Saks Inc.’s Latest Suitor: Lord & Taylor Owner Hudson’s Bay Co.?

In Industry News, Reports, What's New by Jeff Prine1 Comment

Saks Fifth Avenue's New York flagship, one of the prime retail locations in the world

Saks Fifth Avenue’s New York flagship, one of the prime retail locations in the world

Toronto—Neiman Marcus Inc.’s owners may have quashed the purported idea whereby Kohlberg Kravis Roberts would have taken a stake in Neiman Marcus, bought Saks Inc. and merged the two luxury retailers, but rumors about other suitors for Saks Inc. continue.

The latest, as reported by the Wall Street Journal, is that Hudson’s Bay Company, the Canadian retailer who also owns Lord & Taylor, is in talks about buying Saks Inc., opening Saks Fifth Avenue and Off 5th stores in Canada, even possibly switching some locations between the retail brands.

While Hudson’s Bay and Saks executives declined to comment, that hasn’t stopped conjecture about the pros and cons (mostly pros) that such a buy might entail.

Saks Inc. has reportedly been up for sale about a month and has attracted the attention of several U.S. private equity groups, according to several reports.

Richard Baker, Hudson’s Bay chief executive, actually lives in Greenwich, Conn., and is based in New York. While he has been credited with turning around Hudson’s Bay in the last five years, he has also been in talks with Bloomingdale’s and Nordstrom in the past about partnering shop concepts in the Canadian market. He also hired several Saks executives including Donald Watros, chief operating officer and Marc Metrick, chief marketing officer, Christopher Sim, senior vice president of finance who came via Lord & Taylor, having previously worked at Saks as its senior vice-president of finance.

And in Canada, where there is a shortage of strong retail locations, Baker could introduce Saks into locations he could convert into flagships. The same is true of Off 5th and launching e-commerce for Saks in Canada.

Although a merger might mean retailers that are part of Hudson’s Bay would compete against each other, Baker recently dismissed such competition when talking Nordstrom opening in the same malls or nearby Hudson’s Bay doors. Baker said Nordstrom’s proximity to his stores would actually help foot traffic into Hudson’s Bay.

But Is Saks Too Expensive Now?

“Hudson’s Bay is a promotional retailer and every day there is a different kind of exciting promotion going on, and that is what drives our business,” Baker said. “They will be drawing more traffic to the location.”

Presumably a similar scenario might happen with a Saks Fifth Avenue nearby—not to mention Saks would be viable competitor  for Nordstrom’s more affluent customers.

Hudson’s Bay Company is in a much stronger position than it was a few years ago, too. The company sold its low performing Zellers stores to Target for $1.8 billion. In its first quarter report, HBC posted a narrowed loss to $21.1 million, or 18 cents a share, compared to $47 million, or 45 cents a share, in the year-earlier period. Sales rose 4.2% to $884 million. Comparable store sales at its Canadian stores rose 7.6% (thought Lord & Taylor reported a 1.4% decline in comp sales).

The report last week that Baker realigned top executives, naming veteran retail executive Bonnie Brooks as vice chairman, and Liz Rodbell, chief merchant, as president, could also be a sign that he is positioning the company for an expanded retail role.

On the other hand, one source told the Journal that Saks Inc. may be too pricey for Hudson’s Bay and Baker. Saks’s Fifth Avenue flagship in New York alone is estimated to carry a price of anywhere from $600 million to more than $1 billion.

Analysts estimate that Saks Inc., which has annual sales of $3.15 billion, has a market cap of $2 billion. Estimates of its real estate value range as high as $1.8 billion.

“It doesn’t seem like there is any deal too large for him to take a look at,” Jim Smerdon, director of retail and strategic planning at Colliers International told a Montreal newspaper. “(Baker) would not be scared off from the size of the deal.”