What’s next for “Saks Global?”
That’s the new entity being formed through the definitive $2.65 billion agreement for Saks owner HBC to buy the Neiman Marcus Group, which is pending approval by the Federal Trade Commission and which came to light late Wednesday.
Based on the $6 billion purchase price in 2013, and very recent speculation that the price tag on Neiman’s would exceed $3 billion, it appears that Saks, at the $2.65 billion price, got a good deal. Richard Baker, HBC chairman and chief executive officer, would not comment on that, though he has a reputation for never overspending to acquire retail.
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In a digital-age twist, Amazon is an investor in the deal, as is private equity giant Apollo as well as Salesforce.
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The purchase price is expected to be funded by a combination of equity capital from new and existing shareholders and debt. Amazon will work with Saks Global to “innovate on behalf of customers and brand partners following the close of the transaction,” HBC said. That could involve logistical and digital upgrades.
The Rhône Capital private equity firm and affiliated investment entities continue as the active lead investor in Saks Global. Global software investor Insight Partners, an investor in Saks.com, will be a shareholder in the new company. Salesforce will also become an investor at closing.
In addition, HBC has secured a $1.15 billion fully committed term loan from investment funds and accounts managed by affiliates of Apollo, and a $2 billion fully committed revolving asset-based loan facility from Bank of America, the lead underwriter, Citigroup, Morgan Stanley, RBC Capital Markets and Wells Fargo.
“The transaction deleverages the combined enterprise while ensuring that Saks Global, on a pro forma basis, will have significant liquidity,” HBC said in its statement on the deal.
Now that there’s an agreement, there’s lots to be taken care of, and even though the deal had been rumored for months, some aftershock is rattling employees and vendors concerned about the future. Chatter over a marriage of the New York-based Saks and Dallas-based Neiman Marcus went into overdrive when HBC bought Saks Fifth Avenue 11 years ago, and Baker instantly made no secret of the fact that he wanted to add the Neiman Marcus Group to the portfolio and create a U.S. luxury retail empire.
The FTC is expected to make a “second request” for information from Saks, which already supplied some to the government, and Saks will have to make a case for the combination, likely pressing how both brands have a greater chance of surviving, and thriving, under one corporate entity rather than as separate companies. Saks will also stress how there’s still plenty of competition in the luxury sector from multibrand websites, and luxury brands operating their own stores and websites.
Internal communications will have to be stepped up to try to ease concerns over job security and potential consolidations, to try to at least keep employees focused on their jobs. With designers and brands as well, Saks needs to convey potential opportunities presented by the combined entity, and be reassuring about the future. Saks has sent letters to vendors and employees explaining the deal.
Management changes are in the works. Already, Marc Metrick, currently CEO of Saks, has been named CEO of Saks Global, assuming the deal gets green-lighted by the government. Ian Putnam, president and CEO of HBC Properties and Investments, will become CEO of Saks Global Properties and Investments. Metrick and Putnam will report to Baker, who becomes executive chairman of Saks Global. It’s likely other organizational changes are contemplated but won’t be disclosed until after the deal closes.
Marc Metrick will be CEO of the new Saks Global.
“I’m very excited. We’ve worked on this for over a decade,” Baker told WWD on Wednesday evening, confirming earlier media reports that day about the deal. “We’ve had many discussions to buy Neiman’s at much larger numbers. It was too expensive before. It didn’t make sense. The pandemic happened. Neiman’s went bankrupt, but we finally got to a point where we were able to come to terms and do what we think is the right thing for everyone.”
When asked about the possibility of consolidations, Baker replied, “We are not planning on closing stores, or rebranding. We are planning on using our combined resources to better serve customers, for better personalization, better functionality online, to take advantage of AI, and bring more tools to better service our customers. Neiman Marcus has a tremendous sales culture and tremendous stores with fantastic productivity. We have always admired that. So this is a great opportunity.”
