Don’t let the global economy fool you: Luxury is hardly dead.
Saks Inc. agreed to sell itself to Hudson’s Bay Co., the Canadian parent of upscale retailer Lord & Taylor, for about $2.4 billion in a deal that will bring luxury to more North American locales.
The acquisition combines three department-store brands — Hudson’s Bay, Lord & Taylor and Saks Fifth Avenue— and creates a North American upscale retailing behemoth with 320 stores in some of the biggest and most populous cities in the U.S. and Canada.
Lord & Taylor and Hudson’s Bay, Canada’s biggest department-store chain, both cater to well-heeled shoppers who can afford $98 Free People blouses and $250 Coach handbags. Saks customers, on the other hand, are more affluent and can shell out $800 for Christian Louboutin heels or a couple of thousand dollars for Gucci handbags.
During a conference call with investors Monday, Hudson’s Bay Co. Chairman and CEO Richard Baker said the goal is to bring Saks’ luxury brand into Canada. The company plans to open seven Saks Fifth Avenue stores and 25 Off Fifth outlet stores in Canada, while creating a Saks website targeted to Canadians. The parent company also plans to renovate Saks stores and to make the brand more “luxurious.”
“With the addition of Saks, [Hudson’s Bay] will offer consumers an unprecedented range of retailing categories and shopping experiences,” Baker said.
Hudson’s Bay is making a play for luxury at a time when shoppers still appear to be willing to shell out money for posh handbags and clothing despite global economic challenges. Global luxury sales, including higher-end jewelry and clothes, rose an estimated 10 percent to $281.96 billion last year, according to the latest study from Bain & Co. In North America, luxury sales were up an estimated 12 percent to $81.33 billion.
Still, Saks has lagged behind its peers in the luxury sector. It’s been trying to keep up with its rivals Neiman Marcus and Nordstrom, which have performed well post-recession.
After getting battered by the Great Recession, Saks discounted heavily to bring shoppers back. That move hurt the chain’s image, which is higher-brow.
Saks since has returned to selling clothes and other merchandise at full price and focused on closing unprofitable stores. But its sales haven’t rebounded quickly to the level before the U.S. financial meltdown in 2008.
In the latest fiscal year, Saks reported annual revenue of $3.15 billion, up more than 4 percent from the previous year but still below the $3.28 billion in the year ended in January 2008. Saks’ net income fell nearly 16 percent to $62.8 million in the latest year.