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The holidays could seal Nordstrom's fate, as its attempt to go private hinges on sales being just right

Key Points
  • Nordstrom has put its attempts to go private on hold until after the holiday season.
  • Financing sources will be watching its performance in its full-price and off-price models.
  • The department store had comparable-store declines last quarter in both Nordstrom and Nordstrom Rack.
An employee arranges cosmetic products in a container in a Nordstrom Inc. store
Ben Nelms | Bloomberg | Getty Images

With its attempted take private on hold, Nordstrom's performance this holiday season will be crucial to determining its trajectory.

The Nordstrom family wants to take the retailer private. It believes that out of the public eye, it can make necessary investments — in e-commerce and its stores — that can be too difficult to do under the public market spotlight. Family members who own 31.2 percent of the 116-year-old department store had spoken with financing parties about supporting these efforts, but have tabled them until after the holidays.

Whether those sources support the deal depends on Nordstrom's holiday performance. They need assurance the retailer has the visibility into its business to ensure it can make the debt payments that come with a potential deal. The retailer needs to deliver in the core of its business: its full-price and off-price stores.

Nordstrom has 117 full-price stores and 232 discount Nordstrom Rack stores. Last quarter, it generated 42 percent of its sales in its full-price stores and 27 percent in its Rack stores. (Other sales came online and in other retail formats like HauteLook.)

Last holiday season, it generated about half its sales in its full-price stores and roughly a quarter in Nordstrom Rack.

For its full-price stores, Nordstrom needs to prove that even amid a flurry of discounts from competition, shoppers are still drawn to the attributes that have led some to declare the department store best in its class. Nordstrom is known for its personal shopping, amenities and well-chosen, well-displayed merchandise. Its store base is smaller and better situated than many of its competitors.

This year, to bulk up its in-store offerings, the company has, like many of its competitors, added pop-up shops. It partnered with Moma Design Store to create design-focused pop-ups in select stores throughout the season.

It needs to moderate its use of price-cutting to draw in shoppers. The retailer has already started its early season sales, but too much discounting will eat into the bottom line that financing partners care about. To go private, Nordstrom needs to prove it will continue to have plenty of cash on hand to support a levered business.

For Nordstrom Rack, the retailer will need to regain momentum after a disappointing same-store sales decline last quarter of 5 percent. That drop came after a 1 percent decline the quarter prior. The retailer said it too aggressively loaded up on merchandise early on, overestimating consumer demand for items that did not sell.

Rack, like many off-price stores, was a way for Nordstrom to cater to more price-conscious shoppers who still wanted to shop its merchandise. As all retailers offer steeper and steeper discounts, though, some investors question whether the desire for that concept has eased.

Online sales will be a double-edged sword. Retailers need strong online sales to compete, but those sales tend to be more costly, because they require shipping. Nordstrom has introduced more cost-efficient curbside pickup.

Nordstrom is also walking a tightrope with its stock price. While the company wants to perform, delivering too strongly may edge the price out of financing range. On Wednesday, Nordstrom shares closed at $41.16. As long as it stays below the mid-40s, say financing sources, a deal remains at least possible.

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Nordstrom shares drop as same-store sales disappoint