What you need to know about HBC’s deal to buy Neiman Marcus

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The owner of Canada’s Hudson’s Bay department store chain is set to expand its luxury retail empire, which already includes Saks Fifth Avenue, by acquiring Dallas-based Neiman Marcus Group for US$2.65 billion. The companies confirmed the deal on Thursday after Wall Street Journal first reported it a day earlier. The Financial Post breaks down what we know about the deal so far and what it could mean for the retail sector.

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What do we know about the deal itself?

Under the deal, HBC, a holding company controlled by U.S. real estate investor Richard Baker that already owns the Hudson’s Bay, Saks and Saks OFF Fifth chains, will acquire Neiman Marcus from its current owners, which include investment management firms PIMCO, Davidson Kempner, Sixth Street Partners and JP Morgan Asset Management.

According to media reports, e-commerce giant Amazon.com Inc. and California-based Salesforce Inc. were expected to hold minority stakes in a newly merged company, Saks Global, focussed on luxury retail that would manage both the Saks and Neiman Marcus operations and be run by Marc Metrick, the current chief executive of Saks. The goal of the deal appears to be to cut costs, streamline operations and boost profit at a time when the retail sector has been under pressure.

Why is HBC buying now?

HBC’s interest in Neiman has been the subject of speculation for some time, with reports of talks surfacing at various points in the past decade. During that time, Neiman’s financial struggles have been well documented. The company, which was founded in 1907 and has 5.1 million gross square feet of store operations in the United States, including 36 Neiman Marcus stores, two Bergdorf Goodman stores and five Last Call stores, declared bankruptcy in 2020 before getting new investment that helped eliminate more than US$4 billion worth of debt.

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Retail analyst Bruce Winder said HBC stands to benefit from a deal by lowering costs through back office synergies and the elimination of redundant positions. The creation of a larger luxury sales company would also mean HBC would have more power when negotiating with brands that use its real estate to sell their products, Winder said.

In a statement on Wednesday, Baker said the deal was a long time coming.

“For years, many in the industry have anticipated this transaction and the benefits it would drive for customers, partners and employees,” Baker said. “This is an exciting time in luxury retail, with technological advancements creating new opportunities to redefine the customer experience, and we look forward to unlocking significant value for our customers, brand partners and employees.”

Are department stores struggling?

It is not a secret that department stores have faced headwinds on both sides of the border in recent years. In addition to the pandemic and competition from online retailers, many brands have started to open their own stores in the last decade, which has affected the relevance of department stores that curate products from luxury brands, said retail analyst Lisa Hutcheson.

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Nordstrom Inc., for instance, exited the Canadian market in 2023. Hudson’s Bay, meanwhile, has reduced its footprint already and is planning to close its store in downtown Regina in 2025. “We (Canada) don’t have the same kind of density to support department stores,” Hutcheson said.

While the situation is better in the United States owing to a much larger population, retailers have struggled there, too. Neiman Marcus, Lord & Taylor and Barney’s New York are among the department stores that have sought bankruptcy protection in recent year.

It isn’t all bad news, however. Some retailers are looking to expand in Canada. Quebec-based Simons, for instance, said in June that it would spend more than $75 million to open two new stores in Toronto in 2025. Despite the growth of online shopping, the company observed a “solid return to in-store sales, which indicates that consumers want a hybrid and personalized shopping experience,” Simons said in a statement last month.

How significant is the transaction?

While the dollar value attached is significant, to Winder the tie-up is more symbolic than anything else. “Department stores have shrunken to a point now that one of them is buying another,” he said. “It’s not the beginning of the end, but a tell-tale sign that the department sector has eroded.”

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HBC has become more of a real estate company as opposed to a retailer in the last few years, analysts say, and industry watchers will want to know whether any real estate from Neiman is monetized. Both Winder and Hutcheson don’t expect the deal to have much of an impact on Canadian shoppers. At the most, it might lead to some Neiman stores opening at the Bay.

It’s not the beginning of the end, but a tell-tale sign that the department sector has eroded

Bruce Winder

For the struggling luxury retail sector overall, at least one analyst sees the deal as a “make or break” affair, particularly due to the potential inclusion of Amazon and Salesforce.

“This could really change the way both retailers operate, more streamlining, incorporating digital technology and artificial intelligence to make faster and better decisions,” said Liza Amlani, founder of Retail Strategy Group. In the long run, she said it could lead to increased profitability as the technology utilized by firms such as Amazon and Salesforce might help with getting new customers, improve inventory management and increase HBC’s relevance.

“There are tons of products on sale in these companies (HBC),” Amlani said. “It tells me that the the planners went wrong. So, if AI is able to be implemented in certain aspects of the operated model, in theory they should be able to predict the right product at the right time.”

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When did HBC buy Saks?

HBC acquired Saks Incorporated in November 2013. Saks Fifth Avenue made its official Canadian debut with the opening of its Queen Street store in downtown Toronto on Feb. 18, 2016. This was followed by a second Canadian location in Etobicoke’s Sherway Gardens on Feb. 25. In addition, by early 2016, the first three Canadian locations of Saks OFF 5th — the retail brand’s off-price cousin — had opened.

Currently, both Saks and Saks OFF 5th are structured as two separate businesses by the company. Until 2020, HBC was a public company and was listed on the Toronto Stock Exchange. The company was privatized later that year by a group led by Baker, the company’s current chief executive.

• Email: nkarim@postmedia.com

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