Issue #31: Nordstrom Goes Private

I hope everyone had a nice holiday and a happy new year! It has been a while since I sent a news issue, but here we go! Don’t forget to check out Retail wRapped, where I previewed 2025 and recapped 2024. Now, on to the latest news!

On December 23rd, right before Christmas, the family that founded Nordstrom and shares its namesake, announced that they would be taking the department store private in partnership with Mexican retailer Liverpool. For those unfamiliar with Liverpool, it is a holding company involved in finance, real estate, department stores (124 locations across Mexico with the first one founded in 1847), fashion, construction, and more. The deal sees the Nordstrom family become the majority shareholders and will require some debt to make it happen. Despite a couple weeks passing since the deal, I felt it pertinent to discuss it. The deal has not closed yet and is expected to close in the first half of 2025.

Nordstrom is very much a tale of two parts. On the positive side, you have Nordstrom Rack which has been crushing it as people gravitate towards affordable, value luxury. On the other hand, the flagship Nordstrom brand has been struggling to grow. In between, you have the eCommerce segment, which despite being one of the first to market in 1998, has struggled to maintain share.

Here is a brief look at how the three pillars stand and what the go forward is:

• Nordstrom - Sales from Q1 - Q3 2024 were roughly $6.3B, an increase of roughly 1%. This increase is despite not opening new stores. With the original family taking control, I expect the flagship brand to get a refresh and renewed focus. Going forward, it is pertinent that there is continued slight growth and focus on establishing Nordstrom as a premium brand, as that is what helps the Nordstrom Rack business.

• Nordstrom Rack - Sales from Q1 - Q3 2024 were roughly $3.7B, an increase of roughly 11%. Nordstrom Rack, despite having less revenue, is really the huge growth driver for the company. 23 new stores were opened this year, one was closed, and 16 more are on the way next year. The opening of stores emphasis here really underscores this segments to be the growth driver. Going forward, in addition to opening the new stores, it is crucial that Nordstrom Rack is able to deliver value for premium products, because that is what customers resonate with.

• eCommerce - eCommerce sales are staying steady at roughly 35% of total sales, but due to the increase in overall sales driven by Nordstrom Rack, the raw dollars of eCommerce sales have increased to $3.6B. All Nordstrom eCommerce volume, including Nordstrom Rack eCommerce, is roughly equivalent to the sales of Nordstrom Rack. Pretty impressive! For context, in 2023 Walmart had roughly 14% of sales ($83B) from eCommerce. Going forward, this segment just needs to continue to maintain the percentage of total sales.

Given the struggles throughout the department store space, there is room for Nordstrom to continue to grow as the key omnichannel department store. The landscape will certainly look different this time next year and I believe the move private will help them. Despite the stock struggling, the underlying numbers are still strong. Profits are rising and the opportunity to grow even further is there. Nordstrom will certainly be a very interesting company to follow in 2024.

Outlet Malls See Continued Growth in China

In China, like many other places, outlet malls were originally viewed as a way for brands to dump excess inventory and items that weren’t selling. However, as customers look to match quality with value, especially at the premium level, outlets become a place for more people to buy their apparel. One customer interviewed remarked:

"Outlets with better discounts offer the same quality for less money. I can afford expensive, high-quality items, but I'm not willing to pay more than what they're worth."

Retailers are responding to that customer sentiment. Ralph Lauren, Lululemon and Arc'teryx all opened outlet stores in China this year to go along with outlet mall mainstays like Coach and Michael Kors. The dollars also show an impact. In 2024, sales of outlet malls grew ~10% to ~$32B in sales. Growth is expected to continue as these retailers grow further via eCommerce and additional locations. Internationally and domestically, whether you are a brand or a retailer, you need to have an outlet/discount/value strategy, whatever form it takes. One of my favorite strategies - certain premium brands will specially create lines just for outlets/off price retailers.

The Container Store Files for Bankruptcy

If you need storage products, organization products, or custom closets, chances are your first stop would be The Container Store. However, as of December 23rd, it recently announced it was declaring bankruptcy and subsequently was delisted from the NYSE. This does not include the Swedish Elfa business, which is essentially its private label storage items. Under the terms of the agreement, The Container Store will be taken private and its existing lenders will be the shareholder. Top line sales have been falling, which is not great, but so has net loss, which is encouraging. Going forward, the plan is to focus on the customizations of closets and space, which makes sense as it is the true differentiators. Like many of these specialty retailers, the rise in eCommerce has really hurt them, but hopefully this financial restructuring and renewed focus on their true value proposition will help them succeed going forward.

TikTok Shops’ Meteoric Rise

Each year, The New Consumer and Coefficent Capital pen a fantastic report previewing the consumer trends for the next year. Here is the 2025 report, which as always, was excellent. In particular, given all the uncertainty about a potential ban, I was fascinated by the section on TikTok Shop. As illustrated in the graphic above, TikTok Shop has had a meteoric rise to have more spending than Shein, Sephora, and traditional video shopping (HSN and QVC). Sephora in particular has been called out because of all the beauty purchasing going on in TikTok Shop. It will be interesting to see how they respond and try to maintain their advantage as a retailer. Two aspects that can help Sephora stand out: trust and speed. Something to monitor in the coming year.

However, to level set expectations, below is a graphic showing how tiny spending on TikTok Shop is compared to top retailers. It is impressive to see the growth but still a long way to go to match these top retailers in consumer spend.

Who Closed Stores in 2024?

• Summary: Alfalfa is a better for you salad, wrap, and bowl fast casual restaurant, that also serves donuts. The ingredients are sourced locally and the idea is that they will be better for you.

• My Take: Sweetgreen is dominating the bowl/salad space, but not in the same way Cava and Chipotle are dominating their respective industries. It is not certain to me that Sweetgreen will be able to reach the dominance of those players, but I strongly believe someone in the category will.

• Founder(s): Andrew Arrospide, Daniel Londono, and Dan Sobsey

• Funding: $2M from Blue Falcon Capital and Angel Investors

• Number of Locations: 7 (NJ and CA)

• Social Media Following: 28k Instagram and 1k TikTok

Additional Links:

1. A great deep dive into 2025 Consumer Trends from The New Consumer and Coefficient Capital (read more here)

2. Speedy Eats launches 24 hour fully automated restaurant (read more here)

3. Deloitte reported retailers lost $103B in fraudulent returns and claims in 2024 (read more here)

4. Amazon revamps packaging to include more recycled goods (read more here)

5. Saks Global revamps leadership after the purchase of Nieman Marcus (read more here)

6. Leading liquid fuel pump dispenser manufacturer, Dover Fueling Solutions, launched an EV charger (read more here)

7. It is anticipated returns will skyrocket in January with consumers having post purchase regret (read more here)

8. Uniqlo and 7-Eleven announcing earnings soon and it seems like it will not be pretty (read more here)

9. Retail foot traffic in the UK declined 2.5% during the holidays (read more here)

10. French food delivery startup shuts down due to lack of growth (read more here)

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