and general merchandise offerings.

Despite these efforts, the industry continues to face substantial hurdles. The projected decline in-store revenue underscores the urgent need for innovation and strategic reorientation. Emphasizing unique in-store experiences, fostering sustainable and ethical practices, and leveraging data analytics for personalized marketing are critical pathways for department stores to regain their foothold. Additionally, expanding into emerging markets such as China, Latin America, and the Asia-Pacific region presents growth opportunities that could offset declines in mature markets like the US, Europe, and Japan. However, success will largely depend on the ability of department stores to balance traditional strengths with modern retail strategies, ensuring operational agility and maintaining relevance in an increasingly digital and experience-driven marketplace.

Deal Rationale:

Buyers’ Perspective:

1. Unlocking the Growth Potential of Nordstrom Rack

First, the deal centers on Nordstrom Rack's demonstrated growth momentum. In Q3 2024, Rack delivered 10.6% net sales growth with comparable sales up 3.9%, validating the company's expansion strategy. The aggressive rollout—with 23 new locations opened in 2024 and plans for 22 more in 2025—signals confidence in the off-price model's resilience. Private ownership provides the operational flexibility to execute this expansion strategy while optimizing supply chain and digital capabilities without the constraints of quarterly earnings scrutiny.

2. Market Valuation Arbitrage

Nordstrom’s public market valuation has long lagged behind its operational fundamentals. Despite superior margins and strong growth projections for its off-price stores, the company’s stock traded at a discount to peers, with an EV/EBITDA ratio of 5.08x, which is below the industry median of 6.67x, according to FactSet​. The $24.25 per share transaction price represents a 42% premium to the pre-announcement stock price but remains far below Nordstrom’s historical peak of $82 in 2015. Private ownership offers the opportunity to address these valuation inefficiencies through strategic repositioning and operational optimization. Out of curiosity about the company’s intrinsic value, here is a simple DCF I built for Nordstrom.

Will go into a little more detail about my DCF analysis in the “Bear or Bull” section at the end of the blog.

3. Strategic Partnership with El Puerto de Liverpool

The partnership with Liverpool, which owns 49.9% of the company post-transaction, brings proven expertise in digital commerce and premium retail positioning. Liverpool’s operational strengths align with Nordstrom’s plans to expand its digital capabilities, which already account for 34% of total revenue​. The partnership provides additional capital and operational insight to support Nordstrom’s growth in both physical and digital retail spaces.

4. Operational Flexibility Under Private Ownership

Privatization grants Nordstrom the flexibility to experiment with new formats, accelerate its digital transformation, and integrate its full-price and off-price operations more effectively. Freed from the short-term pressures of quarterly reporting, the company can focus on longer-term initiatives, such as enhancing omnichannel capabilities and optimizing its store network.

Seller’s Perspective

1. Compelling Returns for Public Shareholders

For public shareholders, the transaction offers attractive risk-adjusted returns. The 42% premium provides immediate value, particularly given the uncertainty of the department store sector and the significant investment required to execute a multi-year transformation​.

Nordstrom stock price on March 18, 2024, the last trading day prior to media speculation regarding a potential transaction.

Deal Structure:

On December 23rd, 2024, Nordstrom, Inc. entered into a definitive agreement for an all-cash transaction valued at approximately $6.25 billion on an enterprise value basis, where the members of the Nordstrom family and El Puerto de Liverpool, S.A.B. de C.V. (“Liverpool”) will purchase all outstanding common shares of Nordstrom that are not already held by the Nordstrom Family and Liverpool. The Nordstrom Family and Liverpool had previously collectively held a 43% stake in the company with a 33% stake and a 10% stake, respectively.

Under the terms of the agreement, Nordstrom’s common shareholders will receive $24.25 per share in cash, representing a 42% premium over the company’s unaffected stock price as of March 18, 2024—the last trading day before media speculation about a potential transaction commenced. Additionally, the Board has approved a special dividend of up to $0.25 per share, contingent upon the deal’s closure, which is expected in the first half of 2025.

The transaction will be financed through a combination of equity contributions and debt. The Nordstrom Family and El Puerto de Liverpool will provide rollover equity, with Liverpool also committing additional cash to the deal. Furthermore, the transaction will involve up to $450 million in borrowings under a new $1.2 billion Asset-Based Lending (ABL) facility, supplemented by Nordstrom's existing cash reserves. Nordstrom’s senior notes and debentures, totaling $2.7 billion, are anticipated to remain outstanding, secured by a second lien on the company’s assets and a first lien on other assets excluding real estate. Upon the completion of the transaction, ownership will be split with the Nordstrom Family holding 50.1% and Liverpool holding 49.9%.

