Saks Fifth Avenue is considering expanding its brand into hotels and luxury apartments as it seeks to grow beyond the tough retail industry, according to information obtained by The Washington Post.
Following the shock announcement that Saks’ parent company, HBC, would acquire rival Neiman Marcus for $2.65 billion, HBC is developing a hotel and 56 private homes in Beverly Hills and luxury townhouses in Westfield, New Jersey, in the parking lot of a long-closed Lord & Taylor department store.
With department store sales slumping for a long time and retail sales slumping this year — Saks and Neiman’s finally reaching an agreement after more than a decade of on-and-off merger talks — HBC has been focusing on real estate deals to fuel growth.
“The days of building a mall with a food court serving chicken fingers and fast food and being an attractive tourist destination are over,” former HBC CEO Gerald Storch told the Post. “Department stores are struggling to make ends meet. New retail developments need housing, office space and retail.”
In Beverly Hills, HBC has applied for city permission to build dozens of luxury homes on Wilshire Boulevard, as well as a hotel with a private club, spa and restaurant on two blocks of property it owns and which currently houses a parking garage and a new Saks women’s clothing store.
The Saks store moved into the former Barneys building a few doors down the street in February.
“These condominiums will be spectacular, with balconies offering sweeping views of Century City and the Beverly Hills skyline,” Guy Leibler, president of HBC Development, told The Post.
“We believe our customers will live in apartments, want hotel services and become club and spa members.”
The hotel will be built on the site of the former Saks store, which was built in 1938 and is currently vacant.
HBC announced the project two years ago, but the plans are only now taking shape and providing guidance for future projects, HBC officials said.
“Right now we’re working with the community to get approval,” HBC Chairman and CEO Richard Baker told the Post. “Why? [Saks or Neiman Marcus] They are also expanding into hospitality and residential, just like Giorgio Armani did.”
The Italian designer runs Armani hotels in Milan and Dubai and nearly 20 Armani-branded restaurants, including one on Fifth Avenue. Luxury hotel chain The Ritz-Carlton has a cruise line business running since 2022, Storch noted.
“It could certainly be a Saks Hotel, but we’ve also had inquiries from some of the finest hotels in the world,” Leibler added, declining to name the brands.
The Neiman Marcus brand may also be used in hotels and restaurants, Baker said. The companies have a combined real estate portfolio worth $7 billion, according to a press release announcing the merger, which is pending approval.
Toronto-based HBC bought the nearly 200-year-old Lord & Taylor chain in 2006 for $1.2 billion and sold the brand in 2019 but retained the real estate. Baker said the company has already sold or repurposed 12 of the roughly two dozen Lord & Taylor buildings, reaping a profit of about $2 billion for HBC.
The largest of these deals was the iconic Fifth Avenue flagship store, which HBC, along with other investors, sold to Amazon for $1.15 billion on March 12, 2020, just one day before the pandemic shut down New York.
Other Lord & Taylor buildings are being converted into Saks Off Fifth, including stores in Stamford, Connecticut, and Eastchester, New York, which are slated for renovation in 2022, Leibler said. The Eastchester store shares about half the building with White Plains Hospital, which leases about 75,000 square feet from HBC.
“Vacant department store buildings have a life,” Baker said. “Over time, we have wound down the Lord & Taylor business in a thoughtful and productive way and monetized a very valuable real estate portfolio.”
Real estate experts say finding new uses for such large retail spaces will not be easy, and redevelopment could take years.
“The physical configuration of these buildings makes it challenging,” said a real estate expert who has worked with several major retailers to sell underperforming stores. “It would be very expensive to demolish one of these buildings.”
The source added that these two- and three-story stores “were not built for redevelopment,” which is why it’s taken years to find buyers or tenants for vacant Sears locations across the country. The bankrupt retailer is owned by billionaire hedge fund tycoon Eddie Lampert, who is blamed for bankrupting the iconic department store.
Currently, Seritage, a real estate investment trust that Lampert formed in 2015 to sell assets, lists about two dozen stores that are still available. Real Deal Report. Seritage said in April that it has “experienced and continues to experience challenging market conditions.” [that] We continue to apply downward pricing pressure on all our assets.”
It’s unusual for another big-box retailer to move into a former Sears location, experts say, pointing to the Target store that opened last year at the Cross County Shopping Center in Yonkers, where Sears stores are usually in struggling malls that make redevelopment even more difficult.
In Westfield, New Jersey, the town approved HBC’s plans to redevelop 14 acres on either side of the Union County train station, including a closed Lord & Taylor store and several parking lots, which will be converted into public space and townhouses, so-called mid-rise apartment buildings.
HBC is employing a similar strategy with its Wilshire project, which will include a pedestrian plaza surrounded by retail stores.
“We will link the residential, hotel and retail spaces in this attractive pedestrian plaza that will include a coffee bar, bakery and small retailers with outlets at Saks Fifth Avenue,” Leibler said.
