Vendors and factors were upbeat about Hudson’s Bay Co.’s proposed acquisition of Saks Inc.
Jeff Rudes, founder and chief executive officer of J Brand, thinks the deal will be good for his business. “It can only help — being that our business with Saks as well as with The Bay is excellent. What Bonnie Brooks brought to The Bay is brilliant, and it will be a great collaboration for Saks.”
Allen Schwartz, designer of ABS by Allen Schwartz, which sells both Lord & Taylor and Saks Fifth Avenue, sees advantages for vendors. “There are great advantages for anyone who’s a good company. They’ll open 25 new Saks Off 5th outlets in Montreal. That customer loves value up there,” said Schwartz. “Lord & Taylor is a very well-run business. I do a tremendous amount with them, and I do a lot of business with Saks. If some of the Saks stores became Lord & Taylor stores, it would make sense, depending on the area,” he said.
“Will they consolidate forces? That’s the big question. Will they use one buyer for both? In any company, where these things happen, especially with two top retailers, there’s always the merger mentality. The first thing people think about is expenses, and how do we get a great result.
“The real designer game has filtered down to contemporary. If they can cross-pollinate the cultures there, they may have a tremendous success,” said Schwartz.
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Bud Konheim, ceo of Nicole Miller, said, “It’s really an exciting deal.” He said his business at Lord & Taylor and Saks has been great. “Liz Rodbell [of Lord & Taylor] is doing an incredible job.” He said Saks, too, has been changing a lot. “They’re doing good stuff and closing stores, which is good.” He said in an effort to make Saks even more modern, this gives them a shot of energy.
“The big story today is ‘young.’ The revolution is the Internet, but one of the key words is ‘young.’ Saks is in the process of doing it, and so is Lord & Taylor. Liz Rodbell is further along in that. To me, when you look at the big picture, what does it mean to the customer? The customer wants new and young. Will they be able to produce that? I think they will,” said Konheim.
Factors also applauded the deal.
While a handful of really good retail operators, such as Hudson’s Bay, do not have to worry about surcharges, Saks has had to pay factors a 1.5 percent charge on vendor financing over the years due to credit risk.
Gary Wassner, co-ceo of factoring firm Hilldun Corp., said, “A lot of people are excited about the combination. The management at Hudson’s Bay is very good, and they are cooperative with the credit community. There’s no worry about credit lines. There is a question down the road over risk and what the balance sheet of the combined entity will look like given the amount of debt Hudson’s will undertake to do the deal.”
The factor said Lord & Taylor has had to deal with a surcharge from time to time, depending on the factor and client account.
Wassner said Hudson’s may “have to worry about a surcharge down the road. Right now, nobody’s nervous or concerned.”
As for the customer base, the factor said Lord & Taylor and Saks cater to different consumer bases, and there could be improvements for both operations as they work off the economies of scale in other back-office functions. He doesn’t foresee any issues with vendors, since “they plan to keep the buying teams at each operation separate from the other.”
Bob Carbonell, executive vice president and chief credit officer for credit checking firm Bernard Sands, said, “This is a good deal, and between The Bay and Saks, it gives Hudson’s a high-end presence in both the U.S. and Canada.”
Carbonell, who isn’t so sure that Saks Inc. chairman and ceo Stephen Sadove will stay on because HBC’s Richard Baker “will want to be ceo of everything,” said it could be too soon to predict about surcharges down the road. “The factors will want to see the first set of consolidated numbers before deciding on the surcharges. When you consider that factors operate on such a small margin, a 1 percent surcharge is now the norm except for a handful of really strong accounts,” Carbonell said.
Sands’ chief credit officer also noted that the determining factor also could depend on the risk for each factoring firm. That’s because The Bay and Saks do share some of the same vendors. “That means that for some factors, their exposure could double, depending on who is their client and how much they are willing to approve for each account,” Carbonell said.
He explained that a factor that had been comfortable with two separate credit risk profiles due to different retail accounts might now choose to limit that risk once both retailers are owned by the same parent. They do that either by lowering the amount they are willing to approve or they tack on a surcharge to account for the higher degree of credit risk.
As for plans to possibly convert some Saks branch stores to Lord & Taylor sites, Andrew Graiser, copresident at A&G Realty Partners, said, “Saks has some very good real estate in great malls from a location standpoint. A lot of those malls are A malls, with a few B+ type malls. For those kinds of centers, there’s a demand to be in those malls as anchor tenants. Certainly the landlords would like to control that space, but it may not be so easy to replace a great tenant. While some sites can be redeveloped, the bigger issue concerns co-tenancy provisions in the leases.”
Graiser explained that many landlords lease space to certain tenants because they want to be in a particular part of the mall since Saks is there. “Co-tenancy requirements can create some restrictions on the ability to change the name of the retail anchor. Depending on the landlord, and even the clout that Saks might have had at the time it entered into their leases, there are some locations where a landlord might not be able to grant permission to change the nameplate over,” Graiser said.
Still, Graiser thinks the deal is a great one for both sides, particularly from the standpoint of the real estate holdings of the combined entity.
“Hudson’s, with the flagship on Fifth for Saks and the one Lord & Taylor occupies, will have two prime locations that are as good as one can get. The value of the Saks flagship alone is stratospheric, about $1 billion would be a good possibility. As for the Lord & Taylor stores that are in operation, [I recall that] the values of many of those leases at the time they were signed were very cheap. Even the locations for the Saks store sites are in demand.
“Maybe Hudson’s can’t immediately make a change, there’s still the opportunity for redevelopment of some sites down the road, such as smaller retail square footage, but increasing the amount of office space at the location. The real estate opportunities are just tremendous. And real estate is not going to get cheaper over time,” Graiser said.