Luxury Retail Giants Saks and Neiman Marcus Discuss Current State of High-End Marketplace, Emphasizing Its Organic Progression
Luxury Reboot: Neiman Marcus and Saks Fifth Avenue in a New Light
The world of high-end retail has seen a significant shift for Neiman Marcus and Saks Fifth Avenue in recent years, marked by merger attempts and major financial overhauls.
In 2020, during the peak of the pandemic, Neiman Marcus filed for bankruptcy and exited with a plan to shed $4 billion in debt. The following year, the department store refinanced an additional $1.1 billion in debt. Neiman Marcus CEO, Geoffroy van Raemdonck, remarks, "If I look back six years ago when I joined the company, the company was ten times levered. We couldn't invest in the business. We were very focused on transactions, as opposed to driving relationships and gaining share." Now, with a solid balance sheet and strong liquidity, the retailer has devoted resources to improving its supply chain, building a new distribution center, enhancing its data capabilities for personalization, and investing $200 million in store renovations, partially funded by its brands and landlords.
Meanwhile, Saks Fifth Avenue split its e-commerce and brick-and-mortar businesses in 2021. This move was part of a broader push by parent company HBC to unlock value, establishing Saks.com as its own stand-alone company. Although Neiman Marcus previously dismissed this concept, it's now on the table as the retailers adapt to the digital age. Saks' online business saw layoffs of about 100 people, or 3.5% of its total workforce, in January last year. However, just this month, Bloomberg reported that the parent company is considering refinancing a $1.3 billion loan ahead of an October due date.
Digital-only companies in retail have struggled with profitability, but Saks CEO, Marc Metrick, asserts that profitability isn't an issue at Saks.com's e-commerce site: "It's important, and that's never changed. Now, however, it's changing for everybody else, and it's sort of leveled the playing field."
As the new year kicks off, Metrick and van Raemdonck weigh in on the future of pure-play luxury and the consumer landscape. Like much of retail, e-commerce has disrupted the luxury sector in recent years, bringing a traditionally in-person buying experience online. Despite this disruption, old-school retailers like Saks and Neiman Marcus may have a leg up, as they face more pressure to generate profits compared to their digital counterparts. Metrick remarks, "The consumer doesn't care what your valuation is, doesn't care what your leverage ratios are."
The departure of sky-high valuations and the "growth-at-all-costs" mindset for e-commerce brands could work in favor of legacy players like Saks and Neiman Marcus. As growth stagnates, more Direct-to-Consumer (DTC) brands are turning to wholesale for assistance in scaling. Van Raemdonck explains, "The industry is doubling down on the players that they believe will be the best to provide service and have longevity. And so we're gaining a lot of distribution, we're gaining investment from them, and we're gaining a lot of exclusives."
Saks and Neiman Marcus are leveraging their e-commerce presence to navigate challenges similar to those faced by digital-first brands. For example, free online returns can strain working capital, but nearly half of returns for both retailers go back to a physical department store. Metrick notes, "We don't charge for online returns, and working capital is the real pain point when it comes to returns."
The partnership between digital brands and traditional retailers represents a way for both sides to defend their turf in the luxury market. Retailers should not shy away from digital competition, according to Metrick. "This is an industry that constantly innovates, and who knew who all these businesses were ten, fifteen years ago?" He adds, "There might be a new entrant and a new way of coming into the market—whether it's live selling, whether it's through Web3 if that ever really comes back around."
Metrick emphasizes the importance of individualized, data-driven approaches to manage retail challenges like returns and volatile market conditions: "The monolithic treatment of the consumer to manage these things—that's the road to hell."
- The pandemic in 2020 triggered a significant financial overhaul for Neiman Marcus, leading to a bankruptcy filing and a plan to eliminate $4 billion in debt.
- Despite the challenges, Neiman Marcus refinanced an additional $1.1 billion in debt in 2021, focusing on reducing debt and improving its supply chain, distribution, and data capabilities.
- While Saks Fifth Avenue split its e-commerce and brick-and-mortar businesses in 2021, Neiman Marcus earlier dismissed the concept, but is now considering it as they adapt to the digital age.
- In January 2021, Saks Fifth Avenue's e-commerce site saw layoffs of around 100 people, but is now considering refinancing a $1.3 billion loan.
- Saks Fifth Avenue's e-commerce site asserts profitability isn't an issue, but digital-only companies in retail have struggled with it, leveling the playing field for traditional retailers.
- As the new year begins, Saks CEO, Marc Metrick, and Neiman Marcus CEO, Geoffroy van Raemdonck, discuss the future of pure-play luxury and the consumer landscape.
- E-commerce has disrupted the luxury sector, bringing an in-person buying experience online, but old-school retailers may have an advantage due to the pressure to generate profits.
- As growth stagnates for e-commerce brands, more are turning to wholesale for assistance in scaling, potentially benefiting traditional retailers like Saks and Neiman Marcus.
- Free online returns can strain working capital, but both Saks and Neiman Marcus find that nearly half of returns go back to a physical department store.
- The partnership between digital brands and traditional retailers represents a way for both to defend their turf in the luxury market, with retailers not shying away from digital competition.
- Metrick suggests individualized, data-driven approaches are essential to manage retail challenges like returns and volatile market conditions.
- The retail industry is constantly innovating, and Metrick anticipates potential new entrants and methods in the market, such as live selling or Web3, might emerge in the future.
