Saks Fifth Avenue Owner to Separate E-Commerce and Stores Units

Brahm Buck

The owner of Saks Fifth Avenue is splitting off its e-commerce business into a separate entity and raising $500 million to capitalize on the explosive growth in online shopping, according to company executives. Few changes will be visible to customers. Saks Fifth Avenue, which is owned by HBC, will remain […]

The owner of Saks Fifth Avenue is splitting off its e-commerce business into a separate entity and raising $500 million to capitalize on the explosive growth in online shopping, according to company executives.

Few changes will be visible to customers. Saks Fifth Avenue, which is owned by HBC, will remain the brand name for both the stores and e-commerce business, the executives said. Shoppers will be able to buy online and pick up in stores. They will also be able to make returns and exchanges and use their Saks credit cards either at the stores or online. The online business will oversee the marketing and merchandising for both channels.


‘Investors don’t want to put their money in bricks-and-mortar retailers right now.’


— Richard Baker, CEO of Saks owner HBC

Venture-capital firm Insight Partners has put up $500 million for a minority stake in Saks.com, valuing the business at $2 billion. The money will be used to invest in faster shipping, easier returns and better customer service, executives said.

“By separating the dot-com business, we can show investors its value,” HBC Chief Executive Officer

Richard Baker

said in an interview. “Investors don’t want to put their money in bricks-and-mortar retailers right now.”

Marc Metrick,

previously the CEO of the combined Saks businesses, will serve as CEO of the online entity, which will add a marketplace component to its retail business. Saks veteran Larry Bruce has been appointed president of the stores business.

“When online retailing started over 20 years ago, department stores weren’t able to jump on board,” Mr. Metrick said. “They had to make choices. They needed to make investments in their stores. As luxury shopping takes off online, we are not going to miss that opportunity again.”

Sebastian Gunningham,

a former Amazon.com Inc. executive, will join the board of the entity that houses Saks.com. He said online luxury retailers such as Saks need to improve the shopping experience. “Today, you buy a toothbrush online the same way you buy a $1,000 dress,” he said. “But the skills you need to think about creating a great customer experience online are different than those you need for stores.”

The marketplace will increase Saks.com’s offerings, adding smaller, emerging brands. Stylists in Saks stores will be able to sell marketplace items and receive commissions on those sales. Saks.com will control the customer interaction, and shoppers won’t know they are buying from a third party, Mr. Gunningham said.

HBC was taken private last year by a group of shareholders that includes Mr. Baker. At the time, he said operating as a private company would give HBC the flexibility to reinvent and invest in both its stores and online businesses. The company also owns the Hudson’s Bay chain in Canada and Saks Off Fifth, a discount chain.

Marc Metrick, here in the flagship Saks store in 2019, will serve as CEO of the online entity.



Photo:

Kathy Willens/Associated Press

Neiman Marcus Group last year spun off Mytheresa Group GmbH to resolve a dispute with bondholders. The online luxury seller went public in January 2021 and now sports a valuation of roughly $2.4 billion.

Other companies have tried dividing into separate entities with less than stellar results. Under the direction of hedge-fund manager Eddie Lampert, Sears Holdings Corp. split into more than two dozen divisions. Sears closed hundreds of stores and filed for bankruptcy protection in 2018.

Mr. Baker said the stores division will benefit from affiliate fees it will receive from the web, and the online business will have access to more capital. For instance, the $2 billion valuation that Saks.com now commands is about 30% more than the valuation of all of HBC when it went private.

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Luxury brands were initially slow to adopt e-commerce, but it has become a big business in recent years as new entrants made it easier to buy pricey goods online. The shares of online luxury platforms Farfetch and

Zalando

SE have soared over the past year.

During the Covid-19 pandemic, shoppers shifted to buying even more online, as they sheltered at home and physical stores temporarily closed. Digital sales represented more than half of

Nordstrom Inc.’s

total sales in its most recent quarter, up from 35% a year earlier.

In the early days of the internet, retailers operated their online businesses as separate divisions. Then, as the importance of creating a seamless experience for shoppers became clear, they merged the units.

“The industry has gone back and forth on what is the right model,” said Steven Langman, managing director of Rhone Capital LLC, an HBC investor. “The department store of the future should have a physical presence, but be about e-commerce first.”

Write to Suzanne Kapner at [email protected]

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