The Nordstrom Board of Directors has unanimously approved the transaction, excluding Erik and Pete Nordstrom, who recused themselves due to their direct involvement. A special committee comprising independent and disinterested directors, including Kirsten Green, Amie Thuener O’Toole, and Eric Sprunk, led the review and negotiation process. The committee concluded that the transaction offers greater value for public shareholders by providing a substantial premium over the stock’s unaffected price.

The deal is subject to regulatory approvals and the approval of two-thirds of the company’s common stockholders, excluding shares held by the Nordstrom Family and Liverpool. Upon the transaction’s completion, Nordstrom’s common stock will be delisted from all public markets.

Advisors to the transaction include Morgan Stanley & Co. LLC and Centerview Partners LLC as financial advisors to the Special Committee, with Sidley Austin LLP and Perkins Coie LLP serving as legal counsel. Moelis & Company LLC and Wilmer Cutler Pickering Hale and Dorr LLP, along with Lane Powell PC and Davis Wright Tremaine LLP, advised the Nordstrom Family. J.P. Morgan Securities LLC and Simpson Thacher & Bartlett LLP, together with Galicia Abogados, S.C., provided financial and legal counsel to Liverpool.

Deal Discussion:

With all we know about this deal, Nordstrom, and the state of department stores now, it is time to dive head-first into the rabbit hole of the three main questions I had signposted in the introduction. Here we go.

The Off-Price Surge: Resilience in an Inflationary Economy

Off-price retail has emerged as a standout performer in today’s challenging economic environment. Chains like TJ Maxx, Ross Stores, and Burlington have demonstrated remarkable resilience, thriving as traditional department stores like Macy’s grapple with rising costs and evolving consumer behaviors. Their success stems from operational efficiencies, consumer-centric business models, and an ability to weather broader economic disruptions, including inflation and protectionist policies like tariffs.

Why Off-Price Retail Thrives in an Inflationary Economy
Elevated inflation has fundamentally altered consumer spending habits, with households prioritizing essential goods while seeking value for discretionary purchases. Off-price retailers are uniquely positioned to capitalize on this shift. By offering high-quality, branded merchandise at 20% to 60% below regular retail prices, these chains cater to value-conscious shoppers looking to stretch their budgets without sacrificing quality.

Off-price retailers also benefit from their flexible inventory sourcing strategies. By purchasing excess stock, closeouts, and past-season merchandise from other retailers, they shield themselves from inflationary pressures that increase production costs. This allows them to maintain attractive pricing while expanding their market share. For instance, TJX Companies has leveraged Macy’s store closures to bolster its inventory, turning challenges in the broader retail industry into opportunities.

Additionally, off-price chains excel in high-turnover inventory models, with TJX achieving 6.2 turns annually compared to 3.7 for department stores. This operational efficiency ensures fresh product assortments that consistently attract repeat customers.

Watch the commercial here.

The Treasure Hunt: Redefining the Shopping Experience
The “treasure hunt” model is another cornerstone of off-price retail’s appeal. Unlike traditional retailers, which rely on predictable and curated product assortments, off-price stores thrive on spontaneity and discovery. Customers enter these stores not knowing exactly what they’ll find, creating an engaging experience that encourages exploration and repeat visits. Take TJ Maxx’s famous commercial tagline for example: “You get the max for the minimum, minimum price, and it’s never the same place twice~”

This sense of discovery is heightened by frequent inventory refreshes, which add an element of urgency. Shoppers know that if they don’t buy an item immediately, it may not be there on their next visit. This scarcity-driven shopping psychology, coupled with competitive pricing, fosters both excitement and customer loyalty.

The treasure hunt experience also serves as a competitive advantage against e-commerce. While online shopping offers convenience, it often lacks the tactile and serendipitous nature of in-store discovery. For this reason, off-price retailers have resisted heavy investments in e-commerce, focusing instead on enhancing their in-store offerings.

Resilience Against Tariffs: A Structural Advantage
The pertinent topic of the looming threat of tariffs, particularly on imports from China, has posed challenges for many traditional retailers. Off-price chains, however, are largely insulated from these risks. Once again, with a significant portion of their inventory sourced domestically from excess stock and liquidations, off-price retailers face minimal direct exposure to tariff-related cost increases. For example, Burlington directly imports only 8% of its merchandise, protecting over 90% of its inventory from incremental costs.

