Does Saks.com make sense as a separate business?
Hudson’s Bay Co. (HBC) is spinning off Saks Fifth Avenue’s online operations as a separate business in large part to take advantage of lofty valuations being fetched by fashion luxury platforms.
In connection with the move, Insight Partners has invested $500 million for a minority stake in Saks.com, valuing the online business at $2 billion. Saks.com has about $1 billion in annual sales.
The valuation is higher than the $1.6 billion fetched last February by HBC, which owns Hudson’s Bay, Saks Off Fifth as well as Saks Fifth Avenue’s online and offline operations, in its move to go private.
“By separating the dot-com business, we can show investors its value,” HBC CEO Richard Baker told The Wall Street Journal. “Investors don’t want to put their money in bricks-and-mortar retailers right now.”
The move also enables both Saks’ online and offline operations to “appropriately plan for and invest in their respective service models.” That sentiment appears to run counter to retail’s mantra in recent years of merging operations to optimize omnichannel approaches.
Saks.com becomes Saks and will be led by Marc Metrick, previously president and CEO of Saks Fifth Avenue. Saks will lead marketing and merchandising across businesses and retain ownership of the Saks Fifth Avenue intellectual property. Sebastian Gunningham, a former Amazon executive, will join Saks.com’s board.
SFA, the entity representing Saks’ 40 stores, will fulfill the physical functions of Saks.com such as buy-online-pick -up-in-store, exchanges, returns and alterations. The split won’t be apparent to consumers.
Luxury has been slow to embrace online selling with many fashion aficionados skeptical that high-end selling can be replicated online. But explosive online growth during the pandemic is being seen as a breakthrough that has driven up stock prices for Farfetch and Zalando. Fashion platform Mytheresa, with about half of the sales of Saks.com, went public in January of this year at a $2.2 billion valuation.
HBC has acknowledged that an IPO for Saks.com is a possibility. The new funding will be used to speed shipping, enhance customer service and introduce a marketplace.
“Luxury ecommerce is poised for exponential growth,” said Mr. Baker in a statement. “Saks is primed to win significant market share.”
- HBC and Insight Partners Launch Saks as a Standalone Ecommerce Company Set to Rapidly Expand Customer Base in Growing Online Luxury Fashion Market – HBC/ Insight Partners/Business Wire
- Saks Fifth Avenue Owner to Separate E-Commerce and Stores Units – The Wall Street Journal
- Split-Up: Saks Fifth Avenue Stores, E-commerce Becoming Separate Companies – WWD
- Saks Fifth Avenue owner spins e-commerce site into separate business – CNBC
- Hudson’s Bay Company Shareholders Approve Privatization Transaction – HBC/Business Wire
DISCUSSION QUESTIONS: Do you see more benefits than drawbacks in splitting Saks Fifth Avenue’s online and offline operations? Should other retailers separate their online operations?
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26 Comments on "Does Saks.com make sense as a separate business?"
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Founder, CEO & Author, HeadCount Corporation
I think this strategy could work well for Saks. The brick-and-mortar stores were a drag on results. Saks still enjoys positive brand recognition and a place in the luxury retail landscape. While I’m not sure that this is the best strategy for all/most retailers, I think it fits Saks well.
Influencer, Consultant and Strategic Advisor
I agree with you, Mark, because Saks is a traditional luxury department store. This means they are in the most financially battered segment in retail. There is a culling of the herd in the department store segment and few, if any, analysts expect a turnaround in that category. Saks is a powerful brand but the stores are not. So, while this strategy does not make sense for other retailers and other segments, it fits Saks well, as you said.
President, Sageberry Consulting/Senior Forbes Contributor
This move smacks of desperation and opportunism. It goes against everything remarkable retailers have learned and deployed over more than decade, which is that customer journeys are deeply intertwined and that digital drives physical, and vice versa. The customer is the channel, silos belong on farms and it is the brand’s job to create a harmonized experience anytime, anywhere, any way the customer shops. This move effectively puts the dot-com presence in competition with stores, complicates customer services, screws up marketing attribution and raises the cost of doing business, some of which I touch on here.
