Nordstrom Inc.’s stock price — and speculation on the future of the company — soared on Friday after reports surfaced that activist investor Ryan Cohen, the founder of Chewy, had accumulated a large stake in the Seattle-based retailer.
It is believed that 37-year-old billionaire Cohen is pushing for changes in the composition of the Nordstrom board, and possibly structural changes in the Nordstrom business as well. He’s done at GamesStop, where he’s a major investor and serves as chairman.
However, considering the Nordstrom family owns approximately 30 percent of the company’s stock, it would be difficult for Cohen to effect change without the family’s cooperation. In total, Nordstrom insiders own 39 percent of the shares, according to a September SEC filing. The retailer is headed by Erik Nordstrom, the chief executive officer, and his brother, Pete, who serves as president and chief brand officer.
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In 2017, the stock was trading as high as around $48 and the Nordstrom family wanted to take complete control of the company by buying up all the stock at about $52 a share, but the bid was rejected as too low by a special committee of the board.
According to media reports, Cohen, a Canadian, wants to oust Mark Tritton, the former CEO of Bed, Bath & Beyond which is on the verge of bankruptcy, from the Nordstrom board. However, retail analysts believe Cohen could have other intentions, including cost cuts and structural changes in the business.
Cohen founded Chewy, an online pet supply retailer, in 2011 and served as its CEO. He’s also been a major investor in Bed, Bath &. Beyond. His investment company is called RC Ventures. It’s not clear how much Nordstrom stock Cohen has bought up, though one media report indicated he was among the top five outside investors in the company.
When media reports on Cohen’s increased stake in Nordstrom appeared Thursday evening, Nordstrom’s stock leaped 30 percent. By the closing bell on Friday, Nordstrom’s shares were up 25 percent to $26.38. The shares have a 52-week high of $29.59. Nordstrom’s stock price has been depressed due to weak sales and earnings results in the past few seasons, and the softening outlook on its business and retailing generally.
“While Mr. Cohen hasn’t sought any discussions with us in several years, we are open to hearing his views, as we do with all Nordstrom shareholders,” said a Nordstrom spokeswoman Thursday evening. “We will continue to take actions that we believe are in the best interests of the company and our shareholders.”
In a note on Cohen’s action, Simeon Siegel of BMO Capital Markets, wrote: “We’ve generally thought about Nordstrom as the OG DTCer having always been customer obsessed, allowing higher return rates, enjoying lower rent and a more variable expense structure than peers. We wonder if these traits appealed to Mr. Cohen in his pursuit of his next old-school retail activist brick-and-mortar target. Further, Nordstrom is a strong brand with lower valuation and years of weakening performance. Perhaps it’s as simple as that.”
Siegel estimates that Rack, the off-price division of Nordstrom, drives approximately 25 percent of Nordstrom’s sales online. “This may actually hinder its appeal to brands,” Siegel wrote. “We have generally believed the off-price business might be better suited with less e-commerce, thereby removing the loud digital broadcasting of its vendor’s off-price deals, elevating its appeal to brands and its own profitability. That said, shrinking e-commerce, even if right, feels very ‘un-Cohen-esque.’ Like separating buybuy Baby from Bed, Bath & Beyond or selling the entire company, Cohen might see similar paths for Rack and Nordstrom. That said, with the family ownership (~30%), persuading to affect change may be easier than selling their legacy.”
William Blair, analyst Dylan Carden, wrote in a note that Cohen reportedly believes Tritton’s former employment at Nordstrom (Tritton served as president of the Nordstrom Product Group private label arm from 2009 to 2016) disqualifies him from heading the compensation committee. Tritton was fired from his role at Bed Bath & Beyond shortly after Cohen took a 9.8 percent stake in the company in early 2022, after which Cohen exited his stake. Cohen also gained attention for his role in driving large gains in shares of GameStop after taking a stake in 2020.
Carden coming down hard on Nordstrom, writes, “In our view, Nordstrom’s performance over the last decade begs for an activist role as it has continued to show inconsistent performance, and more recently underperformed department store peers despite an arguably better brand and loyal customer base. Management in our view has been distracted by costly and largely unsuccessful bets on new ventures such as Trunk Club (written down to zero), Local (lack of metrics to suggest tangible benefits), and a sprawling New York City flagship.” Trunk Club was a men’s fashion subscription service, and Nordstrom Locals are service hubs locations in New York City and Los Angeles where customers can pick up and return items, get alterations and styling assistance.
“Meanwhile, Rack has had chronic inventory issues that seem disjointed from the broader success of the off-price channel and fly in the face of management’s long-standing claims of its benefit within the broader Nordstrom ecosystem,” Carden added. “The biggest pushback we have gotten when we suggest the need for an activist is simply the 30 percent stake the Nordstrom family controls. This in turn will likely be a hurdle for Cohen, though he has historical performance at his back in pushing for change. We expect severe volatility in trading from here if GameStop and Bed Bath & Beyond are any guide, being now one of the larger risks for shareholders.”