Moreover, tariff disruptions in the broader retail supply chain often create opportunities for off-price players. As traditional retailers offload inventory to manage rising costs, off-price chains gain access to discounted goods, enhancing their merchandise pipelines. This countercyclical advantage enables them to maintain their pricing edge while further solidifying their value-driven appeal.

Nordstrom Rack vs. Nordstrom: A Case Study in Adaptability

So what can Nordstrom take away from this rise of off-price retailers? The success of off-price retailers underscores the importance of adaptability, operational efficiency, and consumer-centric strategies in an uncertain economic environment. For Nordstrom, the performance of Rack illustrates the potential of the off-price model to drive growth. While Nordstrom’s full-price stores struggle with high fixed costs, slower inventory turnover, and declining mall traffic, Rack leverages the principles of off-price retail—value-oriented pricing, high inventory turnover, and the treasure hunt experience—to attract budget-conscious consumers. Rack’s ability to deliver branded goods at accessible price points aligns with the priorities of today’s shoppers, driving both traffic and profitability.

As inflationary pressures persist and economic uncertainty looms, retailers that prioritize value, flexibility, and engagement will be best positioned to capture market share and maintain relevance. With Nordstrom embracing more of its off-price division, this provides a better roadmap for the company to balance tradition with innovation in the evolving retail landscape.

Private Markets and Broader Trends Favoring Privatization

Private Markets as an Asset Class: A Primer

Private markets have rapidly evolved into a dominant segment of global finance, covering private equity, private credit, and real assets such as real estate and infrastructure. These markets have grown at a staggering rate over the past decade, surpassing $13 trillion in 2023 and projected to exceed $20 trillion by 2030. Unlike public markets, private markets provide tailored financing solutions, allowing businesses to access capital without the pressures and scrutiny of public shareholders. For investors, private markets offer the potential for higher returns, diversification, and the illiquidity premium that comes with long-term investment horizons.

The appeal of private markets is their ability to cater to various stages of a company’s lifecycle—from early-stage growth funding to operational turnarounds for mature businesses. The capital provided in private equity, venture capital, and private credit is designed to support businesses as they innovate, scale, or restructure. Unlike public markets, where businesses are often forced to focus on short-term profits to meet quarterly expectations, private markets allow for longer-term objectives, such as strategic pivots or transformations. This operational privacy is a critical advantage for businesses undergoing substantial change or innovation.

Source: Blackrock 2025 Private Markets Outlook

Why Companies Are Opting for Privatization

Public markets, while offering visibility and liquidity, impose stringent regulatory burdens and short-term expectations that can hinder innovation and long-term strategic planning. The costs associated with regulatory compliance, such as Sarbanes-Oxley, amount to more than $20 billion annually for U.S. public companies. These compliance costs, coupled with the ongoing pressure to meet quarterly earnings targets, may limit a company’s ability to take bold, long-term steps toward growth and transformation.

In contrast, private markets offer companies much-needed flexibility. Going private allows firms to refocus their efforts on long-term strategic goals, without the immediate pressure of delivering quarterly results. For example, Dell’s $24.4 billion privatization in 2013 freed the company from public market pressures, allowing it to pivot from a declining PC business to focus on more profitable enterprise solutions, such as cloud computing and cybersecurity. As per my last blog, even Ross Johnson with RJR Nabisco in the 80s first considered pursuing an LBO from a stagnant stock price determined by public markets. Thus, similarly, Nordstrom’s decision to go private reflects a desire to restructure and refocus without being constantly evaluated by public market shareholders.

Today, the ability to access private capital is another significant draw for companies considering privatization. With more than $3 trillion in dry powder available in private equity alone, businesses can secure tailored financing for strategic moves, whether for acquisitions, digital transformations, or operational improvements.

The Broader Trends Driving the Shift to Private Markets

Several macroeconomic trends are driving the shift toward private markets, making privatization an increasingly attractive option for companies. The first key trend, as briefly mentioned, is the growth of accessible private capital. Institutional investors, high-net-worth individuals, and family offices are increasing their allocations to private assets. As public markets become more volatile and unpredictable, private markets are seen as a more stable and profitable alternative. The rise of private credit, in particular, has expanded financing options for middle-market companies, which often struggle to access traditional bank loans. This expansion is especially important as banks have pulled back from certain lending activities in the wake of regulatory changes.

