DICKSON CONCEPTS, SAKS INC. SWAP E-COMMERCE STAKES
Byline: Vicki M. Young / David Moin
NEW YORK — Dickson Concepts Ltd. and Saks Inc. have taken 3 percent stakes in each other’s e-commerce operations, giving Dickson Poon his long-sought-after alliance with a key American luxury retailer and providing Saks Inc. with a major vehicle for possibly selling abroad.
The all-stock transaction gives Dickson Cyber Concepts Ltd. 6,180 shares in Saks Direct, and Saks Direct gets 12.3 million shares in Dickson Cyber. The 3 percent ownerships are based on the equity capitalization of the companies.
This month, the Saks Direct subsidiary plans to launch e-commerce in the U.S. with its Saks Fifth Avenue division. Saksfifthavenue.com will list about 10,000 stockkeeping units initially and 100,000 sku’s by mid-2001, according to the company.
But even before the domestic launch, Saks is thinking global.
“Dickson and I have been friends for about a year, and we’ve certainly known about each other long before that,” Brad Martin, Saks Inc. chairman and chief executive officer, said on Monday in an interview, referring to Dickson Poon, chairman of Dickson Concepts. “We had the opportunity to discuss our respective Internet strategies and came to the conclusion that beginning a relationship like this could lead to Saks extending the power of its brand and its business into some opportunities in Asia.”
Saks currently has no overseas business. About 1 1/2 years ago, Saks discontinued distributing private label merchandise in Asia. The company plans to open a store in Riyadh, Saudi Arabia, in considering other locations in the Mideast.
Martin characterized the Saks name as highly recognized abroad, particularly in Asia, largely due to the popularity of the Saks flagship on Fifth Avenue here among tourists.
He said that his company’s affiliation with Dickson may lead to Saks operating a commercial online business in Asia in some sort of strategic alliance with Dickson. Dickson’s distribution and fulfillment infrastructure in Asia would be instrumental in that. In addition, Martin said that Saks Direct and Dickson Cyber are developing “powerful technology capabilities.”
Initially, however, Saks is launching e-commerce only in the U.S. Long term, Martin expects Saks to be a global business utilizing local partners.
Currently, Saks Direct is a $130 million catalog business, with Saks Inc. owning 97 percent of Saks Direct and Dickson 3 percent.
“The directors of both parties believe that the transaction will lead to cross-marketing opportunities in forming a partnership in the e-commerce sector that will be a leader in major international markets,” Edwin Eng, executive director and secretary of Dickson Concepts Ltd., said in a disclosure Monday to the Hong Kong Stock Exchange.
The agreement requires Dickson Cyber to stage an initial public offering by Dec. 31, 2001, and Saks Direct by Jan. 1, 2004. Each firm can repurchase shares if the other fails to proceed with an IPO.
For now, the possibility of Saks Direct doing an IPO seems remote. Asked about such a development, Martin replied: “This is not a topic of consideration or discussion.”
For Dickson Cyber, it seems imminent: On July 5 it said it applied for a listing on the Growth Enterprise Market of the Hong Stock Exchange. The agreement with Saks Direct is expected to be completed prior to the listing of Dickson Cyber.
Martin will be appointed to the board of Dickson Cyber, and Dickson Poon will get a seat on the Saks Direct board.
Dickson Cyber includes the DicksonCyber.com Web site and the Dickson CyberExpress interactive store at Kowloon Station in Hong Kong. Both are scheduled to launch by October 2000.
DicksonCyber.com, a portal for six sites, includes Entertainment World and Sports World, which are expected to be launched first. E-World, Fashion World, iCosmetic World and Kiddy World will be launched later.
The high tech store at Kowloon Station will feature the same concepts in Dickson’s Internet site in an environment designed to create a unique shopping experience. The site and the store will employ broadband technology to facilitate high-speed Internet access and data transfer.
Dickson Concepts is already deep into distributing American luxury products through major licensing deals with Polo Ralph Lauren in Southeast Asia; Coach leather goods in Asia; a licensing agreement for Tommy Hilfiger handbags in the U.S. and Canada, and the Asian distribution license for bankrupt Joan and David. Dickson also operates two Seibu department stores, and Harvey Nichols in London and is licensed to distribute European luxury brands such as Brooks Bros., Bulgari, Escada and Charles Jourdan in Southeast Asia. Besides the regional upscale wholesale network, the company operates Warner Bros. Studio Stores in Hong Kong.
