Will Saks Fifth Avenue ever reach a deal to buy the Neiman Marcus Group?
Price, high financing costs, and sagging business at both luxury retailers are holding up a deal, though Richard Baker, executive chairman and governor of Saks-owner HBC, has long wanted to create a luxury empire in the U.S. while NMG’s owners — Pimco, Sixth Street Partners and Davidson Kempner Capital Management — could be interested in selling if the price is right.
Business at both retailers has been depressed since last spring, so lenders would be wary of bringing two companies together at a time when their performance is subpar. Also, while the true luxury shopper is still spending, it isn’t at the same rate as in 2022 and the aspirational consumer has become more selective in their purchasing, increasingly spending on travel, dining and other experiences, thus leaving fewer discretionary dollars for fashion. When they do buy apparel, it’s more on the casual side of the fashion spectrum.
“The North American luxury customer is going to buy less” in 2024, said Kim Vernon, president and chief executive officer of Vernon Company consulting. “Despite interest rates and inflation settling down, the wealthy shopper is going to question buying clothing and accessories that have had 15 to 30 percent price increases, levied by the luxury houses. Two years into a Russian/Ukraine war, the Israeli/Hamas brutal conflict, upcoming uncertain elections, and disruptions in Red Sea shipping routes are all going to give pause to purchase. LVMH, Kering, Richemont will have to look [more] to the Middle East for growth since I don’t see it coming from the slowing Chinese economy.” They’re battling for the same 2 percent of the population that shop for luxury, said Vernon.
Christmas and overall 2023 results will factor into a possible deal. Interest rates are expected to come down in 2024, which could spur M&A activity in a softening luxury sector.
There is logic to a Saks-Neiman’s deal. Consolidations involving staff, back-of-the-house functions and Neiman’s and Saks stores could occur to cut costs and boost the bottom line of the combined entity. For the past several seasons both retailers have undergone layoffs affecting hundreds of workers.
It’s also possible that another potential buyer for NMG emerges. There has been speculation over the years about LVMH Moët Hennessy Louis Vuitton, Middle Eastern sovereign funds and private equity funds possibly being interested, although it would be unlikely LVMH would want to acquire an entire U.S. department store group.
Meanwhile, the Neiman’s-Saks battle for market share rages as each retailer vies for designer exclusives and distribution rights at a time when luxury brands are retreating from wholesaling in favor of operating their own stores and e-commerce sites. Neiman’s and Saks are digging deeper into customer data to enhance personalization and loyalty, trying to get more business from their biggest-spending customers, and each recently invested in technology to enhance service, omnichannel integrations and dot.com operations. While Saks online has a broader offer, selling cookware, toys, small appliances as well as designer fashion, which executives say is all within the rubric of luxury, Neiman’s remains more focused on designer fashion.
If a deal happens, the Federal Trade Commission and the antitrust division of the Justice Department might be all over it, and possibly block it over concerns about the potential for HBC to raise prices, close stores, lay off workers and increase pressure on vendors. Recent history shows that these federal agencies have challenged transactions involving well-known businesses in other industries, such as Microsoft, Meta, American Airlines and JetBlue.
