HBC Said Eyeing NMG Yet Again

Even since Hudson’s Bay Co. bought Saks Fifth Avenue a decade ago, HBC chairman and governor Richard Baker made no secret of the fact that he wanted to add the Neiman Marcus Group to the portfolio.

The question is whether now is the right time.

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Business at both retailers has been depressed this year as consumers are becoming more selective in their purchasing; shifting discretionary dollars to travel, dining and other experiences, and when they do buy apparel, it’s more on the casual side of the fashion spectrum. Both retailers have been cutting costs, undergone a series of layoffs in the past year affecting hundreds of workers, dug deeper into customer data to enhance personalization and battled each other over grabbing exclusives from designers.

Also, interest rates are higher, and combining two slumping retailers is generally not a good formula for success. The two high-fashion retailers might be able to help each other out with their struggles, however.

“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,” said a financial source familiar with both retailers who requested anonymity. “There are so many different competitive issues in the environment. Luxury is very fragmented. The power shift has gone to the brands. Neiman’s and Saks would be much stronger if they were together.”

This week, a report that Hudson’s Bay Co. was seeking to buy the Neiman Marcus Group was published in The New York Post, though speculation over a possible deal has swirled for years.

NMG declined comment Monday.

“Nothing is new here. Nothing is imminent,” said another source close to the situation. “What’s true is Saks has an exclusive agreement to conduct a due diligence,” giving HBC officials, bankers and consultants access to the Neiman’s books.

“This isn’t a merger. This would be Hudson’s Bay buying Neiman Marcus Group,” the source said.

Two sources raised doubts about a deal happening, though. “These companies have talked about getting together for many, many years. It always comes down to the financials and what makes sense,” said the financial source. “You are dealing with financial owners of both companies. Baker’s group would drive a hard bargain so I would be very skeptical about a deal.”

“There is some antitrust risk in this,” observed Craig Johnson, president of Customer Growth Partners. The Federal Trade Commission and the antitrust division of the Justice Department, Johnson suggested, would take a close look at the two high-profile retailers, and the potential for HBC to jack up prices beyond inflation and close stores. 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.

Another reason why reaching a deal would be tough is because various parties are involved. NMG is privately held by Davidson Kempner Capital Management, Sixth Street Partners and Pacific Investment Management Co., who bought the retailer out of bankruptcy. These owners do want to cash in on their investment — possibly through a sale of the company to HBC or another company, possibly private equity or through an initial public offering — and would have to all be on the same page on the deals.

On the HBC side, Insight Partners, a venture capital and private equity firm, made a $500 million minority equity investment in the Saks e-commerce business. As a partial owner, Insight could have a voice in a deal to buy Neiman’s. HBC is the majority owner of the Saks e-commerce business and full owner of the Saks Fifth Avenue stores.

Interestingly, before HBC bought Saks, Saks was hot on the trail to buy Neiman Marcus. Saks did put in a bid, which was backed by private equity firm KKR. The offer was ultimately rejected by Neiman’s then owners as too low, opening the door for HBC to sweep in with a better offer to buy Saks.

A sale of the Neiman Marcus Group would lead to a consolidation of Neiman Marcus into Saks that could involve closing stores, reducing rent and other overhead, changing management, cutting headcount and duplicative functions, and creating synergies that would all add value to the combined entity.

It would also benefit both companies if there was greater differentiation in the merchandising so there would be reasons to go to both brands to shop, rather than one or the other. The companies carry many of the same designer labels. However, Saks has a wider scope of categories and price points and seems more aggressive in developing its online marketplace, whereas Neiman’s executives have stated they prefer to sharpen the focus on true luxury.

In the event that HBC did buy NMG, creating those efficiencies and synergies could be complicated by how the Saks Fifth Avenue brand two-and-a-half years ago was split into two separate companies — the Saks Fifth Avenue store fleet, called SFA, and saksfifthavenue.com known simply as Saks. Scores of operating agreements exist between the two Saks operating companies, some of which would have to be applied to any shared services between Neiman’s and Saks. At HBC, agreements, for example, call for saks.com to handle the merchandising and marketing for both the Saks stores and the Saks website, while SFA is handling such functions as buy online, pick up in stores; returns; exchanges, and alterations. For its services, saks.com charges fees to SFA and SFA charges saks.com fees for the services it provides.

