The Wall Street Journal just broke the news that luxury retail leaders Saks Fifth Avenue and Neiman Marcus Group (NMG) have reached a merger agreement. Saks will pay $2.65 billion to acquire NMG and its 36 department stores, two Bergdorf Goodman locations and five Last Call outlets.
Saks brings 39 stores, 95 Saks Off 5th outlets, and a separately operating Saks.com business to the party to be called Saks Global. Long-time HBC executive and current CEO of Saks, Marc Metrick, will become Saks Global’s chief executive officer.
While the combined companies will create a luxury retail powerhouse – totaling some $10 billion in sales – bigger isn’t always better in the luxury world where the personal connection between the customer and the store and its sales associates are key.
During Geoffroy van Raemdonck’s six-year tenure with NMG, including seeing it through its 2020 bankruptcy, he built a strong culture of caring among his 10,000+ strong team. This news is sure to take the wind out of their sails – pun intended – whether van Raemdonck stays or goes. Either way, things are going to change big time at Neiman Marcus.
Looking over the luxury retail landscape, Nordstrom, renowned for its customer service and carrying many of the same brands as Saks and Neiman Marcus, is ready to take care of luxury customers who may be turned off during the transition period.
These customers are the kind of folks who pay attention to details in the business world and will understand the Saks-NMG deal was made in the interest of the owners and financiers, not the customers. Their loyalty can be easily transferred, even if their accumulated loyalty points can’t.
Nordstrom’s 93 stores can become a shining beacon for luxury shoppers looking for the personal touch that may get lost in the shuffle. And with brothers CEO Erik and president Pete Nordstrom at the helm, they carry on the family legacy of patriarch John Nordstrom from the company’s founding in 1901, something that Saks and Neiman Marcus lost along the way.
First and foremost luxury retail is a people, not a product business and Nordstrom looks to be the surprise beneficiary from the merger as luxury consumers seek to find a store that still feels like home.
What We Know
The companies have made no official announcement yet or responded to request for comment, but here’s what WSJ and the New York Times have reported.
Saks owner Hudson Bay Company (HBC) will provide $2 billion of financing through its existing investors, including HBC chairman and CEO Richard Baker and his son’s private-equity firm NRDC Equity Partners. Apollo Global Management will throw in another $1.15 billion in debt financing and Amazon and Salesforce will take a minority stake in the deal. Amazon and Salesforce will lend their technical expertise to the new entity.
“Saks has remained steadfast in our commitment to be at the forefront of luxury fashion, meeting customers not just where they are but where they are going,” Metrick shared with the New York Times.
“Together, with our ongoing focus on innovation, we are primed to drive growth for our brand partners and create career development opportunities for the incredible talent across Saks Global,“ he continued.
Question Marks
However, before those career development opportunities open up, a fair number of heads will roll since finding operational efficiencies is key to such mergers.
According to real-estate research firm Green Street, eight malls have both a Saks and Neiman Marcus store, making some closures nearly inevitable, even though Baker told the NYT that he is “not planning on closing any stores or digital businesses or reducing services in any way.”
There’s also the question of Baker’s retail track record. Since HBC is a private company, we can’t look inside, but from the outside, Baker, who made his fortune in real estate through his private-equity firm, is said by retail industry analyst Warren Shoulberg to come out of the infamous “Eddie Lampert-Sears” school of retail.
“I’m not a big fan of Baker, who seems to come from the Eddie Lampert school of business, which is that running a retailer is only an ends to a mean…that means being making money for its owners, the business itself be damned,” he observed.
And Baker’s track record suggests it. His first venture into retail was with the $1.2 billion acquisition of fading luxury retailer Lord & Taylor in 2006. At the time it was the oldest continuually operating department store in the nation.
Baker explained, “We are not spending all this money just to sell clothes at Lord & Taylor. What I am talking about is a new paradigm for department stores.”
So much for those grand plans. Lord & Taylor was sold off to Le Tote in 2019 for $100 million and has since closed all stores and now operates in the fringes online.
Jewelry and outdoor furniture retailer Fortunoff was another Baker retail casualty. Acquired out of bankruptcy in 2008 for $110 million, Baker sought to tap synergies by opening Fortunoff jewelers in Lord & Taylor stores and envisioned expanding its chain of 16 outdoor furniture stores to 300 stores overtime.
“We’re going to flood the business with cash. We’re going to spend money on the best people and the best systems to get this off on the right foot.” Baker shared with the New York Post at the time. Those plans fell to rack and ruin, with the Fortunoff family re-acquring the company in 2009.
Baker’s other retail holdings – Hudson Bay Company acquired in 2008 and Saks in 2013 – are still operating, but then, unlike Lord & Taylor and Fortunoff, maybe they are just too big to fail. We can’t know the specifics since HBC went private in 2020.
And finally, there’s the question of partnering with Amazon in the deal, which has been a thorn in the side of retailers for ages. It also has been itching to get into luxury retail in a serious way, so they are bound to learn far more in the process than they put in; wolf in sheep’s clothing comes immediately to mind.
On the positive side, new Saks Global CEO Metrick knows the luxury retail ropes, having started his career with Saks Fifth Avenue in its executive training program in 1995. But he’s been under the tutelage of Baker since HBC’s acquisition so some of Baker’s questionable practices are bound to have rubbed off.
Nordstrom’s Silver Lining
Fellow Forbes.com contributor Richard Kestenbaum observed, “You can bet that the management of Nordstrom and perhaps even Macy’s is asking themselves, what does this mean for us? We are going to be facing a stronger, bigger, fiercer, more efficient competitor. It’s a worry time for them.”
Knowing Nordstrom president Pete, though I haven’t met Erik yet, I suspect the brothers are putting their heads together to see how they can turn this potential lemon into lemonade for their company.
It may move forward the company’s plan to go private with the possible help of Sycamore Partners, which also owns Belk, reputed to be one of the stronger department store chains that also remains under family management.
Nordstrom just reported first quarter 2024 sales were up 5.1% to $3.2 billion, though the Nordstrom banner was basically flat at $2 billion. But this represents a big win after Nordstrom sales dropped 8% to $9.4 billion in fiscal 2023.
“As we reflect on the legacy that our dad left behind, we’ve been reminded of his firmly held and consistent values—especially his commitment to serving our customers,” Pete said in a statement. “Those values have been integral to Nordstrom’s growth, and they remain at the core of the decisions we make as a company,”
That is the open secret of all luxury retail and better than most in retail, the Nordstrom brothers understand that sales eventually follow service, unlike Baker, who seems to put the selling cart before the service horse.
“Part of what excited us about acquiring Neiman Marcus was acquiring their world-class sales force,” he said to the NYT. That underscores Shoulberg’s “ends to a means” observation. Nordstrom’s got it the right way around and luxury customers are bound to notice.
Note: Nordstrom didn’t not respond to a request for comment.
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