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Neiman Marcus reportedly rejected a $3 billion offer to be acquired by Saks Fifth Avenue. However, talks continue, and a merger could counter increasing moves by luxury brands to expand their direct-to-consumer strategies.
“These days, brands are increasingly calling the shots,” stated the Wall Street Journal, which first reported on the latest offer. “They sell directly to consumers with their own stores and e-commerce sites, creating fresh competition for the department stores that carry their wares. The brand owners are getting so big, they wield tremendous power.”
HBC, which also owns the Hudson’s Bay department store chain in Canada, has held several conversations about acquiring Neiman Marcus since acquiring Saks in 2013. Saks has 39 stores, while Neiman has 36 department stores, two Bergdorf Goodman stores, and five Last Call off-price stores.
Any deal combining two of the largest U.S. luxury players would face antitrust concerns, although the companies would likely argue that their dominance has sharply eroded with the rise of the internet and direct selling by vendors.
Both firms are controlled by investor groups that will have to be satisfied. The $3 billion offer was declined because the terms relied too heavily on debt over cash, according to The WSJ.
Both retailers have been cutting costs and undergone a series of layoffs in the past year amid a downturn in U.S. luxury spending. In November, HBC completed a series of real estate transactions worth $340 million, with proceeds used to catch up on late payments to suppliers. Neiman’s sales sunk 8% in the three months that ended Oct. 28, according to The WSJ.
A combination of Saks and Neiman Marcus could help increase differentiation among banners. Saks already emphasizes a wider range of categories and price points and has been more aggressive online, while Neiman’s CEO recently stated that the company is refocusing on its wealthiest customers.
Cost savings from closing overlapping stores and reducing headcount and duplicative functions could bolster profitability, and the companies could gain leverage against vendors and landlords.
“You could make a very strong case for putting these two companies together — efficiencies, data sharing, a common customer base, lots to share, lots to consolidate,” a financial source familiar with both retailers, who requested anonymity, told WWD. “There are so many different competitive issues in the environment. Luxury is very fragmented. The power shift has gone to the brands.”