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Sunday, July 21, 2024

Saks Fifth Avenue’s Parent Company to Acquire Neiman Marcus for $2.65 Billion

In a significant move that will further consolidate the luxury retail market, the parent company of Saks Fifth Avenue, Hudson’s Bay Company (HBC), has agreed to acquire Neiman Marcus for $2.65 billion. This deal, confirmed by two individuals close to the negotiations, will create a high-end department store powerhouse, with the combined entity to be named Saks Global.

The acquisition has been in speculation since Neiman Marcus filed for bankruptcy protection during the COVID-19 pandemic. This move comes a little over four years after Saks bought the license for the Barneys name following Barneys’ bankruptcy. It also follows a series of luxury e-tail failures, including those of Farfetch and Matches.com. HBC, which acquired Saks Fifth Avenue in 2013 and Lord & Taylor in 2012, continues to expand its retail empire.

Saks Global will emerge as the dominant player in the luxury retail market with a total of 75 stores, including two Bergdorf Goodman locations, and 100 off-price outlets. Its primary competitors in the U.S. will be Macy’s, which also owns Bloomingdale’s, and Nordstrom. The new group will be led by Marc Metrick, the current chief executive of Saks and Saks.com, according to one of the sources.

The merger is seen as a natural fit due to the overlapping customer bases of Saks Fifth Avenue and Neiman Marcus, both catering to high-end clientele. However, both companies have faced financial difficulties, complicating merger efforts over the years. The acquisition has been facilitated by a minority stake taken by Amazon in Saks Global. HBC is financing the acquisition with $2 billion raised from existing investors, while affiliates of Apollo Global Management are providing $1.5 billion in debt.

Analysts predict that the merger will bring cost-saving efficiencies. The real question will be how the brands react to this, especially the LVMH and Kering brands.”

LVMH, the luxury conglomerate that owns brands like Dior, Louis Vuitton, and Fendi, and Kering, which owns Gucci, Balenciaga, and Saint Laurent, sell their products in Saks and Neiman Marcus. However, these brands have increasingly focused on driving consumers to their own stores and e-commerce sites. The merger could impact smaller independent brands that rely on department stores to reach consumers nationwide, reducing their bargaining power and choices.

There are currently no plans to close stores for either brand, even though both operate in many of the same markets. This strategy aims to maintain a strong presence in key locations while maximizing market coverage.

The Federal Trade Commission (FTC) has been vigilant about consolidation in the fashion retail sector. In April, the FTC moved to block the planned acquisition of Capri Holdings (which owns Michael Kors, Versace, and Jimmy Choo) by Tapestry Inc. (which owns Coach, Kate Spade, and Stuart Weitzman), arguing that it would affect competition among the brands. This case is expected to go to court in September. The Saks-Neiman Marcus deal is likely to attract similar scrutiny from the FTC.

Robert Burke believes the FTC will closely examine the Saks-Neiman Marcus merger. “I am sure they will be looking at it closely,” he said. The merger represents a significant shift in the luxury retail landscape and could set a precedent for future consolidations in the industry.

The acquisition of Neiman Marcus by the parent company of Saks Fifth Avenue marks a pivotal moment in the luxury retail market. The creation of Saks Global is expected to bring efficiencies and strengthen the market position of both brands. However, the merger will also face regulatory scrutiny and will have to navigate the reactions of major luxury brands and smaller independent labels. The outcome of this deal will shape the future of luxury retail in the United States.

David Faber
David Faber
I am a Business Journalist of The National Era
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