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Do Saks and Neiman Marcus Belong Together?
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.”
Discussion Questions
Does a merger of Saks and Neiman Marcus make more sense with many luxury brands aggressively pursuing direct-to-consumer strategies? Do you see more pros or cons in such a combination for the two retailers as well as for the U.S. luxury space overall?
Poll
Loading …BrainTrust
Jeff Sward
Founding Partner, Merchandising Metrics
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
On the surface, this appears to be a good match. Combining efforts could indeed result in some meaningful synergies between the retailers. And notwithstanding the current softness in luxury spending — which is prone to ebbs and flows over time — I believe there is a place in the landscape for luxury department offering. However, my concern is the financial strength of Saks to undertake the merger. Selling real estate to catch-up on late payments to suppliers is hardly a sign of financial strength. Neiman Marcus is right to be cautious. Now if the LVMH came calling on Neiman Marcus, that would be a completely different story.
Bringing Saks and Neiman Marcus together would be a marriage of convenience. Both chains are struggling to grow, both have concerns about their future. The rationale is that, together, they would have better prospects. That might be true in some senses, but I doubt it will resolve all of the issues and, if anything, it may just result in an even bigger headache for Saks.
Sure, 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 all of the cards.
Sure, there could be some cost savings by removing duplicate functions, but in mergers these never quite materialize as expected. Shutting overlapping stores sounds attractive, but both brands are distinct and there is no guarantee that the shops left standing would pick up trade from the ones shuttered.
All in all, I don’t think this is the worst merger idea. But neither do I think it would put both companies on a sustainable foundation for the future.
Great points Neil! While the merger makes sense from a common customer base and product assortment, it won’t solve the inherent challenges in the luxury department store segment. It may help reduce some administrative costs, but even doubling the total store count won’t give them enough negotiation power or influence to pressure luxury brands.
The power and dominance of these two luxury retailers faded long ago. The logic of this merger turns on operational efficiencies and reduced expenses on top of what each retailer had already done on the cost-cutting front. The optimism for positive accretion teeters on wishing for miracles. Let’s face it: this merger is like tying two rocks together and hoping they float.
I think the merger makes sense, but they will absolutely want to keep the brand identities separate. Shopping at Saks and shopping at Neiman Marcus need to feel different to the customer, especially at the luxury level. There is tremendous equity in both brands, so they shouldn’t make the mistake that other department stores have made by consolidating that piece.
Behind the scenes, everything else can move to common processes and technologies. There are synergies in all the back office operations that can be consolidated to make this work. Otherwise, both of these powerhouse brands might be at risk.
In a word, dilution. In theory, combining and streamlining businesses can make organizations leaner and more efficient, but luxury brands are in a category of their own. Employees need to be part of the unique history of the brand and feel a separate loyalty to their legacy. Customers should feel that special chemistry with every experience. Neimans is and should be considered at the top tier of luxury shopping, any adoption of a portfolio approach would ultimately dilute who they are and what they stand for. The better path forward is to go back to a few stores with a shift to DTC, special, curated and exceptional.
The math, the financial logic, the operational efficiencies, the overlapping footprints…all sound like good reasons to make this happen. So what if Saks is already selling real estate to pay for merchandise? No wonder NM wants more cash out of the deal. This all sounds like the logic that has given us a fraction of the department stores today than we had 20 years ago. Has that been a good thing for the customer and competition? Not in my view. And yet the status quo won’t work either. Today’s market bears little resemblance to the market 20 years ago. While nostalgia makes me reluctant to encourage a merger, today’s realities suggest some kind of merger would be beneficial. So what are the lessons from past retail mergers that can inform this deal?
I would want to see the overlap in companies’ store locations. Because in the past both Neiman and Nordstrom have said there really isn’t much more opportunity to add stores in the saturated North American market. Would the combo really be additive? Or purely a consolidation play? And, whatever happened to Saks.com (which was ruthlessly split out to the dismay of anyone who knows anything about how omnichannel works)? Would that be included?
There are certainly some operational and (potential) financial benefits to this merger. The questions that are top of mind for me are less tactical and more strategic: how will the combined companies manage their brands, and more importantly, how will the merger affect the relationships with their respective customers? Will the brands merge (not suggesting they should, but it is a fascinating question to debate!). Regardless of the brand discussion, would loyalty programs merge?
The luxury business has significantly changed since the heydays of Saks and Neimans. Brands have taken over the business and the role of a third party to store to sell their goods is becoming obsolete. The department store business as a whole is a shadow of itself. This feels like another desperate move to put off the inevitable.
