Saks + Neiman’s, Better Than the Sum of Their Parts?
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What’s Richard Baker up to now? CEO Baker’s Hudson’s Bay Company’s $2.65 billion acquisition offer for Neiman’s has a lot of things going for it … on paper. There are all sorts of back-office savings by combining internal operations, not to mention having much more leverage with vendors who sell to both brands and will be pressed into better terms to continue doing so. Coordinating merchandising and marketing efforts also has some upside potential when each retailer is assorting and promoting its product mix with full knowledge of what the other is doing. These are all good things. A holistic approach to operations.

Saks and Neiman’s are pretty much black holes when it comes to ferreting out how to evaluate how well they are doing. Hudson’s Bay Co., which also owns its namesake department store brand in Canada, went private in 2020 after putting up pretty dismal performance numbers in the years leading up to that. Under its uber-boss Richard Baker, it has been operating under the cloak of darkness.

Taking Over

But we all know when they’re drawing up these deals it’s always with rose-colored spreadsheets and a three-card monte scheme. So, it’s no surprise when things rarely work out the way they expected. If they did, AOL Time Warner would be the biggest media and entertainment company in the world, Chrysler wouldn’t have had four different owners over the past three decades and CBS, Viacom and Paramount wouldn’t be going through uncounted permutations – with still more to come. And oh, by the way, much closer to the retail world, did you hear how the Sears and Kmart merger worked out? Eddie “Fast Buck” Lampert set the pace for the real-estater as retailer charade.

Hey, there’s a wild card in all of this: Amazon. It has taken a piece of the action on this deal (Salesforce too, and what they’ve got in mind is a mystery) with a vague pronouncement of helping out on technology and all things digital. We assume even though this deal has been in the works for months – even years according to rumors – they haven’t quite figured out the small print yet. Really?

Lust for Luxe Bucks

Saks and Neiman’s are two of the few remaining national retailers out there going after the luxury, or maybe the aspirational-luxury, sector of the marketplace. Certainly, Bloomingdale’s is a worthy competitor and let’s give Nordstrom the benefit of the doubt as a player in this space. With the overall decline of the department store business, the luxe end is relatively tiny in the bigger retail pie. Maybe it’s a few percentage points but not much more. But it has a big footprint for its size.

Saks and Neiman’s are pretty much black holes when it comes to ferreting out how to evaluate how well they are doing. Hudson’s Bay Co., which also owns its namesake department store brand in Canada, went private in 2020 after putting up pretty dismal performance numbers in the years leading up to that. Under its uber-boss Baker, it has been operating under the cloak of darkness. We all know a few years ago Baker split off the Saks online business from the physical store and pocketed a bunch of cash in the process from investors who figured this was going to be like shooting websites in a barrel.

Neiman’s history has been no less convoluted. The same year HBC went private Neiman’s filed for Chapter 11, emerging later that year with a clean balance sheet and yet another set of new private equity owners. Ever since, we’ve only gotten snippets of how it’s doing although the general feeling is that its performance hasn’t been all that riveting. Neiman’s got retail egg all over its face when after finally entering the New York City market as an over-the-top luxury temple in Manhattan’s Hudson Yards complex; it closed 18 months later. Sure, it was a victim of Covid but also hubris, placing the wrong store in the wrong place and getting caught up in the ego trip of having a New York store. The other luxury brands on the ground floor of Hudson Yards are still there, just barely.

1+1+?

So, what happens when Neiman’s gets pulled into the HBC vortex? Trade estimates put their combined annual revenues at about $10 billion, a sizeable number as things go. Right now, this a win-win for both parties…at least so says intrepid Marc Metrick, who, according to a letter to employees and vendors obtained by Women’s Wear Daily, said that the deal is all about “growth” and it’s designed to “motivate” vendors to do more business with Saks Global, which is what the combined company will be called.

The letter from Metrick, who is slated to be the new CEO, added “When this transaction closes…we will establish Saks Global as a technology-driven company that brings together renowned retailers and real estate assets.”

Whoa. This begs the question of what business are you in. Technology? Or did you catch those last three words: “real estate assets?” While there may be noble talk right now about keeping all the remaining stores open for business, the fact of the matter is that when brands collide, there are usually casualties. Not to mention when the collision is orchestrated by a real estate genius. Saks has 41 stores, Neiman’s has 36, plus the Bergdorf Goodman appendage of two locations across the street from each other on Fifth Avenue in Manhattan. There are also about 100 Saks Off Fifth off-price stores and five Last Call locations, the NM outlet brand.