Another significant trend is the delayed IPOs and late-stage investments. Over the past two decades, the median age of companies going public has doubled, reflecting the rise of private equity and venture capital as alternative sources of funding. Unicorns—startups valued at $1 billion or more—are now more common than ever, with many choosing to stay private longer or raise capital privately at valuations higher than those seen in public markets. This is due to the ability of private capital to provide long-term, flexible funding, and companies can now scale without having to go public, making IPOs less of a necessity than they were in the past. The shift toward private markets is further fueled by the increasing resilience during economic downturns. While public equities can be volatile during periods of market turbulence, private markets have historically outperformed, offering a bit more stability and long-term value.

Source: Research Gate

Case Study: Dell Technologies

Dell’s 2013 privatization serves as a powerful case study for why going private can be an effective strategy for transformation. Facing a stagnant PC market and intense pressure from public investors, Michael Dell and Silver Lake Partners orchestrated a $24.4 billion leveraged buyout. As a private company, Dell was free to focus on its long-term goals, notably shifting its business model from hardware to enterprise solutions. This shift allowed Dell to invest in cloud computing, cybersecurity, and other higher-margin services, which ultimately led to a significant improvement in its gross margins.

The ability to make bold decisions without the oversight of public shareholders proved crucial. During its private period, Dell was also able to execute strategic acquisitions, including the $67 billion purchase of EMC, which expanded its footprint in IT infrastructure and data storage. When Dell returned to the public markets in 2018, it had evolved into a diversified tech powerhouse with a stronger position in enterprise services and cloud computing. At a high level, the transformation was possible because Dell could focus on a long-term strategy without the constraints of quarterly performance expectations.

Source: BSIC (Bocconi Students Investment Club)

Why This Matters for Nordstrom

Nordstrom’s decision to privatize aligns closely with the broader trends driving the shift toward private markets. Much like Dell, Nordstrom is operating in a challenging retail landscape where traditional department stores are struggling to adapt to shifting consumer behaviors. By going private, Nordstrom gains the flexibility to experiment with new strategies, such as accelerating the growth of its Nordstrom Rack division and rethinking the role of its flagship stores. These changes are necessary to remain competitive, but they require long-term investments and a focus on innovation—something that is difficult to achieve in the public market’s pressure cooker.

The partnership with El Puerto de Liverpool enhances this strategy, providing operational expertise and market insight that will be invaluable as Nordstrom navigates its digital transformation and explores new retail models. Just as Dell used its private status to pivot toward higher-margin, sustainable growth, Nordstrom can use this opportunity to realign its business and ensure it is positioned for success in the future.

Teaming up with Liverpool: Strategic Synergies or Shelter from the Storm?

The Nordstrom privatization, backed by El Puerto de Liverpool, presents an intriguing case of value creation through strategic partnership rather than traditional private equity mechanisms. Unlike most take-private deals, this transaction does not involve a private equity sponsor, freeing Nordstrom from the pressure of delivering high returns through an eventual exit. Instead, the partnership provides patient, long-term capital, and operational expertise, allowing for a longer horizon for the strategic realignment of the business.

A Unique Partnership Model

The absence of a private equity sponsor distinguishes this deal from conventional take-privates, where financial sponsors often focus on cost-cutting and preparing the company for resale. Instead, Liverpool brings operational resources and a history of successfully managing diverse retail formats. As one of Mexico’s largest department store operators, Liverpool combines experience in upscale and value-oriented retail with advanced omnichannel capabilities and a robust credit card business that generates nearly half of its banner revenue. This expertise positions Liverpool as an ideal partner to help Nordstrom balance its dual-format strategy of high-margin flagship stores and high-growth Nordstrom Rack locations.

Liverpool’s role in this transaction also extends beyond financial support. With a 49.9% ownership stake, the Mexican retailer can leverage its expertise in logistics, digital integration, and inventory management to improve Nordstrom’s operational efficiency. For instance, Liverpool operates centralized fulfillment centers and local cross-dock facilities, enabling it to execute rapid delivery and efficient inventory turnover. These capabilities could accelerate Nordstrom’s omnichannel transformation, a critical area of focus as the company seeks to enhance its online and in-store integration.

Challenges in a Difficult Environment

Despite these opportunities, Nordstrom and Liverpool face significant challenges. Unlike Dell, which was privatized during a period of low interest rates, this transaction occurs in a high-interest-rate environment, making debt servicing more expensive. Additionally, Nordstrom operates in a highly competitive retail landscape dominated by e-commerce giants and a proliferation of digitally native brands. The company’s recent EBITDA decline underscores the operational hurdles it must overcome to return to sustained profitability.