Principal, Retail Technology Group
Questionable at best, this move befuddles me and it should befuddle you too. At a time when traditionally brick-and-mortar retailers have discovered the importance of expanding aggressively into e-commerce, HBC decides not to leverage the synergies of the two operations as one, but to split them from one another. This may have much to do with HBC’s entry into the internet marketplace arena, but I don’t see it working.
Managing Director, GlobalData
From a financial point of view it makes perfect sense. However from a customer point of view it makes far less sense. Most retailers are looking to integrate store and online operations, not separate them out. The reason for this is that customers shop seamlessly across channels and want the minimum of friction. As sister companies, I am sure that there are good intentions about Saks’ online and offline presences working together. However in practice this can be more challenging to achieve, especially where the goals and needs of the two businesses diverge.
Global Industry Architect, Microsoft Retail
My view is that splitting can have issues. Given that even Amazon is moving to utilize a store network, it is clear the store is not yet dead. There are other digitally born organizations who are establishing physical presences. Winning retailers in my view will be the ones who align and optimize across all channels online and physical in order to create a harmonious experience for the customer.
Principal, Retailing In Focus LLC
Aside from the financial benefit of a spinoff (in order to maximize the value of the e-commerce business), will this matter to the customer? Will the shopper continue to think of Saks as one business, whether brick-and-mortar or online? (That’s how most successful omnichannel retailers have gained share over the past decade.) If the new e-commerce spinoff is to be wholly successful, it needs to replicate the high-touch element of shopping at Saks that put it on the map in the first place.
Chief Strategy Officer, Hoobil8
This is short-term thinking, but that may have been the intent — separate now to benefit from investor gymnastics today. But physical stores are essential to achieving profitable margins on e-commerce sales. This move ultimately just adds a whole other layer of red tape and management at a time when online and offline must work together as one mind. This feels like the beginning of dismantling Saks to sell it for parts.
B2B Content Strategist
This decision defies the omnichannel best practice of smashing the silos between online and offline. It will be interesting to see if it pays off.
Benefits include a focus on digital evolution to invite investment in online growth. This move distinguishes the company as the department store segment faces decline.
Potential drawbacks include inefficiencies and complexity if suppliers need to use different systems per channel. Consumers expect seamless omnichannel service and this move could affect responsiveness by adding barriers while rivals remove them.
President/CEO, The Retail Doctor
I get the idea of zigging when the others zag, but isn’t retail all about coming together right now for a variety of reasons – rather than pulling apart? I’m sure someone gets a bonus for thinking of this while customer complaints are bound to happen – especially on the sales floor where it hurts the most.
Chief Commerce Strategy Officer, Publicis
CEO, RMW Commerce Consulting
Worst idea I’ve heard this year. Why not split Saks.com into desktop and mobile divisions because mobile is the future!
Chief Amazement Officer, Shepard Presentations, LLC
Behind the scenes, it doesn’t matter how they split the operations. If it’s because investors want to see the difference in the sales channels, then show them on a line item. To the customer/consumer, they see the brand as the same, be it online or in-store. Saks’ presence in certain high-end locations is part of what gives the company its reputation. They need to be careful should they decide to mess with that part of the formula.
Founder, CEO, Black Monk Consulting
Frankly, the drawbacks win on this one. Sure, it’s a great financial move and lots of investors will make lots of money, but in terms of brand control and growth it seems like a wrong move.
Consulting Partner, TCS
“‘By separating the dot-com business, we can show investors its value,’ HBC CEO Richard Baker told The Wall Street Journal. ‘Investors don’t want to put their money in bricks-and-mortar retailers right now.'”
