The Saks/Neiman Marcus Deal: The Good, The Bad, And The Complicated. (2024)

The news that Saks is buying its long-time luxury department store nemesis Neiman Marcus seemed inevitable for years. In fact, I recently opined in my 2024 predictions that circ*mstances would finally conspire to make it a reality.

Having once been part of Neiman Marcus’ executive leadership team during a time when the company was valued at double what Saks is now paying, I have many strong views about how we got here, what it all means, and where we are likely headed. I attempt to unpack these below.

The Good

As the saying goes, denial is not a river in Egypt. This transaction (finally) acknowledges the reality that the North American luxury department store model has been under assault and in contraction mode for some time. While putting two fairly mediocre companies together does not guarantee remarkable success, it does create the underlying conditions for a better future.

It’s ultimately quite sad that we ended up here, but if the FTC allows the deal to go through—which is far from guaranteed—there are meaningful opportunities to improve all the nameplates’ cost position, to provide a stronger counterbalance to vendors increasingly powerful positions, and to rationalize and reposition the portfolio of stores and brand offerings to greater competitive advantage and improved gross margins.

While it remains unclear the precise role of Amazon and Salesforce as partners in the new entity, both bring potentially powerful financial and technology capital to the table.

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The Bad

It pains me to see Neiman Marcus go from its clear and iconic leadership position, as well as solid top-line growth and strong profitability (EBIDTA margins were once well into the teens) to a place where it has been retrenching and closing stores, was forced to file for bankruptcy, and getting sold at a dramatic (and appalling) haircut from its peak valuation of $6 billion in 2013. But this is the price that gets paid for failing to transform at the speed of disruption and for mostly watching the last decade happen to them.

While I fully expect the Neiman Marcus and Bergdorf brands to be maintained, I also anticipate considerable consolidation of roles and responsibilities, most of which will presumably be to Saks’ New York offices. This not only means significant layoffs across Neiman Marcus Group operations, but a likely gutting of the Dallas home office. Neiman Marcus was founded in Dallas 116 years ago and has been an increasingly vibrant part of the business and social scene ever since. Having it melded into its once lesser rival is a bitter pill to swallow for employees, clients, and the broader fashion and vendor community.

The Complicated

Aside from decisions about the ultimate new organizational structure, many vexing decisions lie ahead, most of which center on whether and how to further differentiate the two primary nameplates and how aggressive to be about consolidation of the many overlapping store locations.

In most of the United States (putting aside the Saks flagship store on 5th avenue and the Bergdorf Goodman location just up the street) the Saks and Neiman Marcus value propositions are quite similar and, unless something has changed more recently, I know from my own work that there are many, many shared customers.

Moreover, the two brands have nearly half their stores that are in walking distance of each other, either because they are literally in the same mall (Houston Galleria, Boca Raton, Bal Harbour, Troy, Michigan, St. Louis, Las Vegas, Tyson’s Galleria) or they are in very close proximity (Boston, San Francisco, Beverly Hills, Atlanta, Chicago, Washington DC). Several others are less than a fifteen minute drive away from each other (Miami, Newport Beach, San Antonio, and Scottsdale).

Historically, the Neiman Marcus locations are typically and comfortably the most productive, and in a world where digital growth is materially outpacing transactions rung up in a store and where competition from vendors’ own stores is being dramatically ramped up, it’s fair to say that many stores are way bigger than they need to be. In cases where two virtually identical concepts have large stores in essentially the same trade areas, the financial upside from closing the weaker location could be enormous.

Executing a major rationalization of the store portfolio is, however, easier said than done. This is true not only because differentiating two very similar, well established brands is no small feat, but unless a lease is expiring soon, or a landlord would love to have the space back for redevelopment, the cost of getting out of a lease early can be considerable.

While many have suggested that Saks Fifth Avenue could be more clearly repositioned toward the “accessible luxury” space, while Neiman Marcus could solidify its position in “true luxury,” this isn’t so clearly a workable strategy. Having Saks trade-down would bring it more obviously in direct competition with Nordstrom’s full-line stores (which have struggled for years to grow their top line) and Bloomingdale’s, both of which often have stores in the same mall as Saks.

One of the reasons Neiman Marcus has struggled is the misguided belief that it was smart to focus more heavily on its very top customers. This is eminently sensible if you want to be a 15 store chain with far smaller stores, but with more than half of its sales coming from outside that cohort, the economics of its current store size and real estate strategy would become even more challenging.

So far not a lot of detail has been shared about the road ahead. Much of this has to do with needing to wait on the FTC approval, while some is likely tied to management not wanting to tip its hands to competitors or adding to the already considerable anxiety among Neiman Marcus’ team members, vendors, and customers.

Time will ultimately tell, but the idea that a better growth path will be the result of this transaction is far from a foregone conclusion.

The Saks/Neiman Marcus Deal: The Good, The Bad, And The Complicated. (2024)

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