The $2.65-billion Saks and Neiman Marcus merger could be a boon to both retailers given premium and luxury brands’ recent direct-to-consumer shifts, according to TD Cowen luxury and retail analyst Oliver Chen.
Word surfaced Wednesday that Richard Baker’s Hudson’s Bay Co. (HBC) had finally reached an agreement to buy Neiman Marcus Group for $2.65 billion. Baker, who had been vying for a merger between subsidiary Saks and Neiman for about a decade, is finally on the verge of realizing a long-held dream.
Amazon and Salesforce are minority investors in the transaction, which is awaiting customary Federal Trade Commission (FTC) approval—which isn’t guaranteed. The FTC is also checking out Tapestry Inc.’s proposed $8.5-billion transaction to acquire Capri Holdings, a move that has incurred significant scrutiny from the nation’s consumer protection agency.
As for whether the Saks-Neiman merger makes good business sense, Chen said the deal is a positive “given the luxury industry’s high degree of supplier concentration, nature of intense competition, and need for store, technology, people, and logistical investments.”
The plan is for the two to combine to create Saks Global, which combined will account for $10 billion in annual sales, comprised of $6 billion from Saks and $4 billion from Neiman.
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Chen expects luxury brands to continue to grow their DTC channels, and for Saks and Neiman to move more toward concession spaces, which, similar to shop-in-shops, are brand-operated-and-licensed segments of stores. Popular in European and Asian luxury retail, the concession model will help propel Saks’ and Neiman’s growth, he believes.
The digitalization of retail has fostered an intensely competitive and promotional environment. Luxury retailers have also faced declining store traffic, elevated inventory levels as aspirational consumers pull back on spending, and greater discounts and price matching.
Chen thinks a merger can yield a strong combined entity that will invest more in stores, people, marketing and technology, while also offsetting supplier and customer leverage.
“We believe the rationale of the proposed acquisition is centered on brick-and-clicks, given the intensifying competition with Nordstrom and Bloomingdale’s and the ongoing consolidation of the digital multi-brand industry, including Net-a-Porter, Mytheresa, and Luisaviaroma,” Chen said. “Thus, luxury leaders will need to combine or quickly build physical scale.”
Chen also said the Saks-Neiman merger will allow the business to invest more in stores, while investments from Amazon and Salesforce could result in a more advanced customer data platform across categories.
Both retailers’ growing stables of premier and emerging luxury brands could help Saks Global penetrate new regions while mitigating fights for exclusivity and regional licenses, Chen said. Amazon and Salesforce investments could help drive speed of delivery, though it’s possible Amazon will in turn leverage insights from the operations as it tries to grow its own luxury retail arm.
The deal for Neiman Marcus includes its five Last Call outlet stores and two Bergdorf Goodman doors. Should the FTC approve the transaction, Saks CEO Marc Metrick will become CEO of Saks Global.
HBC partnered with capital growth investor Insight Partners in 2021, resulting in the e-commerce business of Saks Fifth Avenue becoming a standalone firm known as Saks. Saks retained ownership and control of the Saks Fifth Avenue intellectual property, including the brand and visual identity. Baker’s HBC retained ownership of the Saks physical store operation.
Neiman Marcus went through two leverage buyouts, the first a $5.1-billion sale to private equity firms TPG Capital and Warburg Pincus in 2005, and the second when the two sold the retailer in 2013 for $6 billion to private equity firm Ares Management and the Canada Pension Plan Investment Board. The retailer entered the Chapter 11 bankruptcy process in May 2020, months into the Covid-19 pandemic. A few months later, following a financial restructuring, Neiman Marcus exited Chapter 11 proceedings in September 2020. It remains unclear what role Neiman CEO Geoffroy van Raemdonck will play, if any, in Saks Global should the FTC approve the deal.