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The underlying basis of differentiation requires the presence of merchant leadership. And, uh, that doesn’t exist at Sachs. And it certainly doesn’t seem to exist at Neiman Marcus. Retail Unwrapped is a weekly podcast hosted Shelley Kohan from the Robin Report. Each episode dives into the latest trends and developments in the retail industry.

Join them as they discuss interesting topics and interview industry leaders keeping you in the loop with everything retail.  Hi everybody, and thanks for joining our weekly podcast. I’m Shelley Kohan and I’m very excited to welcome Mark Cohen, former director of retail studies at Columbia Business School, and also former CEO of Sears, Canada.

And, you know, I say former on Columbia business school, but that literally just happened, like, what are all those students going to do without your brilliance at Columbia, your guest speakers were amazing. You’re you were amazing. Like that’s a big loss for that school.  Well, thank you for that introduction.

We’ll see what happens.  Uh, I, I continue to hear from students, uh, who’ve discovered that I’m not coming back to a classroom in September, but, uh, like all things, uh, everything changes and see, we’ll see where that goes. Well, selfishly, I’m thrilled to have you on Retail Unwrapped podcast. And we’re going to talk about Sachs Niemann’s merger, or what I should say, potential merger, because we don’t know what’s going to happen.

And I remember, Mark, when I reached out to you to come out on the podcast, you were not sure that you could come and be on the podcast because, and here’s another fun fact about you that I love, is that you were often drawn in to be a quote unquote expert witness. And I’m not sure if witness is the right term or not.

But in this case, I believe you were going, may have been part of the FTC case about consumers being impacted if Sachs and Neiman’s did in fact merge. You know, would that merger result in unfair trade practices? So, um, I’m thrilled that you’re able to talk and be on the podcast. So we’re going to jump right in

Go for it. Well, first, I’m going to start by where I just kind of did the introduction, because I want to ask you in your expert opinion, you’re literally an expert here. Does the FTC  have anything to be worried about in terms of the merger?

Well, I’m not an attorney, but I’ve had some experience in these kind of, uh, uh, matters. I don’t think there, I think there will be an FTC inquiry. There seems to be, uh, an, an indication that the FTC currently is pursuing. All publicly facing mergers.  Um, in my opinion, there’s not much there there because the FTC typically is acting on behalf of the consumer, uh, to be sure that the consumer is not disadvantaged or in any way, uh, diminished,  uh, when a merger takes place that they, uh, will be involved in as a, as a customer,  I don’t think, uh, sack the Neiman Marcus.

Customers are going to be affected if this merger actually does take place. That’s interesting. And I think what’s happened is there’s so many luxury brands that have really built out their D to C channel. And so this is why the Saks Demons merger may not greatly impact the consumer in terms of pricing or trade practices.

In fact, it’s one of the reasons why the two department stores and the Maybe considering merging. So, you know, these lux brands are going after this D to C model. They have more control over product pricing distribution. They’re able to better serve their customers better than the department stores or especially stores could.

And by the way, they’re collecting this great first party data, which is allowing them to stay very close to that customer. And here’s the surprise outcome of all that. The consumers love it. They like this one to one connection with their favorite brands. They value the loyalty to the brands. They value that they’re getting a loyal access to, they get access to products and events, things that make them feel special.

So bottom line is the spend is higher, the loyalty is deeper. So I think we both agree the FTC  will probably approve the merger. So let me ask you an even bigger question. More importantly, does the merger make sense?

Uh, in, in, in a very simple, short  one syllable word, no,  you know,  the majority of mergers, uh, mergers and acquisitions,  which is to say 50 percent or more fail, they’re either, they’re either suboptimal in their outcome or they out and out fail, uh,  right out of the gate.  This, this optimism that surrounds making a deal is often ill advised right from the very start.

Uh, it’s part of a last man standing strategy. If you acquire your competition, how can you not benefit from rolling them up into your own P& L, taking advantage of synergy, quote unquote synergies. Through cost reductions and opportunities to take advantage of scale. Those are all the investment bankers characterizations of why mergers and acquisitions are good.

