Saks Fifth Avenue And Neiman Marcus Are Finally Uniting. Should Beauty Celebrate?

In a beauty retail landscape in which sales are increasingly concentrated at the top, Saks Fifth Avenue’s takeover of Neiman Marcus is the latest concentrating factor.

Following months of negotiations and years of attempted mergers between the two department store players, Saks Fifth Avenue parent company HBC is acquiring Neiman Marcus Group for $2.65 billion. Once finalized, the deal will establish Saks Global, a retail group consisting of more than 150 Saks Fifth Avenue, Saks Off 5th, Neiman Marcus and Bergdorf Goodman stores in the United States. The group’s total real estate assets are valued at $7 billion and its annual sales volume is $10 billion. At least for now, each retailer is continuing to operate under its own brand name.

In an unexpected move, Amazon emerged as a party to the deal. The giant e-commerce company is taking a minority stake in Saks Global and will provide it technological and logistical capabilities. Salesforce is taking a minority stake, too. The deal is awaiting approval from the United States Federal Trade Commission.

Saks Fifth Avenue’s pickup of Neiman Marcus is occurring from a position of weakness as department stores have floundered with Americans turning elsewhere for purchases. Both companies have tried several unfruitful tactics to achieve better results. Saks Fifth Avenue, for example, spun off its e-commerce business in search of profitability in 2021. Two years later, sales across its stores declined 15% in the year ending in April, and e-commerce sales decreased 8% in the same period. 

Also in 2023, HBC raised $340 million through a series of real estate transactions after it was reported Saks Fifth Avenue was withholding payments to vendors. Saks Fifth Avenue’s generated $6 billion in sales last year, double the amount it generated a decade earlier when it was bought by HBC for $2.9 billion. 

In 2020, Neiman Marcus was acquired out of bankruptcy, which enabled it to shed $4 billion in debt from its balance sheet, by Davidson Kempner Capital Management, Sixth Street Partners and Pacific Investment Management. It received a $200 million investment from British e-commerce marketplace Farfetch in 2022 aimed at boosting its digital platform. The partnership ended following Farfetch’s sale to South Korean e-commerce company Coupang in a transaction completed in January. 

For the three-month period ending October last year, Neiman Marcus’s sales dipped to $948 million from $1.034 billion from the same year-ago period. Meanwhile, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell to $95 million from $112 million.

Whether Saks Fifth Avenue’s assumption of Neiman Marcus gives department stores a lifeline or is merely a conversation starter on the way to their death is yet to be seen. To get a sense of what people in the know think about it and the ripple effects for the beauty business, for the latest edition of our ongoing series posing questions relevant to indie beauty, we asked nine retail consultants, brand strategists and investors the following questions: What do you make of the Saks Fifth Avenue/Neiman Marcus deal? How will it impact the luxury beauty market? Will it strengthen the declining department store sector? 

Kelly St. John Founder and CEO, KSJ Collective

Having spent 20-plus years of my career at Neiman Marcus, largely leading various beauty initiatives for the company, I become somewhat numb to the years of off-and-on merger rumors about a deal that would bring Saks and Neiman Marcus Group under one corporate umbrella.

At the time, it did not make sense, but fast forward to today where the landscape of retail has vastly changed, there are aspects of the merger that do resonate. From the lens of a business owner with beauty clients who look to both of these companies as a coveted potential partner, the deal has validity from my view, and this merger could potentially have a very positive impact for beauty.

There remains a lot to digest and unfold in the many months ahead, but a week into the news, it seems to be business as usual. From a beauty perspective, Neiman Marcus, Saks Fifth Avenue and Bergdorf Goodman all operate very differently. Each possess unique positioning and shining light on those differences will be key in beauty as well as other categories.

With NM and BG, there is a very unique sales and service culture where the client relationship is just as important as the beauty products being sold. The Saks client is just as loyal and devoted to the experience that is offered there.

Not losing each of their differentiations is going to be critical as that greatly impacts how a brand can show up at a retailer and what the consumer experience will be.

A potential risk to beauty brands is losing negotiating leverage as well as the sheer number of points of distribution in the event that there are store closures in the near future in markets where the retailers overlap. Another risk is that uncertainty and lack of transparency breeds a non-focused and risky scenario for the retailers and their vendors.

In the short term, I hope to see some clear transparency about what the future holds for all aspects of the companies but especially beauty.

Sarah Broyd Partner, Clarkston Consulting

With the rise of luxury brands and the decline of department stores, the merger between Saks and Neiman Marcus will create greater power on their side for negotiations across brands and products. Consolidating two stores with high level of overlap in brands, offerings and consumers will increase their strength in negotiating against brands. Given their similar consumer sets and stores, I suspect they will consolidate their real estate and corporate functions.

Beauty companies should expect increased pressure from the retailer, but likely less storefronts to sell into. In most department stores, the beauty counter typically brings in a significant portion of the foot traffic, so brands have leverage. Luxury department stores also understand they also contending with prestige brands being sold at other retailers like Ulta and Sephora.

