Saks Sale: A Winner For HBC On Two Fronts
Why $2.4 billion was a steal for Saks, and why Holt Renfrew should be concerned about the deal.
Last week’s news that Hudson’s Bay Company (HBC) would acquire Saks drew pundit commentary rivaling the last time Richard Baker, chairman and CEO at HBC, rolled the dice on a big department store brand. That was 2006, when Baker—whose pedigree is in real estate, not fashion—paid $1.2 billion for Lord & Taylor. Critics began counting down the demise of the brand, but its demise never came. Baker let merchandisers be merchandisers, he let managers be managers, and he invested in the bricks and mortar of his stores. Then he bought Hudson’s Bay, merged the companies under HBC, and waited for the next big opportunity.
Saks was it, and why not for a cool $2.4 billion? The purchase aligns with long-stated strategy from Baker on a couple of fronts.
A Feather In HBC’s E-Commerce Cap
While Baker knows that brick and mortar butters his bread, he’s not been shy about his excitement for the potential of e-commerce. That’s been particularly true in Canada, where Hudson’s Bay has a corner on the e-commerce market for a number of popular apparel brands. If you want to buy a Ralph Lauren shirt online in Canada, for instance, HB is the only game in town. What’s that got to do with the Saks deal?
Consider that last year, online sales at Hudson’s Bay and Lord & Taylor hit just 2% and 7%, respectively. Saks, on the other hand, bucked the luxury department store trend with a whopping 15% of overall revenue generated from online sales, to the tune of half a billion dollars.
The luxury e-commerce success formula at Saks could be just the shot in the arm HBC’s mediocre e-commerce effort needs to wake our Northerly retail neighbors to modern online shopping. By and large, Canadian retailers have been all to happy to let e-commerce dollars flow south; a Statistics Canada report found that only 17% of Canadian retailers were selling online in 2012, and that only 54% had a Web site. As a result, only around 4% of Canadian retail sales are conducted online, and Forrester says nearly 70% of Canadian online shoppers choose to cross borders digitally to get their online shopping fixes.
Incredible Real Estate Opportunity
It’s hard to put a price on the iconic Saks Fifth Avenue flagship store. But, it’s important to remember how much more brick and mortar there is to the brand. Saks operates 41 Saks Fifth Avenue stores and 67 Saks Off 5th clearance outlets.
In a New York Times column, Cowen analyst Faye Landes underscored the importance of Saks’ stores when she joked, “No tourist wakes up in New York and says: ‘You know what I’m going to do now? I’m going to log on to the Internet and shop.’ ”
Landes has a strong point there. While Saks is posting stellar e-commerce stats, Saks executives say 4.4% sales growth in 2012 (to $3.15 billion) was spurred in no small part by foreign tourists once again spending big money at its high-rent brick and mortar locations.
HBC will continue that investment in brick, mortar, and real estate, already hinting at plans to build more than half a dozen Saks stores in Canada next year, as well as a couple dozen of its Off 5th discount luxury and outlet locations. Heads up, Holt Renfrew; Fifth Avenue will soon stretch a bit farther North. And, it will be backed by an HBC expected to generate $7 billion in annual sales, which is approximately equivalent to the entire Canadian menswear market.