But in fact, most of these deals fail.  And as you and I both know from personal experience. In the retail industry, most of this last man standing stuff that’s taken place over the past several decades, notably  May Company federated Macy’s, most of these strategies were heralded as, uh, visionary. They turned out to be train wrecks,  uh, much to Terry Lundgren’s, uh, chagrin.

And I’m sure he will never agree with me, uh, his acquisition of May Company following.  The rollup inside of Federated of its regional banners, I was the CEO of one of them called Lazarus.  That all worked for a few minutes until it stopped working and now it just doesn’t work at all. So, so getting back to the topic at hand,  what is it about Neiman Marcus and Sachs that suggests happiness?

I don’t think so. It’s so funny. I remember, uh, you lived it. I lived it. And we talked about this at lunch one day. I don’t know, a couple of years ago. Uh, I went through Federated, Campo, RH Macy’s, Bullets, iMagnon mergers. Uh, we shared merger. We share, uh, stories on the, uh, whole Campo merger. Oh my gosh. And if I recall correctly, wasn’t Robert Campo a French Canadian developer as well?

Uh, I don’t know. Uh, so the other thing I’ve heard is that, so part of this strategy, and this is, I don’t have any substantiating facts to back this up, but one of the, some of the analysts think that one strategy for Saks Global, which would be the new branded name, would be to have like Neiman Marcus do high, high, super high end luxury.

And have sacks kind of sit in the contemporary bridge segment. What do you think of that?  Well, it sounds, uh, fanciful and, uh, interesting, but  it’s a pipe dream. First of all, uh, how do you carve out defensible?  Differentiation between those two segments since many designer brands are really intent on becoming increasingly contemporary that is to say to hold on to or to acquire younger customers and then of course the, the, uh, you know, the, the, uh, the underlying challenge is  to create differentiation and oh, by the way, whether they do it the way that some analysts have described, or they come up with some other scheme, the underlying basis of,  Differentiation requires the presence of merchant leadership,  and, uh, that doesn’t exist at SACS, and it certainly doesn’t seem to exist at Neiman Marcus.

So just who exactly is going to be in charge of figuring out  Which brands go to Sachs, which brands go to Neiman’s, and how do they maintain that distance on a, uh, 365 day basis year over year? Easy to talk about, absolutely not easy to do under the best of circumstances, and in point of fact, there’s no there there in terms of a strategy to pursue that.

That’s so interesting, and you know, the Mono brands are really getting stronger. They’re getting this huge, cohesive, omni channel strategy, and while Sachs You know, made the decision to split up e com from physical retail stores. And, you know, when I look at that and I say, if you’re really putting the consumer in the center of every decision, you would never break up, you know, e com from physical, it doesn’t make sense to me.

Well, the, the, the justification that was offered up by, uh, by sex, uh, was crypto babble nonsense.  This, this, uh, this separation between the physical store business and dot com both at Saks and at the Bay in Canada was a thinly veiled play to bring investors into the tent with their checkbooks in hand.  It made no sense.

In fact, it’s been rolled back, I think, in Canada and it’s anybody’s guess what’s going to happen, uh, in that, uh, Neiman Marcus never went for that ploy.  Uh, at the end of the day, creating a barrier. Both organizationally and externally in the eyes of customers between your store and your web business is just completely wrong, makes no sense.

And the justification that we both read is, uh,  laughable at best. Well, let’s talk about some of the operational aspects of a potential merger. So operationally, one could argue that the companies could really benefit from economies of scale, but these cultures are so different. Like do we even have an example of a merger that was successful when two cultures were so different, so opposite, you know?

You know, at face value, there’s always a lot of potential cost savings that, that are on the table. The table, uh, where duplicative efforts, duplicative staff can be addressed  and, uh, They tend to be illusory at best, or if they’re actually available, they don’t take into account the enormous cost of,  um, cultural catastrophes that occur when you try to merge two different organizations, two different heritages, two different customer, uh, equities.

It’s, it’s very difficult in advance to describe the, the cultural. Challenges it almost never is dealt with up front and considered up front and in most, if not all of the retail mergers that I’ve participated in or been a close witness of  those cultural issues. They’re not just cultural, but those operational disconnects  are extraordinarily difficult to overcome and in many cases never are overcome.