The combined companies will benefit from a larger customer base, as most customers shop at both retailers, but only ultra-loyal customers only shop at their favorite. A large percentage of the retailers’ revenue comes from a very small percent of high net worth, so retaining these and attracting younger customers will be critical for their future success.

The new Saks Global will need to continue to contend with the decline of the department store as brands navigate around traditional brick-and-mortar and continue to develop direct relationships with their consumers.

Neiman Marcus, historically, has had a smaller brick-and-mortar footprint and stronger online presence, so the new company should plan to tap into Neiman’s backbone of online business. While direct-to-consumer is not a new concept, it has continued to grow over the past several years and the luxury category has become more focused on their omnichannel strategies. Beauty brands should continue to build their brand loyalty with consumers through direct selling on their websites, if they are not already.

With funding from Amazon, who has been anxious to get into retail, Saks Global can be poised to innovate in the retail and department store space to continue to keep them competitive in the marketplace. Innovation for department stores will help beauty brands sell through in stores, but they should continue to build maturity in other channels.

Susannah Dellinger Founder and CEO, Bright Beauty Collective

With the announcement of the new Saks Global and acquisition of Neiman Marcus, I can see some potential bumps in the road ahead for the luxury sector, but also a few great openings for smaller luxury retailers to come into focus.

The first challenge I foresee that has even customers buzzing is potential brand dilution, especially as beloved Bergdorf Goodman gets acquired. Many viewed Bergdorf as the last bastion of true luxury shopping with a wonderfully curated selection of brands.

Secondly, in terms of their "retail identity,” for the past few decades Neiman Marcus and Saks Fifth Avenue have battled to carve out two very distinct brand identities and customer bases and even targeted age groups. Potentially integrating these brands under one umbrella might dilute their unique market positioning, leading to a loss of brand loyalty as well as customer confusion and disappointment.

Thirdly, this merger might also create a perception of reduced exclusivity and luxury. Customers might view the consolidation as a cost-cutting measure rather than a strategy to enhance their shopping experience with the details they have come to love from Neiman’s and Bergdorf's being watered down. Perhaps Saks Global intends to allow the Neiman Marcus brand to continue to shine or perhaps this is more a real estate deal than anything else. Only time will tell.

Operational challenges can also be daunting. Merging two large retailers involves significant operational considerations, including integrating supply chains, IT systems and company cultures. Missteps in this process can lead to disruptions in service and dreaded glitches in inventory management. Of course, everyone will be waiting with baited breath for announced layoffs as store closures and redundancies are made clear.

Market competition (or lack thereof) and potential monopoly concerns are already being discussed, with the most distressing aspect for consumers being higher prices and fewer choices especially in beauty.

The impact on the brand side is yet to be seen but a couple things to be on the watch for are loss of negotiation leverage. With the consolidation, Saks Global will have greater negotiation power over new and existing beauty brands, potentially squeezing already tight margins for suppliers. Smaller or niche beauty brands might find it harder to secure prime placement and support within the new, larger retail entity, affecting their visibility and potential sales.

Karen Hayes Founder, Indie Global Strategies

Isn’t everyone rooting for the success of this merger? Prior to the news, the conventional wisdom was that department stores felt doomed, but this development feels hopeful. The most promising aspect is Amazon’s minority stake and the injection of technology into these legacy institutions. Looking at Amazon’s acquisition of Whole Foods hints at how this might play out:

• Amazon purchased the grocer for its brick-and-mortar footprint and its affluent customer base. The same no doubt holds true for this investment. From day one, Saks Global (and thus Amazon) has 75 stores on prime real estate in the country’s most desirable cachements.
• In turn, Saks Global will benefit from Amazon’s technological proficiencies, for example, allowing them to offer greater personalization and provide an improved same-day or next day Prime delivery service.
• Since the acquisition, Whole Foods has brought on more independent brands and has maintained a localized assortment strategy. If Saks Global adopts Whole Foods’ “forager” buying approach, it should be a great opportunity for more indie brands to gain distribution and access to a luxury customer.
• Although Saks and Neiman Marcus are still iconic luxury brands, over time both entities have lost their differentiation and most consumers, with the exception perhaps of diehard Texans and New Yorkers, do not truly have loyalty to one over the other. The combined entity will benefit from combined marketing focus and stronger national awareness.

Brick-and-mortar still plays an important role in the omni mix, but customers need a compelling reason to shop in store. Consumers and brands alike are hungry for a better way to shop luxury. If Saks Global can reimagine the omni experience through personalized service and a differentiated assortment, I believe the impact on luxury beauty will be positive.

Unfortunately, as with any merger, there will be redundancies as some operations are centralized, including store closures and layoffs. That’s painful in the short run, but if it means a more viable and vibrant retail landscape in the long run, it will be worth it.

