Written by Ananya Mariam Rajesh and Greg Roumeliotis
(Reuters) – The parent company of Saks Fifth Avenue has agreed to buy rival Neiman Marcus, a source familiar with the matter told Reuters on Wednesday, in a move expected to give the struggling luxury retailer more power to negotiate with sellers.
Amazon (NASDAQ:) and Salesforce (NYSE:) will take minority stakes in the combined company, which will be called Sachs Global, and will offer their technology expertise, according to The Wall Street Journal, which reported the $2.65 billion deal earlier today.
The deal comes at a time when luxury retailers are experiencing slowing demand, a far cry from the boom seen after pandemic restrictions eased in 2022, as American customers became more cautious about high-end purchases.
The Wall Street Journal reported that the boards of directors of HPC, the parent company of Saks, and Neiman Marcus have approved the deal, and an announcement could come as soon as this evening, adding that Mark Metrick, CEO of Saks’ e-commerce division, will run the combined company.
While the merger gives the combined luxury retail entity stronger negotiating power with smaller luxury brands, the chain will not match the heft and power of the global luxury goods conglomerates, which will still hold most of the cards, said Neil Saunders, managing director of retail consultancy GlobalData.
“There is a risk that the deal could end up creating a bigger headache for Sachs,” Saunders added.
The most famous luxury brands such as LVMH have their own strong store networks.
Sachs Global will bring in Salesforce to help it embrace AI, and Amazon will provide its technology and logistics expertise, deepening its existing partnership with Sachs, the Wall Street Journal reported.
Amazon and HBC declined to comment, while Saks Fifth Avenue, Salesforce and Neiman Marcus did not immediately respond to Reuters requests for comment.
Neiman Marcus has been suffering losses since emerging from bankruptcy in 2020. It was one of the highest-profile collapses among retailers forced to temporarily close stores in response to the Covid-19 pandemic.
Amazon’s foray into luxury
A minority stake in the combined company would allow Amazon to gain a foothold in the luxury goods market, which has seen steady demand from a high-income consumer base.
“Amazon taking a stake in the business would make sense, because they are looking to play more in the luxury goods space and that would give them a foothold,” Saunders said.
The Wall Street Journal reported that there are no plans to close stores after the deal closes. There are 39 Saks Fifth Avenue stores and 95 discount stores at Saks Off 5th. Saks.com operates as a separate company owned by HBC.
Neiman’s owns 36 department stores, two Bergdorf Goodman stores and five Last Call discount stores. According to Green Street, a real estate research firm, there are eight malls with two Saks Fifth Avenue stores and one Neiman Marcus store.
“Amazon has also been interested in luxury goods to try to get more of that on Amazon.com,” said Morningstar analyst David Schwartz. “They’re always looking for opportunities to get into different types of retail… even more physical retail like we have here with Saks and Neiman Marcus.”
The report stated that HBC Bank is financing the deal with $2 billion raised from existing investors.
Existing investors include Rhone Capital, the Abu Dhabi Investment Council, and NRDC Equity Partners, a private equity firm run by Richard Baker, CEO of Hormuz Capital, and his son Jack Baker. Apollo Global Management (NYSE: APO) is providing $1.15 billion in debt financing.
Richard Baker and his son Jack Baker could not immediately be reached for comment.