Last week, Hudson's Bay Company (HBC), the parent company of Saks Fifth Avenue, announced plans to acquire to acquire Neiman Marcus and Bergdorf Goodman for $2.65B. Upon transaction closing, HBC plans to establish Saks Global, a “Technology-Powered Luxury Retail Company.” According to the WSJ, Saks 2023 revenue was $3B and the consolidated Neiman Marcus and Bergdorf Goodman revenue was $2.35B. At the proposed purchase price of $2.65B, this represents an enterprise value-to-sales ratio of 1.13x; Macy’s and Nordstrom trade at 0.5x on the same basis. Assuming that the numbers are right, that higher premium raises the profile for Macy’s suitors.
The Federal Trade Commission needs to approve the deal; that agency has sued to block Tapestry’s acquisition of Capri Holdings, which implies that HBC is counting on a new Commissioner and Commission to review the transaction. Upon closing, HBC's Canadian retail (Hudson's Bay and TheBay.com) and real estate businesses will be recapitalized as a standalone entity. Other parties brought into the transaction include Amazon, Salesforce, and Apollo Global Management (which is providing $1.15B in debt financing). Amazon is to provide technology and logistical expertise.
For context, HBC was the last owner of Lord & Taylor. The transaction announcement quotes HBC CEO Richard Baker saying:
“For years, many in the industry have anticipated this transaction and the benefits it would drive for customers, partners and employees. This is an exciting time in luxury retail, with technological advancements creating new opportunities to redefine the customer experience, and we look forward to unlocking significant value for our customers, brand partners and employees...Saks Global will be well positioned to meet luxury consumers’ evolving expectations by:
- Advancing the luxury shopping experience: Saks Global will invest in the luxury shopping experience, ensuring that customers can seamlessly access a broad fashion assortment through their channel of choice. Building on each retail brand’s history of innovation, Saks Global will drive further advancements in online functionality and fulfillment processes while providing greater access to merchandise.
- Serving our customers through personalized interactions: High-touch, personalized experiences are fundamental to luxury shopping. Saks Global will bolster its technology driven approach to personalization, leveraging first-party data and AI to create individualized online shopping experiences and empower sales associates to better serve customers.
- Supporting established and emerging brands: For over 100 years, Saks Fifth Avenue, Neiman Marcus...have been deeply committed to helping luxury consumers discover the latest fashion from established and emerging designers. Through its improved ecommerce experience and well-located store fleet, Saks Global will help emerging and established brands reach their target customers.”
Our thoughts on the potential transaction:
- With the transaction, HBC is looking to secure and build upon its hold on the affluent consumer, both as it relates to luxury brands expanding their U.S. locations and to get in front of any repositioning of Macy’s to secure more of these consumers’ spending. (Recall our prior articles about Macy’s and how they will try to emulate Dillard’s success in building a large business with the affluent.)
- The acquisition of Saks allowed HBC to bring the brand beyond its U.S. retail footprint and tap into its much larger international awareness (both licensed stores and e-commerce). Adding Neiman and Bergdorf allows for more of the same, while also adding scale efficiencies. The promise of AI was a likely accelerant to these.
- Saks and Neiman have significant customer overlap. We looked at eight overlapping markets, and our trade area data indicates that 71% of Neiman Marcus’ shoppers visited the neighboring Saks Fifth Ave location, whereas only 62% of Saks shoppers visited the neighboring Neiman. Within this sample, the Saks locations produced 20% more visits and drove a 30% deeper penetration of their trade area. This suggests there is opportunity to share and expand best practices, further segment the market (like Dillard’s has done successfully) and rationalize some real estate.
- The acquisition will allow HBC to combine the customer files of each and learn what the wallet share/fashion profile is for each customer. That information should allow for improved customer knowledge, clienteling, and wallet share. Additionally, it should also allow for some consolidation of the footprint. It also allows the brands to expand into adjacent categories like high-end furniture and furnishings while reallocating the combined show floor space where needed (for example, the Saks or Neiman Marcus nameplate could flex up on men’s formal wear, whereas the other nameplate replaces its men’s formal with furniture/furnishings).
- Longer-term, the potential is there for Amazon to take control of the operating company, paying HBC rent for the real estate. That would allow Amazon to merge the Saks, Neiman, and Bergdorf customer files with its Amazon.com customer data and allow for a greater unlock of affluent consumer spend, including potentially travel retail, also one of our prior-life theses.
Our team recently visited the Beverly Hills flagships of these two brands to get a sense for the assortment, positioning, visual merchandising, and clientele. While originally next door to each other, the “old” Saks Fifth Avenue women’s and shoe building and adjacent parking lot will be redeveloped into shops, restaurants, and two apartment buildings. Meanwhile, “new” Saks is housed in the prior Barney’s New York building. The new Saks location has retained the stunning Regency style marble staircase, allowing one to see all the floors at the same time, as opposed to the escalators in the previous women’s building. The Terrace on the 5th floor is a perfect spot for a ladies’ lunch and has beautiful views of the city. Also on the 5th floor is an entire open-air space devoted to Chanel, as well as the private shopping by appointment Fifth Avenue Club area. In terms of merchandise, while there were some slight differences in terms of merchandising, for instance the Neiman Marcus entrance greets you right away with Prada and Chanel shop-in-shops, but the shoes are on the third floor, whereas Saks has its shoe experience on the main floor. Both brands have moved their beauty sections to the lower level.
