Saks owner buys Neiman Marcus with help from Amazon

The parent company of Saks Fifth Avenue has struck a $2.65 billion deal to buy rival Neiman Marcus, according to people familiar with the matter, creating a luxury retail giant that’s looking to cling to wealthy shoppers — all with a little help from Amazon.com.

The boards of directors of both companies have approved the transaction and an announcement could come as early as tonight, the sources said.

The two department store chains had been negotiating for months and had considered a merger several times over the years. Both have run into difficulties as some consumers have spent less on big-ticket items and fashion brands have opened their own flagship stores.

The combined company would generate annual revenue of about $10 billion, the sources said. Luxury giant LVMH Moët Hennessy Louis Vuitton, which owns Dior, Louis Vuitton and dozens of other brands, had revenue of about $94 billion last year.

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Amazon would take a minority stake in the new company, to be called Saks Global, and plans to provide it with technology and logistics expertise, the people said. Salesforce is another minority shareholder and would help with the adoption of artificial intelligence. Saks already does business with both tech companies, so the deal would strengthen existing partnerships, one of the people said.

HBC, the holding company that bought Saks in 2013, is financing the deal with $2 billion raised from existing investors, the people said. They include Rhone Capital, the Abu Dhabi Investment Council and NRDC Equity Partners, a private equity firm led by HBC executive chairman Richard Baker and his son Jack Baker. Apollo Global Management affiliates are providing $1.15 billion in debt financing.

Marc Metrick, chief executive of Saks’ e-commerce division, will lead the combined companies, the people said.

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The deal is a bet that the companies will be stronger together than apart. Neiman, which had been owned for years by various private equity firms, filed for bankruptcy protection in 2020. It emerged later that year with less debt and new owners, including Pacific Investment Management Co., Davidson Kempner Capital Management and Sixth Street Partners.

The year HBC bought Saks, the retailer had about $3 billion in sales. Last year, sales were about $6 billion, the people said. Neiman Marcus had $4.7 billion in sales in 2013, according to securities filings. Its sales are slightly below that now, after closing some stores, one of the people said.

Luxury sales have slowed in recent years, after pent-up demand from the COVID-19 pandemic fueled a spending spree. Inflation has also taken its toll, particularly among ambitious shoppers who have fewer options to stretch their budgets. Bain & Co. estimates that luxury spending in the Americas will fall 8% in 2023 compared with 2022, even as sales have increased in Asia and Europe.

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HBC, which also owns the Hudson’s Bay department store chain in Canada, has recently completed several cash-strapped deals, including raising $340 million from selling real estate.

The merger comes as pressure on department stores intensifies amid weak sales. Lord & Taylor, which HBC owned until 2019, filed for bankruptcy in 2020 and closed its stores the following year. It now operates online.

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In the luxury segment, Saks and Neiman Marcus deal with suppliers that have gained considerable influence in recent years. When they were founded more than a century ago, the two chains introduced European luxury brands to wealthy American consumers.

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Today, brands have more and more power. They sell directly to consumers through their own stores and websites. Some of them have become so big that they wield considerable power. Bernard Arnault, CEO of LVMH, is competing with Elon Musk for the title of the richest man in the world.

Last year, Gucci owner Kering bought a stake in Valentino, adding the Italian label to a portfolio that also includes Balenciaga and Saint Laurent. In the United States, a proposed deal would bring together Coach, Michael Kors, Kate Spade, Versace, Jimmy Choo and Stuart Weitzman under one roof, although the Federal Trade Commission (FTC) has filed a lawsuit to block the merger.

By combining forces, Saks and Neiman would have a better chance of negotiating more favorable terms with major suppliers and eliminating duplicate costs.

There are no plans to close any stores once the deal is complete. Saks Fifth Avenue has 39 stores and Saks Off 5th, a discount store. Saks.com is a separate business owned by HBC.

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Neiman has 36 department stores, two Bergdorf Goodman stores and five Last Call discount stores. According to Green Street, a real estate research firm, eight malls house both a Saks Fifth Avenue store and a Neiman Marcus store.

HBC has a history of investing in the companies it buys. It has spent more than $500 million to renovate Saks stores over the past five years, as well as another $500 million to modernize its technology and digital footprint.