What Nordstrom’s ‘Poison Pill’ Reveals About the State of America’s Department Stores
It’s the season for struggling US department stores.
This week, Nordstrom adopted a “poison pill” measure, which allows the retailer to ward off the possibility of a hostile takeover – a common fear among struggling retailers, who become attractive targets for investors when the their share prices fall.
The Seattle-based chain had reason to be paranoid: the move came just days after Mexican department store chain Liverpool acquired a 9.9% stake – valued at around $294 million – in the retailer , becoming its second largest shareholder behind the Nordstrom family. .
Liverpool said the purchase was the result of additional cash and its desire to “diversify assets geographically”.
Yet such a large slice of the business warrants some level of management defense. The poison pill stock plan allows Nordstrom to issue new shares at a 50% discount to other significant shareholders should a third party acquire 10% or more of Nordstrom’s stock without board approval .
This makes it more difficult to initiate a takeover, because when other shareholders buy additional shares at a significant markdown, the pursuer’s stake would be diluted.
“At the end of the day, if a company puts in a poison pill, the headaches and expenses go up for a possible hostile takeover,” said Simeon Siegel, retail analyst at BMO Capital Markets.
Nordstrom said the plan, which expires next September, was not in response to “a specific takeover bid” or other proposed acquisitions. The measure is also not intended to deter offers that are fair and otherwise in the best interests of all Nordstrom shareholders, the company said in a press release.
A successful hostile takeover would be particularly painful for the Nordstrom family, which unsuccessfully tried to take the company private twice, in 2017 and 2018.
Nordstrom’s Cold War with Liverpool isn’t the only ongoing struggle for control of a major US department store chain.
On Thursday, investment firm Ancora Holdings sent a letter to Kohl’s board urging the company to replace chief executive Michelle Gass and chairman Peter Boneparth. Kohl’s, which faces fierce competition from Amazon and big box stores for the wallets of middle-class consumers, has received a lot of unwanted attention this year.
In February, Kohl’s adopted a poison pill plan to fend off activist investor Acacia Research Corp., an entity backed by hedge fund Starboard Value, which had offered to buy the department store the previous month. According to market reports, Kohl’s also received an offer from private equity firm Sycamore Partners. The department store said at the time, without naming specific suitors, that the offers on the table undervalued its business.
While the poison pills have calmed down acquisition talks at Nordstrom and Kohl’s, that won’t end speculation about either company’s future. Both will have to prove to the market that their turnaround plans can work; otherwise, shareholders may decide that going private, or even selling for parts, is the best option.
It’s not like these companies have fallen asleep at the wheel. Prior to Covid-19, Nordstrom introduced new store formats including Nordstrom Local, a fleet of smaller stores that do not sell any products but are for online pickup and other services. Kohl’s is trying to increase traffic by accepting Amazon returns and opening Sephora stores.
Further reshuffles may be needed, although whether Liverpool, Starboard or Ancora have better ideas is debatable.
Nordstrom has struggled to return sales to pre-pandemic levels. In 2021, its revenue totaled $14.4 billion, down from $15.1 billion in 2019. In its latest quarterly earnings report, Nordstrom cut its full-year 2022 guidance. , citing weakening customer demand and pressure on margins from excess inventory. Stocks are down about 20% this year, roughly matching the S&P 500 index.
Kohl’s also lowered its outlook for the rest of the year in its second-quarter earnings report, pointing to similar factors as Nordstrom. In the first half of 2022, Kohl’s revenue was lower than in 2021 and 2019. Last year, net sales were $18.5 billion, down from $18.9 billion in 2019. Its shares are down 45% in 2022.
Both companies would surely say they just need more time to show that their strategies are working. Recent events indicate that they may not have it.
NEWS IN BRIEF
FASHION, BUSINESS AND ECONOMY
Ralph Lauren sees faster growth on prices and new customers. The New York-based apparel company is targeting mid-to-high single-digit revenue growth in each of the next three fiscal years, including the current one, according to a statement released Monday ahead of an investor presentation.
Italy’s market watchdog approves Tod’s takeover bid. The Della Valle brothers said last month that their holding company would offer to buy Tod’s shares at €40 each, valuing the company at 1.32 billion euros ($1.3 billion).
Gap cuts 500 jobs in companies in times of crisis of profitability. The cut positions are primarily in Gap offices in San Francisco and New York, as well as in Asia, the company said Tuesday.
Hedge fund Ancora is calling for the ousting of Kohl’s CEO and chairman. Ancora Holdings is now pushing for the removal of the chief executive and chairman of the US retailer’s board, according to a letter sent to the company on Thursday. This decision marks the beginning of a new round of shareholder unrest for Kohl’s.
PVH joins $250 million fashion climate fund. The initiative was launched in June by the non-profit Apparel Impact Institute to fund, scale and de-risk promising solutions that could reduce the industry’s carbon emissions in years to come. .
JD Sports will pay the former CEO £5.5m after his exit. As part of the deal, former chief executive Peter Cowgill is barred from working or advising competitors at the British sports channel and he cannot solicit any of his employees, according to a statement released on Wednesday.
Aim to hire 100,000 holidaymakers and offer deals sooner. The big-box retailer hired 100,000 workers for last year’s holiday season, which was marked by a tight labor supply. It had hired about 130,000 seasonal workers in 2019 and 2020.
JD Sports is cautious about the outlook as cost pressures weigh. The company’s comments come amid soaring energy and other costs in Britain, with fashion retailers Primark and Asos warning of profits.
Target enlists Kika Vargas, Sergio Hudson and La Ligne for collaborations. The brands’ collections for the Minnesota-based mass retailer are set to launch Oct. 9, with more than 100 accessories and apparel priced between $8 and $70 all-in.
THE BEAUTY BUSINESS
L’Oréal acquires Skinbetter Science. L’Oreal has announced it will acquire Skinbetter Science, a Phoenix, Arizona-based skincare startup that distributes its line through dermatologists and cosmetic surgeons.
India’s Reliance Retail is in talks for the rights to beauty retailer Sephora. The operations of Sephora, owned by LVMH, will transfer from Arvind Fashions Ltd to Reliance Retail if an agreement is reached, according to the report.
Harris Reed named Nina Ricci creative director. Reed will join the company effective immediately. His first collection will be presented in Paris in early 2023. Edwin Bodson, until now global commercial director at JW Anderson, takes the reins of the company as general manager.
Burberry CFO, COO Julie Brown to leave next year. Brown will step down at the end of the financial year on April 1, 2023. Brown is leaving to pursue opportunities “outside the luxury industry,” Burberry said in a statement, adding that a search for his successor is In progress.
Mike Ashley will step down from the Frasers board next month. Ashley will be available on an advisory basis and will provide the company, which owns Sports Direct, with additional funding of £100 million ($114 million) on the same terms as its debt facilities.
Bryan Yambao named editor of Perfect. The blogger and influencer better known by his online moniker BryanBoy was previously the company’s international editorial director.
Media Director David Pemsel has named the new BFC President. The former CEO of Guardian Media Group and founder of the communications agency ScienceMagic.Inc will succeed Stephanie Phair as President of the British Fashion Council.
Compiled by Darcey Sergison.