Why two luxury retail giants are joining forces to stave off closure

The parent company of Saks Fifth Avenue is purchasing rival store Neiman Marcus as part of a blockbuster $2.65 billion deal that hopes to retain both brands' wealthy shoppers.

Hudson Bay Co (HBC) will control 36 Neiman Marcus department stores, two Bergdorf Goodman locations, and five Last Call outlets under the agreement.

The deal lays bare the challenges facing department stores today as brands such as Macy's strip back their operations. 

Amazon - which has long been attempting to boost its luxury offerings - will also have a minority stake as will tech-giant Salesforce. 

Together, Neiman Marcus and Saks will become Saks Global. 

Luxury retail shopping has slowly declined over the years, with Neiman Marcus Group among the worst-hit companies.

The business filed for bankruptcy in 2020, and by September of that year, the company had planned to shed $4 billion in debt.

Neiman Marcus began to explore a merger with Saks amidst concerns shoppers no longer wanted to purchase pricey items from designer brands.

Instead, they are increasingly flocking to low-price e-commerce retailers like SHEIN and Moda Operandi. 

'Part of what excited us about acquiring Neiman Marcus was acquiring their world-class sales force,' HBC chief executive and chairman Richard Baker told The New York Times. 

'People have forgotten how important people are. When selling luxury products, you need beautiful stores and salespeople customers trust.'

Marc Metrick, chief executive officer of Saks Fifth Avenue’s online operations, supports the merger and he will become the CEO of Saks Global.

'How do you future-proof a brand like Saks or Neimans or Bergdorf? You do that through technology,' Metrick said in an interview with Bloomberg.

'We know how to clientele. We have the bricks-and-mortar stores, which are always going to be an important part of a luxury ecosystem.'

This new combination will also give more power to company employees who negotiate with designers. 

The merger is expected to help loosen the control of in-store and e-commerce shops while cutting logistic costs.

The merger comes four years after luxury retailer Lord & Taylor filed for bankruptcy due to a massive decrease in sales during the peak of the COVID-19 pandemic. 

Reuters reported that Lord & Taylor planned to liquidate inventory in its department stores once restrictions were lifted.

It was enough for Lord & Taylor to survive its sales downfall, and by the following year, the fashion retailer was only operating online.

Macy's is also experiencing sales slumps, and the company announced earlier this year that 150 stores would be closed by 2026 as part of a restructuring plan. 

'A Bold New Chapter serves as a strong call to action. It challenges the status quo to create a more modern Macy’s, Inc,' said Macy's CEO Tony Spring at the time. 

'We are making the necessary moves to reinvigorate relationships with our customers through improved shopping experiences, relevant assortments, and compelling value.'

Despite the plans by all companies who focus on selling luxury products to its consumers, more than 20 percent of retail purchases are expected to be online this year, according to Forbes Advisor.

The number of digital orders has hiked up so much that 23 percent of retail purchases are expected to be online by 2027.

Amazon is currently one of the most visited e-commerce websites, with nearly three billion views a year worldwide.

It also accounts for over 37 percent of e-commerce sales, which is the highest market share of all online retailers.

'In our store's business, customers have enthusiastically responded to our relentless focus on selection, price, and convenience,' said Amazon CEO Andy Jassy in April. 

'We continue to have the broadest retail selection, with hundreds of millions of products available, tens of millions added last year alone, and several premium brands starting to list on Amazon.'

Jassy added that some of the retailers include Victoria's Secret, Urban Decay, Clinique, and Coach - a brand best known for its expensive handbags.