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Nordstrom Said to be Pondering Options for Rack Business

Shares of Nordstrom Inc. pared back some losses Monday following a report that the retailer was in talks with a consultant about strategic options for its off-price Nordstrom Rack business.

Nordstrom operates its full-line Nordstrom stores as well as the off-price Rack operation. There was a time when the off-price business was doing better than the full-price operation, but full-price has shown improvement after the upscale department store set up its local market hubs, a concept that relies on the synergistic functions of local stores in key markets.

The off-price business became a cause for concern last month when the company reported third-quarter earnings that left investors wondering about the state of the Rack operation. Much of that angst was due to CEO Erik Nordstrom’s comment that the retailer, and the Rack business in particular, didn’t have enough inventory in key categories that included women’s apparel and shoes.

“While many retailers are dealing with macro-related supply chain disruptions, Rack faces a unique challenge as off-price procurement of the same top brands we carry at Nordstrom is particularly difficult in an environment with production constraints and lower levels of clearance product,” the CEO said.

Nordstrom is said to be in talks with AlixPartners about options for its Rack business, which was first reported by Bloomberg on Monday. Options could include a spin-off. Neither executives at AlixPartners nor Nordstrom could be reached for comment.

AlixPartners has played a key role this year in advising retailers on their operations. The firm is behind the engineering wizardry that saw the split up of Saks Fifth Avenue from its dot-com business, and the mastermind behind that plan is now working with Macy’s to explore whether that’s a viable option for the retailer, an idea that’s being pushed by activist investors.

To be sure, all of retail has been hampered by supply chain disruptions following the outbreak of the pandemic. But the off-price sector is one that seems to have thrived, getting the benefit of an assortment mix from a variety of sources, either extraneous goods from store closures, canceled orders or late deliveries. The fact that Nordstrom Rack is struggling to get goods certainly got everyone’s attention.

Walter Loeb, a former retail executive and Wall Street analyst and now a retail consultant, isn’t so sure a lack of goods is the key problem hampering Rack.

“There’s plenty of merchandise for the Rack to pick up, just like The TJX Cos. Inc.’s ability to get merchandise. There’s merchandise all over the world that’s still looking for an outlet, either because of timing or some goods being over-produced,” Loeb said, concluding that the “Rack probably was looking under the wrong covers for merchandise.”

Loeb believes that Rack stores relied on vendors who also sold to its full-price sibling, and therefore might not have had enough buyers specific to its Rack operation. He contrasted Rack to TJX, which has buyers scouring the globe “intelligently searching for merchandise” for the stores.

In TJX’s third-quarter earnings report last month, the company said it didn’t have a problem sourcing inventory. “Overall availability of quality, branded merchandise in the marketplace remains excellent,” TJX said.

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