Saks owner to buy Neiman Marcus—with help from Amazon

Saks Fifth Avenue’s parent company has inked a deal to buy rival Neiman Marcus for $2.65 billion, with a little help from Amazon.com Inc., creating a luxury-retail powerhouse aimed at retaining wealthy shoppers, according to people familiar with the matter.

The boards of directors of both companies have approved the deal, which could be announced as early as this evening, the people said.

The two department store chains have been in negotiations for months and have discussed a merger multiple times over the past few years as both companies have struggled as some consumers cut back on spending on luxury items and fashion brands have opened their own flagship stores.

The combined company would have annual sales of about $10 billion, the people said. LVMH Moet Hennessy Louis Vuitton, the luxury goods giant that owns Dior, Louis Vuitton and dozens of other brands, had sales of about $94 billion last year.

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Amazon will take a minority stake in the new company, called Saks Global, and bring technology and logistics expertise to the company, according to the people. Salesforce will also take a minority stake and help it deploy artificial intelligence. Saks already has work with both tech companies and the deal will deepen existing partnerships, one of the people said.

HBC, the holding company that bought Saks in 2013, is financing the deal with $2 billion from existing investors, including Rhone Capital, the Abu Dhabi Investment Council and NRDC Equity Partners, a private equity firm run by HBC Chairman Richard Baker and his son Jack Baker, according to people familiar with the matter. An affiliate of Apollo Global Management is providing $1.15 billion in debt financing.

Mark Metrick, CEO of Saks’ e-commerce business, will run the combined company, according to people familiar with the matter.

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The deal is a bet that the two companies will be stronger together than they were apart. Neiman, owned for years by various private equity firms, filed for bankruptcy protection in 2020. It emerged later that year with reduced debt and new owners, including Pacific Investment Management, Davidson Kempner Capital Management and Sixth Street Partners.

Neiman Marcus is set to be acquired by Saks parent company HBC for $2.65 billion, according to sources. (Noam Galai/Getty Images/Getty Images)

The year HBC bought Saks, the retailer had sales of about $3 billion. Sales last year were about $6 billion, the person said. Neiman Marcus had sales of $4.7 billion in 2013, according to securities filings. Sales are now slightly below that, one of the people said, after it closed some stores.

Luxury sales have slowed in recent years after pent-up demand during the coronavirus pandemic led to a surge in spending. Inflation has also taken a hit, especially among ambitious buyers who can’t afford to stretch their budgets. Bain & Company estimates that luxury spending in the Americas will fall 8% in 2023 compared to 2022, despite sales growth in Asia and Europe.

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HBC, which also owns Canada’s Hudson’s Bay department store chain, has recently completed several transactions to shore up its cash base, including a real estate sale that raised $340 million.

The merger comes as department stores come under increasing pressure in the face of slumping sales. Lord & Taylor, which was owned by HBC until 2019, filed for bankruptcy in 2020 and closed its brick-and-mortar stores the following year. It now operates online.

Shoppers leave Macy’s in Union Square on November 24, 2023 in San Francisco. (Ethan Swope/Getty Images/Getty Images)

Macy’s is closing 150 stores and fending off activist investors, and the family that controls Nordstrom is making a new push to take the company private.

In the luxury sector, Saks and Neiman Marcus work with suppliers that have become increasingly influential in recent years: The two chains were founded more than a century ago and introduced European luxury brands to affluent American shoppers.

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These days, brands are increasingly in control: They sell direct to consumers through their own stores and websites, and some have become so big that they have too much power: LVMH CEO Bernard Arnault is vying with Elon Musk for the title of richest man in the world.

LVMH Moët Hennessy Louis Vuitton SE CEO Bernard Arnault and Louis Vuitton Executive Vice President Delphine Arnault exit the fashion house Louis Vuitton’s Spring/Summer 2020 collection show during Men’s Fashion Week in Paris in June. (Reuters photo)

Gucci’s parent company Kering bought a stake in Valentino last year, adding the Italian luxury brand to a portfolio that also includes Balenciaga and Saint Laurent, and in the United States there is a proposal to bring the Coach, Michael Kors, Kate Spade, Versace, Jimmy Choo and Stuart Weitzman brands under one umbrella, but the Federal Trade Commission is suing to block the merger.

A combined Saks and Neiman would be better placed to negotiate better terms with major suppliers and reduce duplicate costs.

There are no current plans to close any stores after the transaction closes. Saks Fifth Avenue has 39 stores and Saks Off Fifth discount stores have 95. Saks.com operates as a separate business owned by HBC.

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Neiman has 36 department stores, two Bergdorf Goodman stores, and five Last Call discount stores. Eight malls have both Saks Fifth Avenue and Neiman Marcus stores, according to real estate research firm Green Street.

HBC has a history of investing in the companies it acquires, having spent more than $500 million renovating Saks stores over the past five years and spending another $500 million upgrading its technology and digital infrastructure.