Baker said he was not ready yet to discuss other management changes or structure. “We will be surveying and understanding all the talent that exists in all three businesses to put together a best-in-class team,” Baker said, referring to Neiman Marcus, Bergdorf Goodman and Saks. Saks Global will thoroughly review its talent pool and create a “best-in-class” team going forward, he said.
Baker would not comment on the future of Geoffroy van Raemdonck, CEO of the Neiman Marcus Group. There is some question whether van Raemdonck will be part of Saks Global.
Saks Global, a combination of luxury-oriented retail and real estate assets, will include Saks Fifth Avenue, Saks Off 5th, Neiman Marcus and Bergdorf Goodman, each of which will continue to operate under their respective brands, according to HBC. Saks Global will include HBC’s U.S. real estate assets and Neiman Marcus Group’s real estate assets, creating a $7 billion portfolio of retail real estate assets in top-tier luxury shopping destinations.
Also, HBC’s Canadian business, which includes TheBay.com, the Hudson’s Bay department stores, and $2 billion in real estate, will be recapitalized and stay separate from Saks Global, with “significantly reduced leverage and enhanced liquidity,” the company said.
A $10 Billion Entity
According to Baker, Saks Global generates $10 billion in sales, with Saks accounting for about $6 billion in sales and Neiman’s, $4 billion. He also said that Neiman’s volume has declined from 2013, when it generated $4.9 billion in sales at the time of its $6 billion purchase by Ares Management and the Canada Pension Plan Investment Board. In 2013, Saks Fifth Avenue generated $3 billion in volume, he said. Neiman’s went in and out of bankruptcy in 2020, through a debt-for-equity swap with Pacific Investment Management Co., or PIMCO; Davidson Kempner Capital Management, and Sixth Street.
There are 39 Saks Fifth Avenue stores and 95 Saks Off 5th off-price stores. Saks.com operates as a separate business that is owned by HBC. Neiman Marcus Group has 36 department stores, two Bergdorf Goodman stores and five Last Call discount stores.
The buyout of Neiman’s is part of a wave of dealmaking interest in department stores, generally a beleaguered sector where investors are looking at the legacy names with new eyes. But like the deal bringing Saks and Neiman Marcus together, much depends on the ability to find investors willing to back deals. For example, Arkhouse Management and Brigade Capital Management have been trying to buy Macy’s Inc. since last year and according to media reports, their proposed bid was just sweetened this week, building on the $6.6 billion offered in March. A source said that Arkhouse and Brigade have been looking for equity coinvestors and debt financing to firm up the offer.
Meanwhile, the Nordstrom family has been in talks with private equity investors about taking Nordstrom Inc. private.
Saks and Neiman’s have been in talks to merge many times over the years, but the latest negotiations began last summer.
As recently as two weeks ago, sources said the price tag on Neiman’s was $3.1 billion, but at least some of the financial players around the deal were worried about the marriage of two retailers that are still looking to find their footing in a challenging retail climate.
One source said Apollo wanted a coinvestor in the deal to “really pony up and stand side by side with them” — and that’s the role Amazon ultimately played. Both Amazon and Salesforce have provided logistical and technology support to Saks for the last few years, according to reports.
The deal would seem to give the e-commerce giant a new foothold in luxury fashion, a space that’s been hard for the “everything store” to navigate despite the launch of the Amazon Luxury Stores platform dedicated to high-end style. However, many observers question whether major luxury labels that sell to Saks and Neiman’s will be willing to have Amazon carry their products since they have resisted the e-tailer’s overtures for years.
“I think it’s their way to try to get into the luxury space and legitimize their entry into luxury,” the source said of Amazon’s involvement.
The Case for a Deal
There’s a case for putting the two together into one group.
First and foremost, millions of dollars in cost savings would be attained by centralizing and eliminating duplicative functions, such as accounting, planning, human resources, legal and distribution facilities. There could be one online buying team for both retail brands, and further consolidations and savings could involve closing some stores and reducing rents. Ultimately, the headcount could shrink by several hundred, if not by thousands.