That’s so true. I mean, when you look at it, Neiman’s literally owned Dallas, Texas, the Southwest. You know, what happened there? I think Sachs has lost its way a bit. It’s had this revolving door of CEOs and strategies, you know, going on different strategies, different CEOs, the location on Fifth Avenue. I do say that’s very unique.

Um, but do you think the others Locations live up to that customer expectation.  Well, in SAC’s case, they absolutely do not. Many of the SAC’s suburban stores throughout the United States were, were opened with a mall owner subsidy to the extent that  The landlord built the store, paid for the store, and subsidized its rent and occupancy for years.

And when those leases ran out, many of those stores were closed. They weren’t closed because the customer wasn’t available. They were closed because they just didn’t work. And they never worked financially. I’m thinking, for example, of the Saks and the Galleria Mall in Dallas, Texas. That’s right. At the end of the, at the end of the day.

The hard, cold facts are that integration is a very difficult, long running challenge, requiring tremendous insight and leadership, and SACS, now purportedly to be called SACS Global, doesn’t have it. In fact, you mentioned leadership. So, uh, Richard Baker, who controls this whole thing and purportedly would continue to control it, has had a  merry go round of CEOs.

They seem to last about two or three years at most.  Uh, I go back to, uh, Christina Johnson, who was the CEO of Saks, who I got to know, who was very, very capable. Uh, then there was Jeff Sherman, who had been the president of Bloomingdale’s, uh, who I knew and know, who I thought well of. Then there was Jerry Storch, who had been with Target, and then Toys R Us.

Uh, then there was Bonnie Brooks, who I don’t know, but was Was held in very high esteem as the CEO of the bay.  Uh, and then of course, most recently, uh, there was Helena folks who came from, I think CVS and she didn’t even make it to two years. And I think the  COO of, uh, HBC just left a week or two ago. So it’s Richard Baker.

Uh, at the top of all of this with a guy running SACS, uh, who purportedly will become the CEO of  SACS global, who I don’t know, but know of who’s really just a planning executive. And I don’t mean to diminish planning as a discipline. It’s vitally important,  but frankly, for this. Uh, construction to have a scintilla of a chance of succeeding.

It’s going to need a very, very talented merchant at the top who can figure out how to pull this off. And, uh, that doesn’t, that person doesn’t exist today. I totally agree with you. I mean, I actually know Mark Metric. I worked with him when I was at SACS as VP of operations. And he’s really, like you said, he’s a finance operations person and yeah, nice guy.

Um, but, you know, when you’re running this huge fashion, luxury, global brand, you need a merchant in that role. You absolutely need a merchant in the role. So, um, I think the leadership  and even, you know, when you look at Richard Baker, he’s not really a merchant either, right?  Well, he’s definitely not a merchant, so there’s no,  you know, he, he has, he has described himself as that.

Over the years,  uh, less so today, he has never, uh, had any right to claim any expertise in that regard. And by the way, there’s going to have to be an enormous amount of interaction between this new construct and the vendor. Oh, my gosh, it’s huge. Years ago, years ago, these, these designer houses relied on the sex and Neiman’s as their  distribution partner to the consumer.

But then 10 years ago, they started to go vertical, build their own websites and their own relationships on a direct basis and have been increasingly successful at that, and so whoever’s running this thing is going to have to find a way to negotiate  or the privilege of carrying goods  in both Neiman and Saks stores, however they’re eventually called, uh, versus these brands.

Deciding to hold the distribution for themselves.  Yeah, and that and you have all that plus you have the duplicate locations. I know there’s a lot of it written about, you know, having 2 locations in the same spot. And I don’t know. I think a lot on the product distribution assortment is a big deal. And I think you’re right

This whole idea of, you know, the vendor community is tremendous in the, in the luxury markets and the designer markets. It’s very important

Well, it brings up another issue. Uh, you haven’t asked, but I’ll introduce it. And it concerns the integrity, the financial integrity of Stacks and Neiman’s cart. I was going to ask you about that. Vis a vis,  yeah, vis a vis the integrity of this new thing they want to call Stacks Global. Uh,  Stacks has been On a slow and no pay basis with many of its vendors, particularly medium and small vendors for the better part of the last year, this is unbelievable.