The two brands align with each other well. The issue (and the challenge for these two assuming eventually they merge) is the slow, painful to watch death of the department store as a retail model. The market has gone from department stores being THE destination (Think Marshall Fields in Chicago or Macy’s in NYC) for shoppers to being the lightly visited anchors of all of those failing malls across the country.
When merger discussions arise, there is always the conversation around driving synergies, cost savings, taking advantage of additional negotiating and buying power, and how it will benefit both firms financially. However, both Saks Fifth Avenue and Neiman Marcus have experienced plenty of challenges with the disruption and sales downturn the department store sector has faced.
The aspirational luxury shopping experience that both Saks Fifth Avenue and Neiman Marcus offer is very similar, and this merger makes sense on the surface. However, there is a concerning element that the Saks Fifth Avenue owner HBC, had to complete a series of real estate transactions worth $340 million, to help catch up on payments to suppliers. This is not a sign of a healthy business, and adding Neiman Marcus to the mix would further intensify the challenges they are experiencing.
Another consideration is that this merger will not help either brand’s equity or marketplace relevance. Saks Fifth Avenue and Neiman Marcus have their own identities and loyal consumers. We all know that happened to formerly iconic regional department stores, Marshall Fields, Bon Marche, and others when they were acquired and “name plated” as Macy’s. Not all mergers are a good thing.
Yes, in general, mergers make sense when a market is consolidating; it’s Darwin’s survival of the fittest. If the luxury space is under significant threat then it will not support the same number of players as it once did and a reduction in competition through attrition or merger can be expected. In the specific case of Saks acquiring Neiman, the merger makes sense if we accept the changing dynamics of the environment the companies operate in but I agree with my colleagues that the structure of the deal indicates or suggests that Saks does not have the financial strength to be considered the “fittest.” However, worst deals have been done and I suspect they will find a way.
This potential merger is all about monetary efficiency, saving money/generating cash. I don’t see the advantage for the customer. Nowadays shoppers are savvy and know their options. If this merger doesn’t have an obvious upside for shoppers, at best a positive outcome will have a relatively short shelf life.
A merger between Saks and Neiman Marcus makes sense amid luxury brands going direct-to-consumer. It offers potential benefits like cost savings, increasing efficiency and enhanced negotiating power. However, challenges remain, as it won’t match global luxury conglomerates’ influence, and success isn’t guaranteed due to distinct brands and uncertainties in the market.
It might be a near perfect solution in short term, offering improvements but may not be a foolproof path to long-term sustainability & growth.
This feels like an “economy of scale” strategy more than a growth strategy, considering that both brands are pretty static and dealing with direct competition from the luxury brands. Maintaining the Saks and NM brand identities is essential to success, to avoid the “homogenization” of other big retail mergers.
For years, there’s been talk about these brands struggling. There are several factors, but I’m going to focus on two areas: competition and eCommerce. While very few other retailers in the luxury market have the reputation and footprint as NM and Saks, there is formidable competition – more than ever. And, shoppers’ habits have changed and I’m not convinced these brands have been able to convert the luxury experience to a differentiating online experience.
Neimans and Saks have very different customers and service models, and are both experiencing low/no growth and some level of financial distress. Creating operational efficiencies and power with brands is not a good enough reason for these two chains to merge, especially in the fading department store segment.
I’m solidly against this:
1) Whatever may be the backroom efficiencies – IMHO overhyped – they get drowned out by the loss of talent at the helm as those efficiences begin to manifest themselves. I think this is particularly true for high-end retail, where a great deal of the value comes from things other than cost saving. Or let’s put it this way: if consolidation was really the cureall for the department store industry, we’d be talking about how much market share they’ve gained, or at least maintained, rather than lost, over the last decades.
2) Whatevr the mertis of consolidation may be in general, I’m just not impressed by Saks’ parent (HBC): remember they started out as realty investors, and in the long term I think that heritage – or lack of same – showed thru.
Hot take … merger will allow the to survive. Both are challenged to find a strategy that will allow them to survive, let alone thrive. Operational efficiencies, consolidating the best luxury department store talent, keeping the best traditions of each, and innovation to drive customer experience, are all more likely if merged and less likely if not.
In my view, a merger between Saks and Neiman Marcus makes sense amidst luxury brands’ direct-to-consumer push. Collaborating could enhance differentiation and cost efficiency through strategic store closures and streamlining. However, challenges such as antitrust concerns and differing market approaches need careful consideration. Saks, with its emphasis on diverse categories and online presence, contrasts with Neiman’s focus on elite customers. The merger may offer profitability gains, leverage against vendors, and address the evolving luxury landscape. Success depends on strategic alignment, integrating customer bases, and navigating the changing dynamics within the U.S. luxury sector. Overall, the potential benefits justify exploration, but meticulous execution is crucial to overcome potential drawbacks.