A published report says Saks and Neiman’s overlap in eight mall locations which begs the question whether they intend to continue to operate the two brands independently, at least in their customer-facing. If so, other brands with multiple nameplates have done it for years. But if not, that’s at least eight stores that could be shuttered, not counting any weak underperforming locations that are dragging down the balance sheet. And under the “real estate assets” heading, how many existing locations would make great pickleball, TJX, or Dave and Buster’s sites?

HBC History

Let’s not overlook the elephant in the retail room: Richard Baker has an absolutely terrible record when it comes to making acquisitions work. Robin Lewis has been writing about Baker’s gambit for years. Since he got into the retail game, Baker’s bought and shut down any number of brands, including Lord & Taylor, Gilt Group ($260 million later) Fortunoff, and Home Outfitters. But wait a minute. There’s another Amazon connection; the behemoth bought the Lord & Taylor building for $978 million from WeWork in March 2020. There’s more: Baker has a penchant for hiring and firing top executives every two years, although that has changed because fewer well-qualified leaders want to work for him.

Five years ago, while virtually every off-pricer was expanding and opening new locations, Baker closed about 15 percent of its Off Fifth fleet. And then there’s his odd and ill-fitting foray into the European retail scene when he bought a big chunk of Kaufhof, the German-based department store chain…only to quickly pawn it off on somebody else.

There was also the controversial sell-off of the Sak’s ecommerce business into a separate corporate entity, providing Baker and his investor cohorts with a $2 billion payday and saddling the retail operation with a bifurcated merchandising and operations operation while virtually every other retailing company on the planet was moving to integrate online and in-store in the spirit of unified commerce.

Baker himself admits he’s no retailer. In an interview with WWD last November, he said, “Everyone seems to have forgotten that I was a real estate guy — still am, and that HBC is primarily a real estate company.” Think Saks Global is not going to close any stores or sell off assets? Dream on while Baker stuffs his pockets.  Baker’s real estate roots put him in the long line of retail interlopers including Robert Campeau (Federated) and “Fast Buck” Lampert (Kmart and Sears) who got into the retail business only for the real estate. At least Baker has been smart enough to take HBC private so nobody can watch what’s going on under the covers.

The Amazonian Wildcard

So, we know Baker’s track record and we know these two retailers operate in a sliver of the marketplace that is increasingly under fire from more successful luxury brands including LVMH and Kering that set up their own distribution networks, both physical and online, going direct to the consumer. What we don’t know is where Amazon fits into all of this. The release announcing the deal says the ecommerce behemoth will “innovate on behalf of customers and brand partners following the close of the transaction.” Even in tech-speak, that’s ridiculously vague, not to mention so open-ended it could mean just about anything…or just about nothing.

Having Amazon onboard certainly gives Saks some possibility for making this deal work financially and operationally. Both Saks and Neiman’s are generally thought to be behind the curve in their ecommerce operations. And let’s not forget the new company could use Amazon’s distribution system to efficiently and quickly deliver online orders. That fleet of blue trucks heading out hourly from what seems to be gazillions of DCs has got to be better than anything Saks or Neiman’s currently has.

For Amazon, the chance to play in the luxury space is tempting. It’s been a big bust trying to crack any slice of the retail pie. Just as Baker and HBC have had their failures, so too has Amazon. It has an unimpressivr physical retail track record. As TRR has reported for years, Amazon is clueless about physical retail since it has no expertise in its ranks to pull it off.

Done Deal…or Dumb Deal?

On an FTC level, the government under President Biden has been blocking a lot of mergers recently. But even in a tight regulatory era, this merger really is pretty meaningless when it comes to stifling competition. This deal would create a monopoly that barely finds a place on Mediterranean Avenue.

Hey, consolidation – better-called concentration – in retail is nothing new. Macy’s is the poster child in the mainstream department store with more than 100 different legacy nameplates amalgamated under the big red star. In virtually every channel of retail distribution there are barely two players…if that. Why not luxury, which would still leave competition from Bloomingdale’s and Nordstrom, each of whom might actually benefit from this deal?

Richard Baker is nothing if not ambitious in his business plan. Buying up additional companies has been a good cover for the fact that he has not been particularly successful in the process. As much as you’d like to think this deal will be different it’s hard to believe that it will.

One plus one is just not going to equal two.

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