Baker has a history of making shrewd real estate deals, though the highly valuable Bergdorf Goodman property, housing the women’s store on 57th Street and Fifth Avenue in Manhattan, would not be part of the deal reportedly being contemplated since it is owned by the Goodman family. HBC would have the burden of paying rent.

Richard Baker
Richard Baker

Vendors would not be in favor of HBC buying Neiman Marcus. Combining both companies would give HBC increased sway over vendors and buying power over them. On the other hand, designers and brands — luxury and otherwise — have been reducing their wholesaling commitments to retailers and instead building up their business on their own websites, by opening stores or by opening leased shops inside the department stores.

“Wholesale has already been difficult,” said one source from a major supplier to both Saks and Neiman’s. “It’s crazy times. Business has never been harder. It’s been tough since COVID-19. It’s a matter of survival.”

Both Neiman’s and Saks continue to pay their bills for now, although it’s understood bankers are watching their business conditions warily.

What’s noticeable at Neiman’s is how hard the team has worked to focus sharply on the most elevated luxury labels and the most affluent customers who shop often at the retailer. In addition, Neiman’s has been aggressively pumping up its stores with exclusive capsule collections from designers, activations and events to motivate shoppers to show up. According to Neiman’s, 2 percent of its customers drive about 40 percent of the volume and there’s a 90 percent retention rate among the top customers, who on average spend more than $25,000 annually.

Since coming out of bankruptcy three years ago, the Dallas-based Neiman’s has been investing in and planning renovations including total overhauls at the Bal Harbour, Florida, and Atlanta stores, and partial redos at the San Diego; Westchester (New York); Paramus, New Jersey; Tysons Corner, Virginia; Houston; Oakbrook (Chicago), and St. Louis locations. It’s also over the last few years eliminated most of its Last Call clearance centers. The New York-based Saks is relocating its Beverly Hills store on Wilshire Boulevard to the former Barneys New York site, which is also on Wilshire.

Neiman’s has become increasingly “surgical” (to quote NMG’s chief executive officer Geoffroy van Raemdonck) in managing expenses, focused on marketing to its top-spending customers who shop across channels and changing how it operates including enabling staff to work remotely, which has helped recruit and retain talent.

At Bergdorf Goodman, it appears greater resources have gone into e-commerce rather than the store. In April 2022, NMG revealed that Farfetch made an up to $200 million minority investment in the Neiman Marcus Group. The arrangement started with the re-platforming of NMG’s Bergdorf Goodman website and app, using Farfetch technology to update and expand the New York retailer’s global reach.

Though it’s said to be conducting a due diligence, Saks already has tons of data about Neiman Marcus, having looked at the company over the years. “If there is a true due diligence occurring it means the two parties are engaging with each other and the Neiman Marcus Group is opening the books to them,” said the financial source.

By virtue of having its 600,000-square-foot Fifth Avenue flagship, which in good economic times attracts a large number of overseas and domestic tourists, “Saks is very New York-style oriented,” said Johnson. The Neiman Marcus brand doesn’t have as much of an international reputation, though Bergdorf Goodman does draw a significant foreign clientele. “Ninety percent of the European customers who go to Saks also go to Bergdorf’s,” observed Johnson. “But they’re not about to make the trek to Neiman’s in Paramus, New Jersey, or Houston, which are strong stores.

“Neiman’s was among the first retailers to have a loyalty program, called In-Circle,” Johnson added. “They’ve done a better job with customer relationship management. If you run your loyalty program well, it’s not a cost center, it’s a profit center. While there is a great overlap in customers, we believe Saks customers are a little younger than the Neiman’s customer. Neiman’s customers are wealthier on average. If you are a little younger, chances are you’re a little lighter on the wealth factor.” Saks should be credited with staging events at night that attract big crowds of young people that make it a night on the town.

At the stores, Johnson said Neiman’s projects a more laid-back atmosphere. “When you walk in a store, people are friendly, the atmosphere is relaxed. It’s more relationship-oriented and less transactional-oriented than Saks. If you are in Neiman’s and you need help, it’s there. But nobody hovers over you. Sometimes at Saks, it’s more forward.”

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