“By uniting Neiman Marcus, Bergdorf Goodman and Saks Fifth Avenue, we have created an unparalleled … [+]
It’s official. The Saks Fifth Avenue-Neiman Marcus Group (NMG) merger is done.
Now luxury retailers Neiman Marcus, Bergdorf Goodman, Saks Fifth Avenue, plus off-price Saks Off 5th and Neiman Marcus Last Call outlets, will jointly operate under Saks Global. Marc Metrick takes the helm as CEO of Saks Global Operating Group, reporting to Richard Baker, HBC’s executive chairman.
Baker ends the year on a high after upsetting many vendors by making them wait to get paid, disappointing New Yorkers by canceling Saks’ iconic holiday light show and turning to the junk bond market to push the deal valued at $2.7 billion over the finish line.
The merger brings together three iconic retailers that largely compete at the top of the exclusive luxury retail pyramid, including 36 Neiman Marcus and 42 Saks Fifth Avenue flagship stores.
Bergdorf Goodman, with its women’s and men’s stores up Fifth Avenue from Saks, may be a notch or two higher, but they all draw from the same affluent customer base who may not take kindly to the inevitable changes this merger will bring.
Since Neiman Marcus is the acquiree, not the acquirer, most of those changes will likely be felt by its 10,000 employees and loyal customer base who want more of what they’ve always gotten from Neiman Marcus, not something different.
There is bound to be a culture class – two fierce competitive rivals don’t become friends overnight – and the Neiman Marcus customers are likely to get the short end of the stick.
Direction Of Change
In a statement, Baker took a victory lap. “This milestone transaction marks a transformative moment for Saks Global and the luxury retail industry,” he exclaimed.
“By uniting Neiman Marcus, Bergdorf Goodman and Saks Fifth Avenue, we have created an unparalleled multi-brand luxury portfolio with tremendous growth potential,” he added, pointing to the powerful data resources of the combined companies as driving innovation “to redefine the luxury shopping experience.”
Transformation is also top of mind for Metrick. “As one company, we have an opportunity to transform the way we serve customers,” he announced. “With deep relationships across the industry, cutting-edge personalization and strategic technology partnerships, we are pointed to drive innovation and growth.”
Taken together, Baker’s and Metrick’s transformative innovation comments suggest more technology on the horizon to serve customers and with Amazon and Salesforce partners in the merger, that is pretty well guaranteed.
What that will look like is anybody’s guess, but it suggests Saks Global will lean into e-commerce for growth. That seems to be the wrong direction in the luxury market, where discerning customers want more personalized, high-touch customer experiences.
Yes, luxury e-commerce will continue to grow, from its current 20% market share to between 30% and 33% by 2030, according to Bain. However, the heady growth in e-commerce is over as Bain observes online e-commerce is entering a “normalization period.”
Rather than simply wanting to make a luxury purchase, i.e. conduct a transaction that online shopping does very well, luxury customers want a wrap-around feeling when they shop luxury. Online shopping falls short.
“Consumers are increasingly seeking immersive, personalized and brand-curated experiences. Winning brands will drive traffic back to stores by delivering differentiated value propositions and broadening in-store engagement,” Bain reported.
Left Behind
In the official announcement, only NMG chief supply chain officer Bill Bine is mentioned as transitioning to Saks Global in the new role as chief transformation officer. He brings extensive experience in the backend operational side of the business, not the customer-facing side.
As expected, NMG’s CEO Geoffroy van Raemdonck has left the company along with other senior NMG executives. For example, Saks’ chief merchandising officer Tracy Margolies will replace Darcy Penick as president of Bergdorf Goodman.
Both she and van Raemdonck have been with the company since 2018 and saw it successfully through the 2020 bankruptcy and corporate restructuring, a disruption that remains fresh in the memory of many longtime NMG employees.
NMG’s chief people officer, Eric Severson, is another valued member of van Raemdonck’s team left behind. Together, they implemented what was called the NMG|Way program that led to radical cultural transformation for the company employees which also positively transformed the company’s relationships with customers. Happier retail employees make for happier customers.
In a statement posted on LinkedIn, van Raemdonck reflected, “More than six years ago, we set out to transform NMG from a department store to a profitable luxury relationship business. We implemented a customer-centric strategy with a unique and differentiated business model.”
He thanked his team for their “commitment to our customers” and the “extraordinary outcomes” achieved, including deepening relationships with brand partners and customers and increased engagement from staff associates.
“We did this by leaning into our strong NMG Way culture to unlock the Power of One, our growth mindset and our commitment to Leading with Love for all of our Believers,” he continued.
Likely, the NMG Way culture will get left behind, replaced by the Saks model.
If Net Promotor Scores are any indication of which corporate culture is better from the customers’ perspective, Bergdorf Goodman and Neiman Marcus win. According to Comparably, Bergdoft has a NPS of 19 and Neiman Marcus’ is 16, compared with Saks at -1.
Nordstrom does even better with a NPS of 21 and is in the throes of radical transformation too as the Nordstrom family with Mexican retail partner El Puerto de Liverpool take the company private.
My sense – or more accurately, my hope – is that the executive team of Erik, Pete and Jamie Nordstrom can focus attention on the flagship luxury side of the business, rather than spend so much time and attention to the off-price Rack business to please investors.
Poor Track Record In M&As
Harvard Business School Professor Bill Christensen reports that mergers and acquisitions have an exceedingly high failure rate, claiming “study after study” puts the failure rate between 70% and 90%.
And according to Bain, the more successful mergers and acquisitions are those where the candidate fills a strategic gap in the acquiring company’s business, either in assets or strategic capabilities.
NMG and Saks are basically in the same business so for Saks, NGM doesn’t fill a strategic gap in the luxury market other than in locations.
Indeed, NMG brings considerable real estate assets to the merger. Longtime Baker right-hand man Ian Putnam will be given oversight of the Saks Global Properties and Investment arm of the business.
“With the addition of the Neiman Marcus assets, our real estate and development teams look forward to continuing to opportunistically unlock value from our robust portfolio,” which the company figures has a gross asset value of $7 billion.
And lest one forget, Richard Baker is primarily a real estate, not a retail guy. He has a poor track record in acquiring retail ventures. HBC failed with its Gilt Group, Fortunoff and Home Outfiters acquisitions.
And most notably Lord & Taylor did work out. It acquired the near-luxury retail chain in 2012, only to go belly up after its retail operations were sold off for a pittance to Le Tote in 2019.
HBC, however, held onto the real estate assets and cashed in after selling the Lord and Taylor Fifth Avenue building to WeWork. Now the building is in Amazon’s hands, but that’s another story.
Goodbye Dallas
It’s too early to say how the Saks merger with Neiman Marcus will turn out, but NMG’s headquarters in Dallas will likely be gutted. In 2022 Neiman Marcus underwent a major renovation of its Dallas hub headquarters with the Dallas City Council granting an incentive package of $5.25 million to keep Neiman Marcus in Dallas.
“Neiman Marcus is synonymous with Dallas,” Mayor Eric Johnson said at the time. “We are pleased to keep this global brand in the heart of our great city, and we look forward to the new jobs and opportunities that this deal provides for the people of Dallas.”
Neiman Marcus has been a landmark in Dallas since 1907 and a prominent employer and supporter of the community. It’s sad to envision new ownership cutting ties to the local community, but surely it will lead to that.
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