May 23, 2013
Would Neiman Marcus and Saks Work Well Together?
Earlier this month it was reported that private equity firms Texas Pacific Group and Warburg Pincus, owners of Neiman Marcus, were exploring a possible initial public offering. Yesterday, the news broke that Saks Inc. had hired Goldman Sachs to explore strategic options, presumably a sale of the luxury department store operator.
Quickly on the heels of the Saks news is another report that KKR is considering making a bid on the company with the intention of seeking a merger with Neiman Marcus. According to Bloomberg News, a combined Neiman Marcus and Saks would create a retail operator with $7 billion in annual sales. That would put the combined company behind only Nordstrom in the luxury department store category.
As with virtually every other merger rumored or completed, proponents of a Neiman Marcus/Saks deal would point to efficiencies that the combined companies would realize.
"You could obviously get a huge benefit to the bottom line," Michael Appel, founder of Appel Associates, told Bloomberg News. "You could keep the customer-facing part of the business — the branding, the merchandising — separate but you could then collapse the two back ends of the companies, like logistics, sourcing. You would get tremendous operating leverage."
Brian Sozzi, CEO and chief equities strategist of Belus Capital Advisors, believes the combination of Neiman Marcus and Saks would create a brick and click powerhouse.
"Combining these two companies enlarges the amount of fashionable, high-margin goods available online," Mr. Sozzi told The Huffington Post. "The customer to these stores is very mobile-friendly, usually spending first and asking questions later."
Perhaps the biggest question if the two companies merged is if both banners would survive.
Steven Dennis, a former Neiman Marcus executive and founder of SageBerry, thinks both chains would carry on because they have cultivated their own core shoppers over the years.
"Shutting one down seems crazy, so the challenge would be to reposition one to maximize the market opportunity," he told The Huffington Post. "Not an easy task."
- Going public could bring more innovation, long-term growth for Neiman Marcus – Luxury Daily
- Saks Said to Hire Goldman Sachs to Explore Options – Bloomberg News
- KKR Said to Weigh Investment in Saks, May Push for Merger – Bloomberg News
- Why A Saks-Neiman Marcus Merger Makes Sense – The Huffington Post
BrainTrust
Recent Discussions
Discussion Questions
Does a Neiman Marcus/Saks merger make sense or not? Are there other mergers in the luxury segment or elsewhere that the companies could take lessons from if they want to succeed at combining the two chains?
Poll
You know, I don’t like the idea of this deal. While Macy’s has been able to subsume all those other chains under its name, those were different times, and it was still a neat trick. I just think it’ll result in a single diluted brand. It’s one of those deals that looks good on a spreadsheet, but bad in real life. In today’s world of social media, eliminating a reasonably successful brand and bringing its customers into a new one is too hard and will take too long.
I’m especially worried about Bergdorf (a Saks property) that has regained a certain uniqueness.
I also think of Bal Harbour Shops, just one of several malls anchored by both Neiman and Saks (and also boasting a very high sales/sq ft). Which one would survive?
I suppose if you were going to TRY to take a lesson from another retailer, it would be Macy’s…but even that one was a long shot, and I don’t think it’d be doable today.
A merger of Saks and Neiman makes sense in terms of economies of scale, but only if the two nameplates are kept alive. Then the challenge becomes sharper differentiation of branding and product development—any parallels to the Macy’s/May acquisition don’t really hold up in terms of what happens to the two nameplates. These two stores carry high levels of brand equity that can be used to help the combined company be a more forceful competitor to Nordstrom.
Easy for an analyst to say customers of Saks and Neiman Marcus “usually spend money first and ask questions later.” It’s not the case. Luxury shoppers are as concerned about free shipping and “friends and family” discounts as anyone. I’m also not sure how these shoppers would handle a combination of these two companies, but if the Federated debacle is any guide, it could be problematic.
Restaurant brands utilize purchasing co-ops to combine resources, minimize SKUs, promote standardization, and maximize volume pricing on a number of standard items. Why should luxury brands be any different? A Neiman Marcus/Saks merger absolutely makes sense from a back-end/sourcing/supply chain perspective, as Michael Appel points out.
Retailers in technology should definitely take note. Luxury brands, however, have to walk the fine line of not cheapening what is perceived to be high-end by partnerships that don’t appear to make sense to their target audience.
Goldman Sachs and KKR are sure to think that this deal makes sense. However, this deal should look at the prospects for success, not from the financial standpoint, but from the consumer’s standpoint.
Saks and Neiman-Marcus have strong, loyal customer bases, who are both very similar, but have unique loyalties. Much of their high margin product lines are provided on an exclusive basis, with certain other lines being available at both stores. The consumers who choose to shop these stores like and appreciate the uniqueness of the goods, service, and attention that they receive from a trusted merchant that they and their families have known, in some cases, for 3 different generations.
In exploring the potential success, the financial lads would do well to make certain that they add in a tracking of the Consumers who shop these stores during the due diligence phase. That investment will protect everyone’s investment down the road.
The problem with PE companies is that they tend to know a great deal about balance sheets and less than nothing about branding.
This deal would dilute the value of both brands over time. Of course, by then the PE position would be liquidated so it doesn’t make much difference to them, but it will make a difference to the customer.
Put me in the Al McClain camp on this one.
I was part of the initial team that took on consolidating Federated’s systems into one entity. The process was mapped out and we were able to bring all the Federated stores onto the same systems in somewhat short order. The savings were significant!