Secondly, there would be a sharing of data, best practices, management talent and a common customer base. Merging loyalty programs is a possibility. For example, using each retailer’s credit cards to shop could earn points valid at both Saks and Neiman’s. Or spending enough at either store could lead to access to invitation-only events at both Saks and Neiman’s.
Third, there could be a greater differentiation between Saks and Neiman’s, and reduced overlap of merchandise, which is extensive. A former executive at Bergdorf Goodman, which NMG owns, estimated that among the true luxury brands, there’s been about 90 percent overlap. Saks already emphasizes a wider range of categories and price points and has been more aggressive online with the split of the retailer into the online operation Saks and its brick-and-mortar business Saks Fifth Avenue, while Neiman’s has said it is refocusing on its wealthiest customers.
Vendor Relationships
The combined entity would have greater leverage over vendors, particularly smaller ones more dependent on Saks and Neiman’s, more so than giant multinational luxury conglomerates such as LVMH Moët Hennessey Louis Vuitton that are less dependent on wholesaling. At the same time, a combined entity, with a strong balance sheet, could bring greater opportunities to vendors and a willingness to test new vendors.
According to the Green Street real estate research firm, there are eight malls that have both a Saks Fifth Avenue and Neiman Marcus store, including the Somerset Collection in Troy, Mich.; the Fashion Show mall in Las Vegas, and Bal Harbour Shops in Miami. Decisions could be made on closing the weaker of the two in certain locations, benefiting the remaining store. Neiman’s generally operates larger, more productive locations with more dominant designer presentations than Saks. But Saks captures a wider spectrum of the population with its broader range of prices and offerings.
“If Saks bought Neiman’s, they would have to more sharply differentiate,” said one luxury source, who suggested Neiman’s could focus more on high-priced designers and selling to the most affluent consumers, while Saks could double down on accessible luxury.
The closing is pending approval by the Federal Trade Commission, which has grown more assertive, and the antitrust division of the Justice Department might be all over it, and possibly block it over concerns about the potential for HBC to raise prices, close stores, lay off workers and increase pressure on vendors. Recent history shows that these federal agencies have challenged transactions involving well-known businesses in other industries, such as Microsoft, Meta, American Airlines and JetBlue, but also in fashion/retail, with the FTC blocking Tapestry Inc.’s $8.5 billion deal to buy Capri Holdings — which would create an accessible handbag giant with Tapestry’s Coach and Kate Spade and Capri’s Michael Kors. The FTC argued that consumers will lose the benefit of head-to-head competition on price, discounts and promotions, innovation, design and marketing if the deal goes through. Just this week, the FTC voted to block Tempur Sealy’s $4 billion bid to acquire Mattress Firm on grounds that the deal would suppress competition and price mattresses a lot higher.
Beyond the potential of action by the FTC and Justice Department, the deal raises several other concerns.
Recent history shows that retail mergers don’t always work out that well. The Macy’s Inc. takeover of May Co. in 2005 left Macy’s saddled with hundreds of weak stores, leading to mass liquidations over the years, though the deal, according to former Macy’s officials was right for the times. The Sears-Kmart merger became a slow disappearing act for both retailers, and ultimately a virtual total liquidation of both.
While market experts say merging Saks and Neiman’s compounds both of their chances of long-term survival, both have been experiencing sluggish sales as consumers shift much of their spending to travel, dining out and other experiences. Whether that’s a permanent shift or not remains to be seen. Also, recently, there have been reports of Saks not paying some bills, whereas Neiman’s appears to be paying in a timely fashion. Putting together two companies sagging on the sales front doesn’t guarantee that combined entity would be stronger.
When Neiman’s went bankrupt in 2020, Mudrick Capital Management, one of the lenders at the time, characterized Neiman’s and Saks as “highly complementary business models with significant overlap among consumers, vendors and geographic locations which provides an opportunity for significant synergies and value creation through a combination of both retailers.” But NMG quickly emerged from its Chapter 11 proceedings with new owners PIMCO, Sixth Street Partners and Davidson Kempner Capital Management, providing Neiman’s with a healthier balance sheet and a lot less debt.
