Saks Fifth Avenue’s Acquisition of Neiman Marcus Is an Important Fashion Statement

Can the High-End Department Store Brands Thrive Together in an Increasingly Digital Retail World? 

7/10/24 – – Just before the holiday weekend, Hudson’s Bay Company (HBC), owners of Saks Fifth Avenue, announced an agreement to acquire Neiman Marcus along with its Bergdorf Goodman stores for $2.65 billion. The luxury fashion retailers have combined annual sales of more than $10 billion.

Many analysts are questioning the wisdom of the deal. Canadian-based HBC failed to resuscitate Lord & Taylor (now operating only online) and has had mixed results with Saks. Neiman Marcus has been struggling to recover from its 2020 bankruptcy. And a chorus of business gurus have declared the death of the department store format and demise of brick-and-mortar retailing.

So, how does this fashionable marriage make any sense?

So Many Competitors Have Fallen

After decades of industry consolidation, these well-defined high-end department stores have very little apples-to-apples competition. Across the country, the Bonwit Tellers and I. Magnins are gone. Survivors Bloomingdale’s and Nordstrom are perceived by shoppers to be far more moderate and less focused than “accessible luxury” Saks and “true luxury” Neiman Marcus. And the remaining top-tier malls they anchor, also facing less competition, are reporting record occupancy and rents.

Off-Price Opportunities for Full-Price Brands

Among the assets of the new entity, Saks Global, are the chains’ outlet, off-price formats: Saks Off Fifth and Neiman Marcus Last Call. With cash-strapped consumers searching for bargains, traffic at outlet malls is booming. While there are nearly 100 Off Fifth locations, there are only five Last Calls. There’s plenty of runway for growth in this healthy sector of the retail industry.

A Friend with Benefits      

Amazon will have a minority stake in the new entity “to provide technology and logistical expertise.” According to the U.S. Department of Commerce, e-commerce accounted for 15.4% of all retail sales in 2023. Amazon alone accounted for more than a third of that. Retailers able to delight customers in both physical and cyber space – referred to within the industry as harmonized or multi-channel retail – have the best chance of thriving in our increasingly digital world. Amazon can certainly help Saks Global meet that challenge.

Location, Location, Location

The combined portfolio creates significant real estate value. Industry observers have suggested that the New York store locations (Saks flagship on Fifth between 49^th and 50^th and Bergdorf Goodman’s women’s and men’s stores on Fifth between 57^th and 58^th) may be the most attractive equity component of Saks Global’s enterprise value. 

Human Touch in a Digital World

If you’re looking for the hidden gem in the deal, consider this benefit highlighted in a New York Times interview by HBC chief executive and chairman Richard Baker:  

“Part of what excited us about acquiring Neiman Marcus was acquiring their world-class sales force. People have forgotten how important people are. When selling luxury products, you need beautiful stores and salespeople customers trust.”

In his best-selling memoir, “Threshold Resistance,” pioneering mall developer and luxury retailer Alfred Taubman advises, “Never underestimate the value of a knowledgeable salesperson.” He points out that customers, especially when buying expensive fashion merchandise, lack confidence. Taubman, who was one of Saks’ and Neiman’s primary landlords, observes: 

Purchasing a dress or a pair of shoes is a far more enjoyable experience if you are guided and supported in your decisions by a professional, courteous salesperson who wants to help you look your best. And it’s even better if the store in which you are buying the apparel stands for something important to you and meshes with your self-image. In other words, a clearly defined brand bolsters a customer’s confidence. So does a good salesperson.

It’s hard to beat the internet’s convenience and reach. But endless searching and hundreds of customer reviews online do little for confidence – especially when you’re shopping for an expensive garment that has to fit.

HBC is betting that when it comes to the rarefied slice of retail sales represented by luxury apparel and accessories, the Saks Fifth Avenue and Neiman Marcus nameplates still stand for something important to consumers and offer excellent opportunities for vendors. And they’re hoping that with the help of Amazon online and superb salespeople in their stores, Saks Global will thrive.

Saks Fifth Avenue and Neiman Marcus are not for everybody. And the deal still must be approved by the Federal Trade Commission. But I’m confident that in a world of increasingly impersonal, homogenized retail, there’s still a place for these venerable, aspirational brands.