The fashion industry had been talking about a deal to combine Saks Fifth Avenue and Neiman Marcus for years, maybe decades, but when it finally happened last week, it came with an unexpected twist: Amazon.
The e-commerce giant is one of the players investing in the $2.65 billion deal that will see Richard Baker’s HBC buy Neiman Marcus and merge it with Saks to form a new entity called Saks Global. Cloud-based commerce company Salesforce is also set to invest when the deal closes.
It’s a deal that comes with a lot of questions.
Will a merger between America’s two biggest luxury department stores put pressure on brands? Will US regulators who are opposed to Tapestry’s $8.5 billion acquisition of Capri Holdings allow the deal to go through? And what exactly is Amazon up to?
Amazon did not immediately respond to a request for comment on the matter, but the answer should become clearer as the deal is filed with the Federal Trade Commission and, if approved, Saks Global gets back on its feet.
Consultant Greg Portell, senior partner and head of global markets at Kearney, is watching to see how Amazon manages the investment.
“Are they going to manage this as part of their investment portfolio, like a venture capital fund or a PE fund, or are they going to manage it as a strategic partner to jointly develop opportunities?” Portell said.
Amazon may also be paying attention to broader trends across retail.
“One could argue that Amazon is only supporting competitors in the department store industry for the sake of that industry’s survival,” Portell said.
Amazon has made creative deals in multibrand retail before: In 2019, for example, it struck a deal with Kohl’s that gave it the right to buy 1.7 million shares of the company when it began accepting Amazon returns. (The rights are now fully vested, but had a strike price of $69.68, and Kohl’s shares are trading at $22.38.)
Amazon’s investment in Saks Global is aimed at more lucrative shoppers, something Mr Portel described as the company’s “final frontier.”
“Luxury consumers are a very important segment of the consumer base that Amazon is underrepresented in,” Portell said. “Affluent consumers have more purchasing power, are less price sensitive and are more open to advanced technology. They are a very attractive consumer for any retailer and are difficult to penetrate because brand value is so important.”
“Amazon has grown to be essentially a democratic retailer that’s accessible to everyone and ubiquitous,” he said. “It’s the opposite of luxury: scarcity and aspiration.”
So Amazon seems keen to open a back door into the luxury market.
“Amazon has had a very hard time getting luxury and high-end brands to list on its platform,” said one prominent fashion investor. “By acquiring a stake in this deal, Amazon is likely going to squeeze these brands over time, at least through Saks and Neiman’s, to list on Amazon’s marketplace.”
“This is an interesting move for Amazon because they know the ‘true luxury’ brands don’t want to leave Neiman’s and Bergdorf’s (in particular),” the investor said. “My guess is that their investment won’t be that big, at least from Amazon’s global perspective.”
With a market capitalization of over $2 trillion and over $73 billion in cash on hand, Amazon doesn’t need Saks or Neiman Marcus or even fashion.
But the main reason Amazon has been so successful is because of its relentless focus on the customer.
And the company clearly believes customers want more premium products.
Amazon is patient, persistent, and never gives up.
“Once we identify a customer need and become increasingly confident that that need is meaningful and enduring, our approach allows us to work patiently over a period of several years to deliver a solution,” founder Jeff Bezos told shareholders in a 2008 letter.
In the luxury fashion industry, solutions are hard to come by.
Amazon has been working for years to establish itself in the high-end luxury market, particularly through its luxury store platform.
But despite its popularity with more aspirational fashion brands like Coach and luxury beauty brands like Clinique, Amazon has only had success with a few top luxury brands, like Oscar de la Renta.
Now the company is set to own at least a portion of the luxury retail business.
It remains to be seen what Amazon plans to do with its shares.
