By Ananya Mariam Rajesh and Greg Roumeliotis
(Reuters) -The parent of Saks Fifth Avenue agreed to buy rival Neiman Marcus, a person familiar with the matter told Reuters on Wednesday, a move that is expected to give the struggling luxury retailers more power to negotiate with vendors.
Amazon (NASDAQ:AMZN) and Salesforce (NYSE:CRM) will take minority stakes in the combined company, to be called Saks Global, and offer their technological expertise, said the Wall Street Journal, which reported the $2.65 billion deal earlier in the day.
The deal comes at a time when luxury retailers are grappling with slowing demand, a far cry from the boom seen after pandemic-related restrictions eased in 2022, as U.S. customers have become more cautious about high-end purchases.
The boards of Saks parent HBC and Neiman Marcus have approved the transaction, and an announcement could come as soon as this evening, the WSJ report said, adding that Marc Metrick, CEO of Saks's e-commerce business, will run the combined company.
Although the merger gives the combined high-end retail entity stronger negotiating power with small luxury brands, the chain would not match the heft and power of the global luxury conglomerates, which will still hold most of the cards, said Neil Saunders, managing director at retail consultancy GlobalData.
"There is a risk that the deal might end up creating an even bigger headache for Saks," Saunders added.
The most coveted high-end brands such as LVMH have their own robust store networks.
Saks Global will have Salesforce assist it with the adoption of artificial intelligence, and Amazon provide its technology and logistical expertise, deepening their existing partnership with Saks, the WSJ report said.
Amazon and HBC declined to comment, while Saks Fifth Avenue, Salesforce and Neiman Marcus did not immediately respond to Reuters requests for comments.
Neiman Marcus has been in the red since it emerged from bankruptcy in 2020. It was one of the high-profile collapses among retailers forced to temporarily close stores in response to the COVID-19 pandemic.
AMAZON'S FORAY INTO THE LUXURY WORLD
A minority stake in the combined company sets up Amazon to gain a foothold in the luxury market that has seen a steady demand from a higher-income consumer base.
"Amazon taking a stake in the business would make sense, as it has ambitions to play more heavily in the luxury space and this would give it a toehold," Saunders said.
The Wall Street Journal said there were no plans to close stores after the deal is completed. There are 39 Saks Fifth Avenue stores and 95 Saks Off 5th discount stores. Saks.com operates as a separate business that is owned by HBC.
Neiman has 36 department stores, two Bergdorf Goodman stores and five Last Call discount stores. There are eight malls that have both a Saks Fifth Avenue and Neiman Marcus store, according to Green Street, a real-estate research firm.
"Amazon has also been interested in luxury trying to get more luxury on Amazon's website ... always looking for opportunities to get involved in different types of retail ... even more physical based retail like we have here with Saks and Neiman Marcus," Morningstar analyst David Swartz said.
HBC is financing the deal with $2 billion it raised from existing investors, the report said.
Existing investors include Rhone Capital, the Abu Dhabi Investment Council and NRDC Equity Partners, a private-equity firm run by Richard Baker, HBC's executive chairman, and his son Jack Baker. Apollo Global Management (NYSE:APO) APO is providing $1.15 billion in debt financing.
Richard Baker and his son Jack Baker were not immediately available for comment.