What: Nordstrom's focus on Nordstrom Rack expansion may be overshadowing issues with its core luxury business.

Why it is important: The situation demonstrates the potential pitfalls of diversification strategies in the luxury retail sector.

Nordstrom's CEO Erik and President Pete Nordstrom have agreed to take the company private through a $3.8 billion merger with Mexican retailer El Puerto de Liverpool. This move comes as Nordstrom faces declining sales in its flagship stores, with growth primarily driven by its off-price Nordstrom Rack division.

The article argues that Nordstrom's increasing reliance on Nordstrom Rack may be distracting from its core luxury business. While Rack was originally intended as an entry point for younger consumers, it has become a major focus for the company, potentially at the expense of its traditional high-end offerings.

The author suggests that Nordstrom might be better served by selling off Rack and refocusing on its luxury flagship stores, especially given potential changes in the competitive landscape with Neiman Marcus and Saks Fifth Avenue. The merger with El Puerto de Liverpool is questioned, as the Mexican retailer may lack experience in the U.S. luxury market.

What to think of Nordstrom teaming up with Liverpool