This is telling. By prioritizing investors over customers and the customer experience, Saks is setting itself up for failure. This level of disconnect is scarcely believable.
President, Graff Retail
The majority owner of HBC (Richard Baker) isn’t a retailer — he’s more interested in the real estate value of the stores. Little has been done to remake HBC since he took over, other than sell off properties for big profits. This unfortunately reeks of Eddie Lampert’s time at Sears, during which he stripped the company of any value. Mr. Baker is no doubt a very smart guy, but don’t confuse that with being a retailer. Hence the move to sell off Saks.com
Retail Strategy - UST Global
In an era of a unified customer experience and unified commerce, this move seems to be a step in the wrong direction. Whatever the cooperation intended between the two groups is — when there’s a fast seller or a markdown to be had, who takes it?
Retail Tech Marketing Strategist | B2B Expert Storytelling™ Guru | President, VSN Media LLC
The news about HBC’s spin-off of Saks.com drips with irony for me. I am old enough to remember back to 2000, when numerous brand and retail companies instantly boosted market cap by announcing vaporware “dot-com strategies.”
While I understand why a company today would make a strategic business decision motivated by investor trends, I am skeptical of a decision to “unlock” value rather than build value. The timing is suspect too — as store shopping seems poised for a rebound in the second half of 2021.
A key question left unanswered for me is, “What about the brand?” Corollaries are about how SFA best shoppers will interact between physical and digital stores.
For me, this is not the right move to maximize potential of the Saks Fifth Avenue brand, but the shareholders have certainly made a killing.
Some financial considerations motivated this move. But no. From a store and long-term health perspective, this doesn’t make sense. Store sales and online sales are tightly connected and should be controlled from one point.
Toys “R” Us tried similar in the beginning of their web work. It didn’t go well for them.
Chief Marketing Officer, PerimeterX
Contributing Editor, RetailWire; Founder and CEO, Vision First
At a time when brands aspire to make engagement and shopping seamless, this move seems to put finances before customers.
CFO, Weisner Steel
I don’t see much logic in the idea on my own, and the explanation hasn’t added any. The folks running Saks haven’t impressed me much of late; it will be recalled that the background of Mr. Baker et al is in real estate, and while their initial impression was positive — or maybe “surprising” is the better word — by not killing off Lord & Taylor, unfortunately that seems to have been the high point: there’ve since been a large number of acquisitions which were supposed to generate synergies, both in real estate and retail, but seem to have produced neither. At some point out-of-the-box thinking isn’t enough: a person running a retailer needs to be able to actually sell stuff.
I’m not going to say this is the first step to turning Saks into the next Lord & Taylor, but….
Retail Industry Thought Leader
This puts the valuation of their brick/mortar business in rather harsh light. On one hand, splitting the operations does open up cash flow to the online business. On the other hand, it’s potentially adding more burden to the offline business without a clear path for resources/investments to support .com growth. This decision is a short term gain. No doubt they will be revisiting this model again in a few years.
President, Baron Enterprises, Inc.
Baker and his colleagues have been coming up with bizarre ideas to “reinvigorate” retail since their initial acquisition of Lord & Taylor over fifteen years ago. They have consistently overpromised and underdelivered. They seem to repeatedly choose to find avenues for short-term profits (an IPO, acquisition, new locations in questionable locations, selling off divisions, etc.), rather than invest in the company to achieve long-term, sustainable growth. Perhaps their view is that there is no long game to play here.
My view is that this is yet another scheme that will generate short term profits, and maximize major long-term headaches. These companies will not ultimately share operational goals.
People say the value for Baker is in all the real estate. That is true for some locations, but even in many A class malls, I don’t see a major opportunity or value for the real estate.
This move is very disappointing to me. I could not believe it when I saw the news! This is not the move of a merchant, but it is a very smart and very near-term financial move! I hope that both businesses will be strong enough to survive and thrive. I personally really LIKE Saks Fifth Avenue.