Following the Saks merge, What Transpires with Neiman Marcus?
Following the Saks merge, What Transpires with Neiman Marcus?
The merger between Saks Fifth Avenue-Neiman Marcus Group (NMG) is now finalized. As a result, luxury retail establishments like Neiman Marcus, Bergdorf Goodman, Saks Fifth Avenue, Saks Off 5th, and Neiman Marcus Last Call will fall under the umbrella of Saks Global. Marc Metrick assumes the role of CEO for the Saks Global Operating Group, reporting directly to Richard Baker, the executive chairman of HBC.
Baker ends the year on a triumphant note, despite upsetting vendors by delaying payments, disappointing New Yorkers by canceling Saks’ renowned holiday light show, and seeking financial help from the junk bond market to finalize the $2.7 billion deal.
The merger combines three prestigious retailers, including 36 Neiman Marcus and 42 Saks Fifth Avenue flagship stores, who primarily compete at the pinnacle of the luxury retail market. While Bergdorf Goodman, situated just up Fifth Avenue from Saks, may rank slightly higher, they all draw from the same affluent customer base, who may not warmly receive the impending changes caused by the merger.
As Neiman Marcus acts as the acquired rather than the acquirer, the majority of these changes will likely impact its 10,000 employees and loyal customer base, who desire more of what they've consistently gained from Neiman Marcus, not something new and unfamiliar.
Conflict is inevitable between the two rival companies, and Neiman Marcus customers may find themselves at a disadvantage as a result.
Direction of Change
In a press release, Baker celebrated the achievement, declaring, "This monumental transaction represents a seminal moment for Saks Global and the luxury retail sector."
"Through the integration of Neiman Marcus, Bergdorf Goodman, and Saks Fifth Avenue, we have forged an unparalleled multi-brand luxury portfolio, teeming with growth potential," he stated, pointing to the powerful data resources of the combined companies as the driving force behind innovations to revolutionize the luxury shopping experience.
Transformation is also a top priority for Metrick, who declared, "As a single entity, we possess the potential to revolutionize the manner in which we cater to our customers." With a wealth of relationships across the industry, advanced personalization techniques, and strategic technology collaborations, he added, "We are poised to drive innovation and growth."
Baker and Metrick's transformative innovation perspectives suggest a reliance on technology to serve customers, with partners like Amazon and Salesforce involved in the merger.
The future direction is uncertain, but it suggests that Saks Global will prioritize e-commerce for growth. This may seem counterintuitive in the luxury market, where customers crave personalized, high-touch shopping experiences.
Despite the projected growth in luxury e-commerce, which will rise from its current 20% market share to between 30% and 33% by 2030 as per Bain, the heady growth in e-commerce has started to slow down, according to Bain, as online shopping moves into a period of normalization.
Rather than simply wanting to make a luxury purchase, luxury customers yearn for a holistic shopping experience that online shopping cannot provide.
Left Behind
In the official announcement, only NMG's chief supply chain officer, Bill Bine, is mentioned as transitioning to Saks Global, taking up the position of chief transformation officer. He brings a wealth of experience in the operational facet of the business, but not in serving customers directly.
As anticipated, NMG's CEO Geoffroy van Raemdonck, along with other senior NMG executives, has left the company. For instance, Saks' chief merchandising officer, Tracy Margolies, will succeed Darcy Penick as president of Bergdorf Goodman.
Both she and van Raemdonck have been part of the organization since 2018 and played instrumental roles in navigating the company through the 2020 bankruptcy and subsequent corporate restructuring, an event that still resonates with many long-term NMG employees.
NMG's chief people officer, Eric Severson, is another valuable member of van Raemdonck's team who was left behind. Together, they spearheaded the implementation of the NMG|Way program, which instigated a radical cultural transformation for the company's employees, resulting in improved relationships with both customers and employees.
In a LinkedIn post, van Raemdonck reflected on their achievements, praising his team for their "commitment to our customers" and the "extraordinary outcomes" achieved, such as deepening relationships with brand partners and customers and increased engagement from staff associates.