Tina Bou-Saba Investor

This is a tricky one. Today, many of the most interesting multi-brand retailers are small chains—or even single units—with highly curated assortments, outstanding customer service and unique in-store experiences.

While the merger of Saks and Neiman Marcus may improve the financial and operational profile of the combined entity, including greater leverage in negotiations with luxury brands, I am not sure that bigger is necessarily better when it comes to serving the target consumer. Time will tell. In the near term, I doubt that this merger will have a major impact on the luxury beauty market.

I think that the involvement of Amazon as a stakeholder in this transaction is significant. Amazon has been pushing to get into luxury retail for a while. They will likely gain quite a bit of learning through this transaction. I am interested to see how Amazon's role in the new entity evolves in the coming years.

Cristina Nuñez Co-Founder and General Partner, True Beauty Ventures

To state the obvious, the department store channel is a challenging one. Historically, it has been the main retail channel for luxury beauty brands given it is more suited for a higher price point. But with continued declines in traffic at department stores, the channel has proven to be a difficult place for luxury brands to rely upon for growth. Instead, growth is being driven at specialty retailers such as Sephora and Ulta, whose dominance has largely been at the expense of department stores.

All this to say, the Saks/Neimans merger is happening during a very trying chapter for department stores. The role of Amazon in the deal, however, as an investor and partner is an interesting one given the tremendous growth we’ve seen with Amazon in beauty as consumers continue to seek convenience. This could offer some more advanced technology and logistics to the combined company, but it’s unlikely this alone could turn around challenging fundamentals at the businesses.

For luxury brands, this consolidation of two of the largest players leaves these brands with fewer retail options and likely less negotiating leverage. This only reinforces a strategy prioritizing growth on DTC, a strategy many luxury brands have turned to in light of department store slowdowns. Luxury beauty brands with high AOVs and high product margins can afford to spend more on digital to acquire new customers and enhance the online shopping experience, allowing them to drive growth on DTC more profitably than lower priced brands.

At the end of the day, consumers will continue to shop for beauty at retailers offering best-in-class in-store experiences optimized for brand discovery. Brands should seek out these partners offering the best brand building support and a path to achieving scale. Perhaps the combination of Saks and Neiman Marcus will allow for a more enhanced retail experience overall that is even better suited for luxury beauty. Time will tell.

But even with the best of retail partners, brands need to keep in mind something we always tell founders at TBV: brands build brands, retailers do not.

Neil Saunders Managing Director, GlobalData

The merger of Saks and Neiman Marcus potentially gives the combined group more negotiating power with beauty brands, so we might see the new business seeking better terms or to streamline processes. While both stores operate in the luxury space, they each have their own positions and customers so there won’t be a merger of the propositions. Brands will still need to understand the nuances and specifics of each business. 

The merger is one of convenience and is driven by the fact both businesses are struggling to grow. However, putting two challenged brands together is not necessarily a recipe for success. There is still a lot of work for the new entity to do to strengthen its place in the market. As for the wider department store sector, this merger will do nothing at all to remedy all of the issues that exist.

Pano Anthos Founder and Managing Director, XRC Ventures

The merger is a consolidation of once competitors, which shows that the luxury market has moved further and further away from multi-brand retailers to wholly owned stores where they can control the experience and margins and own the first-party data that escapes them through wholesale.

These retailers are rationalizing their place in the market and will build a sustainable albeit smaller footprint than when they were separate. Yes, they will get economies on the operations side, but, on the buying side, the better brands have the upper hand.

They can certainly seek to leverage their foot traffic with curation and services, but every brand and retailer understands the importance of services and curation for their shoppers, and competition includes the likes of Sephora and Ulta, forces in the beauty retail world.

Taylor Barry Co-Founder, Brand Uncover

I am excited to hear of the acquisition of Neiman Marcus by Saks, granted there are a number of questions still to be answered. I know that this was a long-term goal of the Hudson's Bay Company.

Speaking from experience, HBC does an excellent job in helping their banners maintain their unique identities. I am hopeful that the customer will feel minimal impact by this change. Behind the scenes, both teams coming together will bring opportunities to leverage enhanced technology to elevate the customer experience at various touch points.

I do feel that this will likely strengthen the department store sector. The deal is still in its infancy stages, but with Amazon as an investor, there may be an opportunity for Saks Global and Amazon to come together in an impactful capacity that benefits the luxury consumer.

Saks and Neiman Marcus deeply understand this customer, which is an untapped group for Amazon. I trust that the leadership teams from Saks Global and Amazon will collaborate to create something really special.

As it pertains to the luxury beauty space, department stores have continued to lose market share as a number of heritage brands have shifted their focus to DTC. If Saks Global can manage to innovate by combining personalized experiences with advancements like artificial intelligence, heritage brands will likely revisit this shift. Emerging brands should follow this closely, as there may be tremendous opportunity for Saks Global to integrate more newness to this future dynamic.

If you have a question you’d like Beauty Independent to ask retail consultants, brand strategists and investors, please send it to editor@beautyindependent.com.