Hudson’s Bay Co. to buy luxury retailer Neiman Marcus in US$2.65-billion deal

The parent company of Canadian retailer Hudson’s Bay is buying Neiman Marcus Group in a US$2.65-billion deal that includes an investment from e-commerce giant Amazon.com Inc.

HBC L.P., which also owns Saks Fifth Avenue, announced the deal on Thursday, consolidating the luxury department stores at a time when consumers suffering under the weight of inflation and higher interest rates have been cutting back on non-essential purchases.

When the deal closes, HBC will establish a new company called Saks Global, combining Saks, Saks Off 5th, Neiman Marcus and Bergdorf Goodman. The company will hold the combined U.S. real estate assets of HBC and Neiman Marcus Group, which are worth US$7-billion, according to the company.

HBC operates 39 Saks Fifth Avenue stores across North America, and 95 Saks Off 5th locations; Neiman Marcus has 36 stores, as well as two Bergdorf Goodman locations and five discount Last Call stores.

The Canadian retail operations will continue to operate separately from Saks Global as a wholly owned division of HBC, and will continue to hold the company’s Canadian real estate assets, which HBC says are worth $2-billion. The deal will also recapitalize the Canadian business to reduce its leverage and provide “enhanced liquidity,” according to a press release on Thursday.

The Canadian operations have been struggling, cutting hundreds of jobs since the beginning of last year and falling behind on payments to some suppliers last fall.

HBC is financing the deal with equity capital from new and existing investors. Those include Amazon and Salesforce Inc., which will both be minority shareholders in the new company. Amazon will also work with Saks Global to help the retailer to “innovate,” according to the press release. Existing investors, including private-equity firms Rhône Capital and Insight Partners, will continue as shareholders in Saks Global.

Apollo Global Management is providing US$1.15-billion in debt financing. HBC also secured a US$2-billion revolving asset-based loan facility from lead underwriter Bank of America, Citigroup, Morgan Stanley, RBC Capital Markets and Wells Fargo.

“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,” HBC executive chairman and CEO Richard Baker wrote in a statement Thursday.

Luxury department stores used to hold significant influence with fashion brands that relied on them to reach consumers. “The department stores had some leverage in terms of orders, payment terms, margins and so on,” said Vancouver-based industry consultant David Ian Gray. But over time, as luxury brands have increasingly opened their own stores and sold direct to customers online, that has shifted. “There has been a balancing out of the power of that relationship,” Mr. Gray said, though he added that the retailers may gain some increased buying power once combined.

Insight Partners previously invested a combined US$700-million in the e-commerce operations Saks.com and SaksOff5th.com, which the company spun off into separate businesses in 2021. Those digital businesses will also be part of Saks Global once the transaction closes.

The current chief executive officer of Saks.com, Marc Metrick, will be CEO of Saks Global. Ian Putnam, who is currently president and CEO of HBC Properties and Investments, will be CEO of Saks Global Properties and Investments. Both will report to Mr. Baker, who will be executive chairman of Saks Global. Mr. Baker will continue to be the controlling shareholder of the company.

The boards of directors of both HBC and Neiman Marcus Group have approved the transaction, according to Thursday’s announcement. The deal is subject to regulatory approvals and other closing conditions.

Neiman Marcus went bankrupt in 2020, as retailers were forced to temporarily shut their doors during the COVID-19 pandemic – forcing those who were already struggling to restructure their businesses. The process wiped out the equity of the chain’s owners at the time, which included the Canada Pension Plan Investment Board.

Another chain, Lord & Taylor – which Hudson’s Bay Co. sold the previous year, before Mr. Baker took HBC private – also filed for bankruptcy protection in 2020, closing down all of its stores. The retailer continues to operate online.

Demand for luxury products increased significantly after the easing of pandemic-era restrictions, but spending in the U.S. has slowed more recently amid inflationary pressures. According to consultancy Bain & Co., luxury spending declined by 8 per cent in the Americas region last year compared with 2022.

Other large department store retailers have been struggling. Earlier this year, Macy’s announced it would close 150 underperforming stores over the next three years. Luxury chain Nordstrom closed all 13 of its locations in Canada last year, saying the company saw no path to profitability in the market.

But Amazon has seen an opportunity to sell more luxury products, which come with higher markups than other items. The e-commerce giant would not provide further comment on the reason for its investment in Saks Global on Thursday. But Amazon has been working for years to break into the luxury market, and currently sells brands such as Prada and Altuzarra on its site. It has also begun selling luxury fashion secondhand, and has recently partnered with resale businesses such as Hardly Ever Worn It (HEWI) and Hypebeast’s e-commerce business HBX.