Michael Gould, former Bloomingdale’s chairman and CEO, has reservations about a Saks-Neiman’s combination. “I don’t see where there is any positive outcome for the customer. In certain malls where there is a Saks and a Neiman’s, you won’t need both,” said Gould. “It will be a real tough thing for those vendors in the rung just below the true luxury vendors. Neiman’s together with Saks, they’re not going to be able to dictate pricing to Chanel, Vuitton or Dior,” he said, adding that several top luxury brands have been reducing their wholesale distribution, becoming less dependent on Saks and Neiman’s.
“Vendors underneath that true luxury level are going to be squeezed to the ‘nth’ degree,” Gould said, and there will be pressure exerted on vendors to sell both nameplates.
If a Saks-Neiman’s deal is consummated, “They’ll really go after the online business and explore the potential internationally,” Gould suggested.
“The move to acquire Neiman Marcus is unsurprising as multibrand retailers struggle,” Juan Pellerano-Rendón, chief marketing officer at Swap, a retail technology platform that manages e-commerce operations for direct-to-consumer brands, said in a statement. “Recent failures like Matchesfashion, Net-a-porter, and Farfetch’s bailout highlight the industry’s challenges. This deal aims to save Saks and Neiman Marcus from a similar fate. While skeptics cite the FTC blocking Tapestry’s acquisition of Capri, that case involved ‘accessible luxury,’ which isn’t the focus here.”
“A Powerful Combination”
One former Neiman Marcus senior official, who requested anonymity, said putting Saks and Neiman’s under the same umbrella creates “a powerful combination as it relates to dealing with the market.” The new team, the source added, “should spend time understanding the culture of Neiman Marcus and Bergdorf Goodman. The service level at these stores is outstanding. It’s not just about selling product.
“There is no question that creating one set of administrative costs instead of two is a big savings and most important to focus on, though that is only a onetime gain,” the former official said. “The ability to service the customer shouldn’t be overlooked. The merchandising could be centralized, but they should make sure Bergdorf Goodman remains autonomous. Bergdorf’s has the best designer presentation. It has to be very, very upscale. The challenge is how to make the stores into great emporiums where people get excited, where there’s theater, and new and interesting ideas. That’s what’s missing.”
Neil Saunders, managing director of GlobalData, commented Wednesday, “News that Saks Fifth Avenue has reached a deal to acquire Neiman Marcus comes as no great surprise as the two companies have been in discussions for some time. However, the plot twist is that Amazon will potentially take a share in the new entity — something that adds a bit of spice to an otherwise predictable deal.
“Bringing Saks and Neiman Marcus together would be something of a marriage of convenience. Both chains have struggled with growth, and both have concerns about their prospects. The rationale is that, together, they would have more financial firepower to negotiate with luxury brands and to cut out duplicative costs,” Saunders added.
He also voiced some skepticism over the deal. “A merger does not resolve all the issues, especially those of the relevance of the chains in a market where more luxury players are pushing direct-to-consumer sales. As a larger entity, negotiating power will be a little better with the brands, but even a combined chain would not match the heft and power of the global luxury conglomerates, which would still hold most of the cards. As such, there is a risk that the deal might end up creating an even bigger headache for Saks.
“Amazon taking a stake in the business would make sense, as it has ambitions to play more heavily in the luxury space and this would give it a toehold. However, the real win here would be the ability of Amazon to streamline logistics and e-commerce, giving the new entity an advantage in a market where remote shopping has become more important to shoppers — especially younger ones, which both chains need to do more to attract.”
One former Bergdorf’s executive observed that luxury consumers like having options and that many shop both Saks and Neiman’s. But they’re also loyal to their personal shoppers and favorite salespeople. As the former Bergdorf’s executive said, “It’s a very delicate situation dealing with the luxury customer.”