Could the retail IPO be ready for a comeback?

With the S&P Retail Index around 388, more than a 70 percent gain since March, some firms eyeing the capital markets believe “green shoots” may begin sprouting in the recently dormant market for initial public offerings. That’s especially true for value-oriented retailers that have weathered the recession better than their upscale counterparts.

“What’s key is that the market is actually open,” observed Thomas Del Zoppo, head of cash equities for the Americas at HSBC Securities. “Now there’s a bit of fresh air coming through, compared with the depths of a year ago when we saw the number of deals pulled or shelved reaching historic levels.”

After a slowdown that began in the fourth quarter of 2008, positive trends have started to emerge in specialty retail mergers and acquisitions activity, with strategic buyers taking the lead. In the second quarter, Syms Inc. bought Filene’s Basement and The Dress Barn Inc. agreed to acquire Tween Brands Inc. Third-quarter activity includes Amazon.com purchasing Zappos.com for $979 million. In addition, in August online apparel retailer MyShape received $11 million in private placement funding.

Now it looks like the dormant IPO market is about to see some action.

In the last 10 weeks, three retailers in North America have filed statements regarding their intent to go public — two in the U.S. and one in Canada. The two Form S-1 filings with the Securities and Exchange Commission in the U.S. were Dollar General Corp. on Aug. 10 and Rue21 on Sept. 18. Dollarama is the Canadian firm that filed Sept. 10.

A fourth retailer, VS Holdings, which operates The Vitamin Shoppe stores, filed its Form S-1 on July 23, and is set to price this month. VS Holdings will be the first retail IPO in two years.

And it isn’t only the U.S. IPO market starting to simmer. Last month, two retailers outside North America unveiled plans to go public. Italy’s online discount retailer, Yoox, said it plans to list on the Italian Bourse in the first half of next year. Australia’s largest department store group, Myer, said it will return to the Australian stock market before Christmas.

On Monday, published reports said that, in another illustration of private equity turning to the public markets for an exit strategy, Blackstone Group, a major private equity player, would sell five companies in its portfolio and float up to eight more as conditions in the M&A and IPO markets improve.

Why now? First, private equity players who snapped up specialty retailers with debt might view this as a good time to exit their investments, now that the market is showing signs of life again. In addition, according to HSBC’s Del Zoppo, firms need to raise operating capital to grow their businesses, and right now the “view from the back-view mirror is looking better. They’re starting to [evaluate] what is the risk appetite of, and risk tolerance of, the marketplace.”

Still, many firms are likely shut out from the IPO market. “Luxury retailers won’t have a good story,” said Christopher Kampe, managing director at investment banking firm Tully & Holland.

So companies such as Neiman Marcus Inc. likely will have to wait before they can test the public waters. The luxury chain was acquired by private equity firms TPG, formerly Texas Pacific Group, and Warburg Pincus in May 2005 for $5.1 billion. In April 2007, word surfaced from Wall Street sources the equity firms were gauging investment interest for a possible Neiman’s IPO in late summer 2007 or by early 2008. An IPO never materialized.