Despite their success in fostering a positive company culture, it seems the NMG Way culture may be consigned to the past, replaced by the Saks model.
If Net Promoter Scores serve as an indicator of which corporate culture is more favored by customers, Bergdorf Goodman and Neiman Marcus emerge as the winners. According to Comparably, Bergdorfs boasts a NPS of 19, while Neiman Marcus achieves a 16, in stark contrast to Saks' -1.
Nordstrom surpasses all competitors with a NPS of 21, navigating its own phase of drastic transformation as the Nordstrom family partners with Mexican retailer El Puerto de Liverpool to take the company private.
The merger of Saks Fifth Avenue, Neiman Marcus, and Bergdorf Goodman means that the luxury retail landscape will never be the same, as these iconic brands join forces to create a juggernaut in the world of high-end shopping. The exact implications of this transformation are still to be seen, but one thing is certain: the luxury retail industry is about to undergo a sea change.
My understanding – or perhaps my wishful thinking – is that the management trio of Erik, Pete, and Jamie Nordstrom can concentrate on strengthening the high-end, luxury aspect of their business, rather than concentrating so much on the discount Rack branch to appease investors.
Disappointing Performance in Mergers and Acquisitions
Harvard Business School Professor Bill Christensen shares that mergers and acquisitions have a dismal success rate, citing "study after study" that puts the failure rate between 70% and 90%.
As reported by Bain, successful mergers and acquisitions typically involve a candidate that supplements a strategic deficiency in the acquiring company's business, either in terms of assets or strategic capabilities.
NMG and Saks share the same underlying business. Therefore, NGM does not meet a strategic need in the luxury market for Saks beyond geographical coverage.
Indeed, NMG contributes substantial real estate assets to the merger. Ian Putnam, a long-time Baker associate, will assume oversight of Saks' Global Properties and Investment division.
"With the integration of Neiman Marcus assets," the company stated, "our real estate and development teams eagerly anticipate continuing to seize opportunities from our substantial property portfolio," estimated to have a $7 billion gross asset value.
Notably, Richard Baker is more of a real estate specialist than a retail one. His track record in retail acquisitions leaves much to be desired. HBC struggled with its takeovers of Gilt Group, Fortunoff, and Home Outfitters.
Lord & Taylor, however, was a different story. HBC acquired the near-luxury retail chain in 2012, only to see the retail operations sold off to Le Tote in 2019 for next to nothing.
But HBC managed to cash in by retaining the real estate assets and selling the Lord & Taylor Fifth Avenue building to WeWork.
Farewell, Dallas
Predicting the outcome of the Saks merger with Neiman Marcus is premature. Nevertheless, given the circumstances, it's a safe bet that Neiman Marcus' headquarters in Dallas will significantly downsize. In 2022, Neiman Marcus underwent a major renovation of its Dallas hub headquarters thanks to a $5.25 million incentive package from the Dallas City Council.
"Neiman Marcus is a symbol of Dallas," Mayor Eric Johnson stated at the time. “We are proud to keep this global brand in the heart of our city, and we look forward to the new jobs and opportunities that this partnership brings to the people of Dallas.”
Neiman Marcus has been an integral part of Dallas since 1907, a prominent employer, and a strong community supporter. It's disheartening to contemplate a new owner detaching from the local community, but that is a likely scenario.
In the wake of the merger, Saks Global will oversee a significant expansion, with Saks Fifth Avenue and Neiman Marcus Group combining their flagship stores, totaling 36 Neiman Marcus and 42 Saks Fifth Avenue locations. This new entity, regarded as an unparalleled multi-brand luxury portfolio, aims to revolutionize the luxury shopping experience through innovative technology and partnerships.
Furthermore, the merger and acquisitions under Saks Global will continue to shape the luxury retail landscape, as seen in the recent Neiman Marcus Group merger. However, some experts like Harvard Business School Professor Bill Christensen argue that mergers and acquisitions have a disappointing success rate, often failing between 70% and 90% of the time. This trend highlights the challenges the combined companies may face in their journey towards growth and innovation.