Liverpool’s limited experience in the U.S. luxury market also raises questions about its ability to support Nordstrom’s flagship operations effectively. However, Liverpool’s track record of adapting to diverse retail challenges and its familiarity with cross-border retail partnerships suggest it is well-equipped to navigate these complexities. Moreover, its focus on the growing Hispanic and Mexican-American demographic in the U.S. could provide Nordstrom with valuable insights into an underserved and rapidly expanding consumer segment.

A Test Case for Legacy Retailers

The key question is whether this combination of patient capital and strategic partnership can facilitate the kind of radical restructuring needed to revitalize Nordstrom. Success will require more than operational improvements; it demands a redefinition of the department store model for the digital age. Nordstrom must rethink how its full-price and off-price divisions complement each other, modernize its customer experience, and leverage Liverpool’s resources to build a seamless omnichannel offering.

Looking ahead, the Nordstrom-Liverpool partnership could serve as a blueprint for legacy retailers seeking to adapt to an increasingly competitive landscape. Just as Dell used its privatization to pivot toward enterprise solutions and achieve a successful public market reentry, Nordstrom has the opportunity to reinvent itself as a digitally forward, customer-centric retailer. The stakes are high, not just for Nordstrom, but for the broader retail industry. If successful, this deal could demonstrate how legacy brands can thrive by combining patient capital with innovative strategic partnerships. If not, it risks being seen as yet another example of a retailer seeking shelter from market pressures without addressing its fundamental challenges.

Bear or Bull?

Bull Case
Privatization eliminates many of the short-term pressures associated with public markets, allowing Nordstrom to focus on long-term strategies without the distraction of quarterly earnings. The Nordstrom family retains a guiding hand, preserving the brand’s core values, while the partnership with Liverpool brings complementary expertise in omnichannel retail, inventory management, and logistics. At the same time, the current share price trades at a substantial discount compared to historical levels, indicating potential upside if operational efficiencies and strategic initiatives pay off. Moreover, going private affords Nordstrom the flexibility to optimize its business mix, accelerate Rack’s expansion, and rejuvenate its flagship stores.

Bear Case
Despite the inherent advantages of a private ownership structure, the challenges of transforming a retail business remain formidable. Balancing family control with Liverpool’s strategic involvement could lead to governance complications, potentially slowing critical decision-making. Although the debt incurred from the deal is manageable, any operational setbacks could still put financial pressure on the company. Furthermore, Nordstrom faces intensifying competition from both off-price and e-commerce players, which continue to redefine consumer expectations and disrupt traditional retail models. These hurdles could limit Nordstrom’s ability to fully capitalize on the opportunities presented by privatization.

Final Verdict: Bullish

Now, I’m bullish in the sense that I think they would do better as a private company than a public company, but the future for traditional department store retail still seems rocky to me. Nevertheless, while the broader department store industry faces significant challenges, Nordstrom’s move to privatization positions it to tackle these headwinds more effectively than it could as a public company. Furthermore, the partnership with Liverpool provides the operational expertise and strategic alignment needed to accelerate Rack’s expansion, modernize its flagship stores, and enhance digital integration. At the same time, the company’s strong free cash flow generation underscores its ability to navigate financial pressures and invest in long-term growth.

I don’t usually do this, but given I am preparing to recruit for a 2026 investment banking summer analyst position this spring, I wanted to brush up on my financial modeling and decided to build a DCF for Nordstrom. Surprisingly, the analysis was surprisingly bullish, given the foggy outlook for department stores. The company's FCF generation remains strong, and this model further supports my belief that perhaps Nordstrom’s traditional department store business is weighing on their off-price rack brand because the implied terminal growth rate for Nordstrom to be only worth $24 would have to be negative, which is a plausible but extremely pessimistic take on traditional department store growth, but a negative long term growth rate definitely isn’t the case for the Nordstrom Rack business that’s still looking to expand. I’ve linked the DCF model here for anyone interested. Long story short, even with conservative assumptions for growth, Nordstrom’s intrinsic value seems to be far greater than the current share price/take private purchase price.

Bullish or not, for Nordstrom, the transaction offers a chance to honor its heritage while pursuing radical change. In choosing this path, Nordstrom isn't just pursuing its own transformation: it's providing a potential blueprint for how legacy retailers can maintain their identity while adapting to modern retail realities.