'Marriage of convenience': Hudson's Bay Co. buying Neiman Marcus for US$2.65B

Hudson's Bay Co. has reached a deal to buy luxury department store chain Neiman Marcus, according to reports by the Wall Street Journal and the New York Times. (Nathan Denette/The Canadian Press)

Several North American department stores are joining forces under a deal that will see Hudson's Bay Co. buy Neiman Marcus and spin it out into a larger business along with some of its other prestige retailers.

HBC's US$2.65 billion acquisition, announced Thursday, delivers Canada's oldest company ownership of Dallas-based Neiman Marcus Group, which has a network of 38 luxury department stores under the Neiman Marcus and Bergdorf Goodman banners. Both brands sell designer apparel, accessories and housewares.

Under the deal, Toronto-based HBC will group Neiman Marcus and Bergdorf Goodman in a new business alongside Saks Fifth Avenue and Saks Off 5th, which it has owned since 2013. The new entity will be called Saks Global and run by Saks.com chief executive Marc Metrick.

The union of brands puts to rest long-standing speculation that the retailers were on the verge of a merger and will test whether the companies are stronger together than apart.

“For years, many in the industry have anticipated this transaction and the benefits it would drive for customers, partners and employees," HBC's executive chairman and chief executive Richard Baker said in a release announcing the deal.

"This is an exciting time in luxury retail, with technological advancements creating new opportunities to redefine the customer experience, and we look forward to unlocking significant value for our customers, brand partners and employees.”

Neiman Marcus and HBC declined interview requests to discuss the deal, which will see e-commerce goliath Amazon.com Inc. and software giant Salesforce become investors in Saks Global. The tech companies did not answer questions about whether they were taking an ownership stake in Saks Global as part of the transaction.

The tie-up comes at a critical juncture for both the retail market and luxury brands, which have watched consumers cut back on purchases because of high inflation and interest rates that materialized just as businesses began to recover from the COVID-19 pandemic. At the same time, department stores have fallen out of favour amid the rise of e-commerce and direct-to-consumer sales.

As Neiman Marcus wrestled with these issues, it filed for bankruptcy protection in May 2020 but managed to survive.

HBC, meanwhile, has navigated headwinds by laying off staff, closing some of its stores and selling off millions in real estate in the last few years.

"Bringing Saks and Neiman Marcus together would be something of a marriage of convenience," Neil Saunders, managing director of GlobalData, said in a note Wednesday when U.S. publications reported a deal had been reached.

"Both chains have struggled with growth, and both have concerns about their prospects."

Uniting them could deliver more "financial firepower" to negotiate with luxury brands and cut out duplicative costs, said Saunders, but "a merger does not resolve all the issues."

"Even a combined chain would not match the heft and power of the global luxury conglomerates, which would still hold most of the cards," he said.

"As such, there is a risk that the deal might end up creating an even bigger headache for Saks."

The deal will leave HBC out of the Saks Global conglomerate but see the Canadian retailer "recapitalized as a stand-alone entity" with significantly reduced leverage and enhanced liquidity," a press release said.

HBC will continue to wholly own its Canadian retail and real estate assets, including Hudson’s Bay and a $2 billion real estate portfolio.

Liza Amlani, co-founder of the Retail Strategy Group, predicted the transaction will result in HBC shrinking its footprint.

"Some of the stores will close down. They'll sell them off if they're not profitable," she said, noting she's observed few customers and plenty of markdowns on her recent trips to the chain.

She also wouldn't be surprised if HBC decided to move to a smaller, more localized format of stores that can better generate sales.

Saks Global, meanwhile, will have control over US$7 billion in real estate assets owned by HBC’s U.S. division and Neiman Marcus Group.

Ian Putnam, president and chief executive of HBC Properties and Investments, will become chief executive of Saks Global Properties and Investments, which will manage, maximize and enhance the company’s robust portfolio of assets.

Metrick and Putnam will report to Baker, a real estate mogul who will serve as executive chairman of Saks Global.

Baker took HBC private in 2020, in the wake of the company closing Home Outfitters and selling Lord & Taylor to fashion rental subscription company Le Tote Inc.

The Neiman Marcus and HBC deal is subject to customary conditions and the companies did not reveal an expected closing date for the transaction.

This report by The Canadian Press was first published July 4, 2024.