Vendors Ponder Future With HBC-Owned Saks

There are more questions than answers on how the retail operations will shake out after the deal closes, which is expected to happen later this year.

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What’s the fallout?

This story first appeared in the August 26, 2013 issue of WWD.  Subscribe Today.

That’s the question fashion vendors are pondering now that the bankers are just about done and Saks Inc. is set to be taken over by Richard Baker’s Hudson’s Bay Co. in a $2.9 billion deal.

The first read is a mostly positive one, although more Saks stores could eventually be shuttered.

Baker, chairman and chief executive officer of Hudson’s Bay, has a background in real estate, but clearly caught the retail bug as he combined Lord & Taylor with Canada’s Hudson’s Bay and is seen as ambitious and willing to try new things.

But there are still more questions than answers on how the retail operations will shake out after the deal closes, which is expected to happen later this year, assuming no one makes a better offer during the “go-shop” period ending Sept. 6.

RELATED STORY: HBC’s Saks Purchase — the Anatomy of a Deal >>

Ronald Frasch, president of Saks, wrote a letter to vendors after the deal was inked last month noting that Hudson’s Bay was attracted to the “Saks brand, our people, our real estate and store base, our loyal customers and our very special vendor relationships.

“Most importantly, they believe in the power of Saks Fifth Avenue and in the long-term growth potential of the business,” he said, according to a copy of the letter obtained by WWD. “For example, HBC sees opportunities to open stores across Canada and to establish a Canadian saks.com Web site.

“Our understanding is that HBC will continue to run Saks Fifth Avenue separately under their corporate umbrella and that Saks Fifth Avenue will remain headquartered in New York City,” he said.

But Saks will inevitably take a new tack under new ownership.

Vendors who are casting a wary eye on the deal are most concerned that Saks will close more doors. Some believe up to 10 of the 41 current Saks stores could be shuttered or repositioned as Lord & Taylor doors over the next several years. There are also worries over whether there will eventually be some centralization of the buying process at Saks and Lord & Taylor.

“I simply don’t know what’s going to happen. This is a wait-and-see situation,” said one supplier to Hudson’s Bay and Lord & Taylor who requested anonymity. “Retailing is being rewritten once again, but it will take at least a year to effect any changes. I don’t have a crystal ball, but I don’t think much will be done to alter the DNA of Saks. It can’t be tampered with, other than taking it more upscale.”

“They need to operate Saks as a separate entity,” said a former retail ceo. “I think vendors would start getting really concerned if there was going to be a centralized corporate buying office. Macy’s has one that services Macy’s and Bloomingdale’s, but Bloomingdale’s operates pretty independently.”

Neal Fox, president and ceo of leather goods firm Mark Cross, which sells Barneys New York, said, “It would be foolish to try to integrate too much without taking a long look at the ramifications.”

Fox also stressed that suppliers have to look at the upcoming acquisition as an opportunity for growth. “If Richard Baker makes the right decisions about what stores to convert to a different nameplate, or if he can do a more effective job with the doors he’s got [by investing in them] there could be opportunities for brands.”

Baker has said some Saks stores could be converted to Lord & Taylors, which means more business for Lord & Taylor suppliers. But he’s also mentioned the possibility of Saks entering Canada with up to seven locations. It’s also possible that Baker could roll out Saks Off 5th outlets in Canada.

Baker has been busy tweaking Hudson’s Bay and Lord & Taylor and will use some of that experience to inform decisions made at Saks. Hudson’s Bay, for instance, refreshed its designer department, The Room, in 2009. The assortment and marketing were changed for the area, which functions like a boutique inside the larger store.

Jeffry Aronsson, ceo of Ralph Rucci and chairman of the Aronsson Group, said Baker could bring similar thinking to Saks.

“He’s a very smart and innovative businessman who is doing interesting things North of the border, in particular, The Room,” Aronsson said.

Given his background in real estate and its focus on productivity per square foot, Aronsson said Baker might be the one to bring the leased-department model that department stores use overseas to the U.S.

“If he brings concepts such as The Room and perhaps more than experiments with leased departments, [Baker] may have a major and positive impact for both the stores and their vendors,” Aronsson said.

And although Saks Fifth Avenue on one hand and Lord & Taylor and Hudson’s Bay on the other are primarily focused on different price points, there is enough overlap that vendors are hoping a strong track record at one of the chains will open up opportunities when the companies are brought together.

Thia Breen, group president of North America, the Estée Lauder Cos. Inc., said the beauty firm already has strong ties with both Hudson’s Bay Co. and Saks.

“We have a very strong relationship with Bonnie [Brooks] and everyone at the Hudson’s Bay Co.… And Mrs. Lauder opened her brand with Saks, so that has always been a treasured relationship,” Breen said.

She noted Lauder is adept at dealing with consolidation in the retail space, pointing to HBC’s purchase of Lord & Taylor as a recent example. She said Lauder hopes to leverage the union by potentially introducing its La Mer brand, which has a strong presence in Saks, to The Bay. The company also aims to expand the Bobbi Brown business across HBC.

“We’re already leveraging learning across The Bay and Lord & Taylor,” Breen said. “Now we can add Saks to that mix as well.”

“I’m very supportive of [the deal],” said Jeffrey Sherman, president of Echo Design Group, which sells Echo scarves to Lord & Taylor and produces licensed Polo Ralph Lauren Scarves sold in Saks. “I think it’s good for them, I think it’s good for the industry and I think it’s good for us.”

Sherman, who previously was president and ceo of Hudson’s Bay, said putting together the two retailers would create a stronger retailer and ultimately create more opportunities for growth.

“We have wonderful relationships with all three store groups and we’re excited to see where things will go in the future,” said Barry Miguel, president of the Seven For All Mankind division of VF Corp. “Will they bring Saks to Canada? Lord & Taylor and Saks are very different. As long as they continue to keep that point of difference, it makes sense. Naturally, they’re going to want to find economies of scale in this, and that will certainly be interesting.”

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