However, the deal with Saks is Dickson’s first tie-in with a luxury American retailer. It puts the two high-end firms on the same side of the fence, as opposed to four years ago, when Saks and Dickson were in a heated race to buy then-bankrupt Barneys New York.
The deal is also a sign that Dickson is getting aggressive again on the investment scene — and with plenty of American retail stocks generally at or near 52-week lows, Dickson could be a player in the mergers and acquisitions arena.
In the acrimonious Barneys bankruptcy, Saks at one point said in court documents that it was “an active and interested potential acquirer” of Barneys’ assets and business. Saks had also negotiated with Isetan Co., Barneys’ landlord for three flagships on Madison Avenue, Beverly Hills and Chicago, to buy Barneys in 1997. The Saks/Isetan $270 million bid was $50 million more than an earlier bid by Dickson. Both firms failed in their bids for Barneys, which emerged from its three-year stay in bankruptcy proceedings in January 1999 through the creditor-assisted plan sponsored by two vulture groups — Whippoorwill Associates Inc. and Bay Harbour Management. Still, Whippoorwill and Bay Harbour are eager to cash out on Barneys and are likely to seek out Dickson and Saks again, and other retailers.
After the Barneys contest, Dickson Concepts seemed submerged by upheavals in the Asian economy amid currency turmoils beginning in July 1997. However, the company appears to have bounced back and again taken a high-profile posture.
In May of last year, more than 90 percent of the shareholders of Dickson Concepts voted in favor of selling the company’s non-Asian assets to Broad Gain for $180.9 million. Broad Gain is a private company owned by Dickson Poon and members of his family. With the sale, Broad Gain owns a majority stake in Harvey Nichols, the holding company that controls the real estate under the Harvey Nichols flagship store in Knightsbridge, London, a majority stake in Paris-based S.T. Dupont and all of TH Leather Goods, a new company set up to produce and distribute Tommy Hilfiger leather goods and accessories.
Harvey Nichols and S.T. Dupont continue to be listed on the London and Paris stock exchanges, respectively. However, the sale of the non-Asian assets left only 25 percent of the company in public hands, making the company a pure-Asian retail stock.
By limiting Dickson’s interest in the Saks Direct subsidiary, Saks can bring more outside investors into its Internet business, but still minimize the stake held by outsiders to retain certain tax and accounting options and advantages.
Martin recently said that Saks Inc.’s e-commerce business could eventually be as large as the volume generated by Saks Fifth Avenue’s flagship, which was around $600 million last year, with an average transaction of $200 to $500. But it will take several years to get to that level. First-year sales are projected at $15 million to $20 million, with about a $12 million loss, or 8 cents a share.
Online, Saks will be competing most directly with Neiman Marcus Group, which just last week said it will invest at least $10 million annually over the next few years to fuel NeimanMarcus.com. Neiman’s has a huge headstart over Saks, having launched online its Web site in October 1999 with 500 products and ramping up to a current 3,000 items.
Earlier this month, Poon disclosed that in putting together its e-commerce operation, Dickson Concepts may have inadvertently set itself up for disciplinary action by the Hong Kong stock exchange.
According to the company, DicksonCyber.com, a subsidiary of Dickson Cyber Concepts, entered into a consultancy agreement with Dickson Management Consultancy Ltd., a company owned by Poon. The board of Dickson Concepts didn’t believe that it was required to publicly disclose the agreement. However, later the stock exchange said that the agreement should have been disclosed and reserved the right to take “appropriate action” against Dickson Concepts.
On Monday, Poon clarified that even though he owned the consulting firm, “there is no question” that he did not personally gain from the transaction. The $16.7 million fee, he pointed out, is charged on a cost-reimbursement basis, “with no markups whatsoever.” The capping of the fee, he said, protects Dickson Cyber from any cost overruns. He added that the fee covers the cost of building the six portals and other services, including design and development of the infrastructure of the physical site at Kowloon Station, warehouse and fulfillment operations and the preparation of business plans for the two e-commerce operations.
The Internet operation is required to purchase $14.1 million in hardware and software recommended by Poon’s firm. Poon clarified that the hardware and software used are “extremely complex” and tailored-made by leading U.S. and U.K. firms specifically for this project. “Neither I nor any person at [Dickson Management] have any direct or any personal relationship with any of the suppliers,” Dickson Poon said in his statement.
Poon also pointed out that since June 1995, he has not taken any salary or bonuses from Dickson Concepts beyond the $1,283 annual director’s fee.
All the above figures are in U.S. dollars.