This is usually a run up to a bankruptcy,  and I’ve lived through a few of these as you have, uh, they have, uh, acquired a substantial amount of cash through these dot com, uh,  Constructs, uh, and yet, uh, I’m told that the base doors barely have the lights on during the day, that they look absolutely terrible.

I haven’t been accounted in quite a while, but I’m told reliably that they’re in terrible shape and here’s sacks 5th Avenue, not paying its vendors or paying its vendors only when threatened with litigation. Now, how exactly is the vendor community going to react if this merger takes place?  Well, they’re not going to run my opinion off to the FTC for relief.

Uh, they’re probably going to put this new monstrosity on an extraordinarily, uh, stringent credit watch, which you and I have both lived with. Um, Which will require the demonstration of solvency, which currently is suspect.  Though I don’t get it. You offer to spend 2 plus 2. 4 billion dollars to acquire Neiman’s, while at the same time you’re not paying these, these cosmetic vendors who’ve been acting faithfully, uh, in response to orders that they’ve received.

I just don’t get it.  Yeah, I am with you on that. I was in Hudson Bay stores last year, and even then at that point, I was a bit disappointed in the assortment and the condition of the stores. So it is a concern. And, uh, yeah, it’s a problem. You know, I don’t have any visibility in the finances. So as I know you listen to the podcast all the time and I’m always like all over the financials and looking at the financials, I don’t have any visibility into any of the financials.

So, you know, it’s interesting.Well, these are two private companies and so they don’t reveal much, if anything,  but there’s plenty of evidence. They’re not paying the bill, at least. At least sacks is not. And there’s some evidence that when Neiman Marcus came out of bankruptcy,  it’s stiffed quite a few of its vendors,  which is certainly not a harbinger for trust and faith in the future.

And so I would suspect that there will be a. Uh,  some very, very careful assessment if this merger actually takes place, and it looks like it will, uh, very careful assessment of the financial viability of this thing,  and, um, uh, they’re not going to get a lot of support from anyone, either the vendor community or the real estate community.

Interesting. Now, I’m going to ask you a question. I actually don’t know the answer to this question, so I’m going to ask you because you probably, you know everything. Um, so does the FTC have to approve the financial aspect of the deal, or are they just focused on unfair trade practices for consumers?  No, the FTC could, could take action to block the merger.

Which would prevent it from happening, but then the company would have the opportunity to litigate to go to court  to overturn that ruling to go to federal court to examine, uh, the FTC’s position. Uh, sometimes the FTC prevails and sometimes not.  Uh, or sometimes, uh, the FTC, uh, creates a series of conditions, which are, uh, the forerunner for an approval.

Uh, stores have to either, uh, Be closed or stores have to be disposed of or stores have to be, um, um, miss. We’ll have to be rerepresented.  I think the FTC is currently holding up the Kroger Albertson’s merger  while negotiations are underway concerning, uh, you know, how much competition will this stifle versus foster?

Uh, so th this could be a long drawn out process.  Um, and companies that.  That do engage have to consider that there will be litigation.  The end of the day though, I, I don’t,  there’s a basis for an objection. I could be very wrong. As you probably know, there’s an ongoing, uh, uh, negotiation between, uh, uh, uh, coach now known as, uh, Tapestry and Capri, uh, two sort of mid level designer houses.

Uh, the FTC is demanding to be assured that the consumer will not be damaged.  Uh, I frankly don’t see what the case, I don’t see how a case could be made against this merger, but I think this, this FTC action is now running at least for the past year, which by the way, is a potentially catastrophic condition while two companies wait.

To learn their fate,  especially the company that’s being acquired. Yeah, that’s so true.  Well, listen, Mark, it’s always a pleasure to shop, talk with you. Thank you so much for being here.  My pleasure. Also want to thank our listeners. Please make sure you follow us on social media. And if you have any comments or would like  You can do this on the  robinreport.com on our website under contact us. Thank you so much.

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