Once one of the top US department store operators, Saks Incorporated has retrenched to focus on its luxury Saks Fifth Avenue business. The company has dismantled an empire of some 375 middle-market department stores under 10 different banners (including Bergner's, Carson Pirie Scott, and Parisian) to stake its future on a dwindling number of Saks Fifth Avenue stores, while growing its off-price sister chain, Off 5th, and its online business. The divestments positioned the department store chain squarely in the luxury market. Founded in 1919 as Profitt's, the firm bought renowned luxury retailer Saks Holdings and adopted the high-dollar Saks name. Lord & Taylor owner Hudson's Bay has agreed to buy Saks.
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In a deal valued at $2.9 billion, Canadian retailer Hudson's Bay is looking to acquire Saks and assume its $500 million in debt. The company, which operates north and south of the US-Canada border, has agreed to pay shareholders $16 per share, representing a 30% premium to the stock price in late May, when reports emerged of a possible sale of Saks. As a combined retail operation, Hudson's Bay will become a formidable global retailer with some 320 locations and log $7 billion in revenue for fiscal year 2012. The late-July acquisition offer gives Saks a 40-day go-shop period, during which it can entertain offers from other suitors.
Saks' divestment of its middle-market department store group (in 2006) reversed a shopping spree that began in 1994. The timing of Saks' move up market was opportune as it coincided with a rise in luxury spending while many mid-tier department store operators struggled. However, the froth in the luxury market dissipated as the recession took hold and even well-heeled customers cut back on non-essential spending. Saks sales fell more than 13% in 2009 vs. 2008, with same-store sales down about 14%. The poor performance came on the heels of a 6% drop in sales in 2008 vs. 2007.
Saks has responded to the weak retail environment by focusing on its Off 5th format, which offers luxury apparel, shoes, and accessories at discount prices. (Other upscale department stores, including Bloomingdale's and Nordstrom, have also been growing their off-price outlet retail presence.) Indeed, Off 5th added four outlets in 2009, overtaking its upscale sister chain Saks Fifth Avenue in store count. To further mine the market for discount luxury goods, Saks plans to open four more Off 5th locations in 2010. Meanwhile, the retailer has been shuttering underperforming Saks Fifth Avenue department stores, including locations in San Diego, Portland, and Southampton. CEO Stephen Sadove, who joined Saks in 2002 and has a background in the pharmaceutical and food industries, says the closings are part of the company's plan to focus its resources on its most productive stores.
Mexican billionaire Carlos Slim Helú (through his family-controlled trust Inmobiliaria Carso) owns more than 15% of Saks. Slim's retail subsidiary, Grupo Sanborns, owns the license to the Saks name in Mexico. (The department store chain's first store opened in Mexico City in late 2007.) Also, the chairman and CEO of Italy's Tod's SpA Diego Della Valle owns about a 10% stake in the department store chain.
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