Saks.com Spin-Out: Genius Move or Opportunistic Folly?
The reports that Hudson’s Bay Co. is planning to split its online and brick-and-mortar operations into two companies, and then take Saks.com public, immediately strikes me as one of the dumbest strategic decisions I have heard in a long, long time.
If we have learned anything from the past two decades of retail disruption, it’s that notions of separate physical and digital shopping behavior are increasingly distinctions without a difference. The lines are blurring. Digital drives brick and mortar and vice versa. Indeed, the customer is the channel and retailers with a more harmonized and remarkable retail experience generally outperform those that have failed to break down silos. Having worked in this area-as a C-suite executive at two large retailers and subsequently as a consultant and analyst-for more than 20 years, I can confidently say this goes against what we know shoppers want, what drives operational efficiency and what is central to growing customer lifetime value.
So just what the heck is going on?
Well, first and foremost, this seems to be a clear sign that Richard Baker and team are extremely pessimistic about the near-term prospects of the HBC portfolio. The Bay has long suffered from the woes of unremarkable department stores. Saks Fifth Avenue and Saks Off 5th, while better differentiated, have been struggling to grow profitably and meaningfully in an increasingly saturated and competitive North American luxury market. And, of course, Covid has eliminated or dramatically reduced many of the wearing occasions that drive sales of high-end apparel, accessories and cosmetics. While some recovery may come later this year, it’s hard to believe we will get a robust rebound any time soon.
What’s likely to be driving this move right now, however, are the recent rather frothy valuations of luxury oriented online retailers. MyTheresa (formerly owned by Saks’ main competitor Neiman Marcus) just went public at a valuation in excess of $2 billion. They join other fashion focused public companies like Poshmark (which also IPO-ed this month), Farfetch, TheRealReal and Yoox-Net-a-Porter, all of which sport multi-billion dollar valuations, despite continuing to lose money.
The long-term profitable growth prospects for high-end fashion pure-plays are far from certain. The field is increasingly crowded (including competition from vendors’ own direct-to-consumer efforts) and the luxury sector faces near-term headwinds. While trends continue to favor strong e-commerce growth, rates are starting to moderate and, increasingly, much of what gets counted as an online transaction actually involves a physical store location in some way (appointment-based shopping, curbside pick-up, ship from store fulfillment, etc.).
While the details are scarce at this point, HBC suggests that through some sort of cooperative arrangement, Saks.com and Saks’ brick-and-mortar-only company will help each other on “omnichannel” service. With more than 70% of all customer journeys involving a digital channel in some way, getting this right for the customer and executing well operationally is no small task. And the idea that even with beautifully crafted service agreements there won’t be a sense of competition between the two entities seems incredibly naive, as well as not borne out by other retailers’ experience.
All in all, this seems incredibly short-sighted and opportunistic; all about near-term profit taking and little to do with what works best on behalf of customers. If Saks.com and Saks’ physical operations are not worth more together than apart that is either a failure of how they are being run by management or a misguided Wall Street aberration.
One thing I can say with virtual certainty is that if this spin-off goes through, a year from now, faced with slowing growth, high product return rates, customer complaints and operational complexities, the folks running Saks.com are going to wish they had some stores.
This article originally appeared on Forbes.com where I am a senior retail contributor.
The 2nd expanded and revised edition of my bestselling book Remarkable Retail is out April 13th and includes a new Foreword by Sucharita Kodali. Pre-order at Amazon, Bookshop.org and anywhere books are sold.
Originally published at https://www.linkedin.com.