What Does the Saks-Neiman’s $2.65 Billion Deal Mean for the Beauty Business?

What has long been rumored became a reality last week.

Hudson’s Bay Co. reached an agreement to acquire the Neiman Marcus Group for $2.65 billion, bringing the Dallas-based luxury retailer together with the New York-based Saks Fifth Avenue as Saks Global. Amazon was also revealed as a surprise investor in the deal, which is pending approval by the Federal Trade Commission.

But what does this mean for beauty, of which department stores are a slowing but still important retail distribution channel? 

“This merger could potentially have a very positive impact on the prestige beauty category,” said Edgar Huber, chief executive officer of Nest. “Saks has consistently proven over the last couple of years that they invest in the quality of their stores, have launched innovative retail-, hospitality-, shared workspace concepts, have modernized merchandising strategies and the assortment mix.”

He added that the most interesting aspect for him is the partnership with Amazon. “Amazon will work with Saks Global to ‘innovate on behalf of customers and brand partners following the close of the transaction,’ HBC said. That could involve logistical and digital upgrades.”

Recently, a slew of prestige brands, including Clinique, Bumble & Bumble, Too Faced and Kiehl’s, joined Amazon after years of eschewing it as beauty companies are now viewing it much more seriously as a distribution channel.

“We will have to see how this will unfold concretely but you could imagine substantial mutual benefits for both retailers in terms of access to luxury brands, targeted data mining, quality of online execution and DTC logistics,” Huber continued.

Revive Skin Care CEO Elana Drell-Szyfer told WWD that only time will tell how the deal impacts luxury beauty as the two businesses have a very different approach when it comes to beauty. 

“There actually is a great cultural difference in how the two run their beauty businesses and truthfully, of late, I would say that the Saks business has been much more focused on how to drive business through digital,” she said. ”But Saks has not leaned into as many branded in-store experiences and very important customer or brand ambassador in-store events in the way that Neiman’s does and fosters.”

Drell-Szyfer added that for a luxury beauty brand that is not in Ulta Beauty or Sephora, this also means there are now fewer points of distribution.

“There are fewer places really to scale your business as a luxury brand, and that’s not only with the consolidation of the two, but even with Neiman’s bankruptcy a few years ago, when they ended up closing 13 stores,” she said.

According to the Green Street real estate research firm, there are eight malls that have both a Saks Fifth Avenue and Neiman Marcus store. Decisions could be made on closing the weaker of the two in certain locations, benefiting the remaining store.

Wendy Liebmann, chief executive officer and chief shopper at WSL Strategic Retail, also questioned whether the merger could impact a brand’s negotiating power.

“It may give Neiman’s a greater viability, and Saks a greater viability to be under one roof or under one company, but from a brand standpoint, the ability to negotiate, the ability to create a different, unique offer to a customer it’s a bit of a challenge,” she said. “However, having said that, all the smart people I know in this world who worked in the space say to me, we really can’t justify that many luxury department stores in this country anymore.”

“So there’s two sides of the question,” she continued. “Am I going to lose business because now I’m dealing with one company, one buyer, and my negotiating power will dissipate, or because now I’ve got one bigger, stronger company that actually has the resources to tell the story more effectively, does that make it easier? It’s probably a bit of both.”

Other sources discussed whether the merger would help Saks pay vendors on time.

At the end of last year, the Instagram account Estée Laundry posted that Estée Lauder Cos. Inc. had issued a directive that Saks is on credit hold for all Lauder brands, which include Tom Ford Beauty, Jo Malone, Bobbi Brown, MAC, La Mer and more. Some sources backed that up, while others said there was a passing credit dispute and that the beauty giant is still shipping Saks as usual. Shortly after, HBC raised $340 million in cash that can be used to bolster its retail operations.

One source said: “One would hope that it would get better, but I think the structure of financing a deal versus what your operating cash flow looks like is handled pretty separately.”

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