By doing this, other operations were able to follow suit. The collapsing of the initial brands was something that was done over years.
So, yes, I could see this merger happening and I can see the benefits. As to the blending of the two brands into one? Both brands are strong and like Paula mentioned, can anchor the same high-end Mall. No need to mess with a good thing just yet.
Go for the savings and save the rest for later. Who knows what will happen over time?
There seems to be an (unusal) amount of agreement amount RW readers on this, and I think we’ve all nailed it: makes sense for the usual rent-seekers who profit from these types of transactions (bankers, consultants), but not for anyone else (customers, suppliers) who benefits from having competition. While I respect the expertise of Messieurs Appel and Kent, or more precisely, having no specific knowledge of either NM’s nor Saks’s operations, I can’t meaningfully challenge them. I have doubts about the cost-savings; I think they’re often overstated, or eventually overwhelmed by bloated executive salaries of the bigger company. But regardless, the point of retail—or any business—isn’t supposed to be doing things cheaper…it’s supposed to be about doing them better.
The real issue is, how does a luxury retailer compete effectively in an increasingly important digital era? Their real competition is not necessarily each other. It’s far bigger than that.
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You know, I don’t like the idea of this deal. While Macy’s has been able to subsume all those other chains under its name, those were different times, and it was still a neat trick. I just think it’ll result in a single diluted brand. It’s one of those deals that looks good on a spreadsheet, but bad in real life. In today’s world of social media, eliminating a reasonably successful brand and bringing its customers into a new one is too hard and will take too long.
I’m especially worried about Bergdorf (a Saks property) that has regained a certain uniqueness.
I also think of Bal Harbour Shops, just one of several malls anchored by both Neiman and Saks (and also boasting a very high sales/sq ft). Which one would survive?
I suppose if you were going to TRY to take a lesson from another retailer, it would be Macy’s…but even that one was a long shot, and I don’t think it’d be doable today.
A merger of Saks and Neiman makes sense in terms of economies of scale, but only if the two nameplates are kept alive. Then the challenge becomes sharper differentiation of branding and product development—any parallels to the Macy’s/May acquisition don’t really hold up in terms of what happens to the two nameplates. These two stores carry high levels of brand equity that can be used to help the combined company be a more forceful competitor to Nordstrom.
Easy for an analyst to say customers of Saks and Neiman Marcus “usually spend money first and ask questions later.” It’s not the case. Luxury shoppers are as concerned about free shipping and “friends and family” discounts as anyone. I’m also not sure how these shoppers would handle a combination of these two companies, but if the Federated debacle is any guide, it could be problematic.
Restaurant brands utilize purchasing co-ops to combine resources, minimize SKUs, promote standardization, and maximize volume pricing on a number of standard items. Why should luxury brands be any different? A Neiman Marcus/Saks merger absolutely makes sense from a back-end/sourcing/supply chain perspective, as Michael Appel points out.
Retailers in technology should definitely take note. Luxury brands, however, have to walk the fine line of not cheapening what is perceived to be high-end by partnerships that don’t appear to make sense to their target audience.
Goldman Sachs and KKR are sure to think that this deal makes sense. However, this deal should look at the prospects for success, not from the financial standpoint, but from the consumer’s standpoint.
Saks and Neiman-Marcus have strong, loyal customer bases, who are both very similar, but have unique loyalties. Much of their high margin product lines are provided on an exclusive basis, with certain other lines being available at both stores. The consumers who choose to shop these stores like and appreciate the uniqueness of the goods, service, and attention that they receive from a trusted merchant that they and their families have known, in some cases, for 3 different generations.
In exploring the potential success, the financial lads would do well to make certain that they add in a tracking of the Consumers who shop these stores during the due diligence phase. That investment will protect everyone’s investment down the road.
The problem with PE companies is that they tend to know a great deal about balance sheets and less than nothing about branding.
This deal would dilute the value of both brands over time. Of course, by then the PE position would be liquidated so it doesn’t make much difference to them, but it will make a difference to the customer.
Put me in the Al McClain camp on this one.
I was part of the initial team that took on consolidating Federated’s systems into one entity. The process was mapped out and we were able to bring all the Federated stores onto the same systems in somewhat short order. The savings were significant!
By doing this, other operations were able to follow suit. The collapsing of the initial brands was something that was done over years.
So, yes, I could see this merger happening and I can see the benefits. As to the blending of the two brands into one? Both brands are strong and like Paula mentioned, can anchor the same high-end Mall. No need to mess with a good thing just yet.
Go for the savings and save the rest for later. Who knows what will happen over time?
There seems to be an (unusal) amount of agreement amount RW readers on this, and I think we’ve all nailed it: makes sense for the usual rent-seekers who profit from these types of transactions (bankers, consultants), but not for anyone else (customers, suppliers) who benefits from having competition. While I respect the expertise of Messieurs Appel and Kent, or more precisely, having no specific knowledge of either NM’s nor Saks’s operations, I can’t meaningfully challenge them. I have doubts about the cost-savings; I think they’re often overstated, or eventually overwhelmed by bloated executive salaries of the bigger company. But regardless, the point of retail—or any business—isn’t supposed to be doing things cheaper…it’s supposed to be about doing them better.
The real issue is, how does a luxury retailer compete effectively in an increasingly important digital era? Their real competition is not necessarily each other. It’s far bigger than that.