TBD (The Battered Department Store)

Yes, we’re going to discuss THE major merger news that you can’t get enough of.

Six Flags completed a merger with their rival Cedar Fair.

Worth $8 billion, the merger creates the largest amusement park operator in the US. Rollercoaster enthusiasts and season pass holders are very concerned that their amusement park experience is in danger of becoming too “corporate.” On the other hand, the two entities could combine their IP assets to potentially offer new themed rides and attractions.

It could mean, for example, that Looney Tunes rides are featured at both brands of parks. And I’m so excited!!

….of course, I’m pulling your leg.

The above merger is real, but it’s not the one you want to read about here.

After a years-long rollercoaster ride, Richard Baker’s Hudson’s Bay Co. is buying Neiman Marcus Group. As a result, Neiman and Saks Fifth have been brought together. The unique aspect of the deal is probably the glue that binds the two sides together. Namely, the investments from both Amazon and Salesforce. Amazon also gets to make another push into the luxury space.

But there are other points to consider:

• HBC’s real estate assets with this deal will now total $7B. Richard Baker is a real estate mogul. The value is in the land.

• Salesforce can avoid the sales pitch and be first up in implementing retail tech solutions (AI, customer journey) for the conglomerate.

• HBC Canada is not part of the newly formed Saks Global which means it can be easily sold off or shutdown. Candidly, good riddance if that ends up being the case.

Sadly, this deal will not solve the problem of what is happening in stores. Bergdorf’s is only busy if there is a product launch or an event. Neiman’s focusses on their top customers who drive the majority of sales. The Bay sits on piles of markdowns and stores are subpar.

So what’s in store for these stores?

It is inevitable that unprofitable doors will close and teams like buying and planning will be consolidated. This move would make sense as Saks, Neiman’s and Bergdorf’s are buying into the same brands with a lot of overlap. Amazon will teach the teams how to buy through algorithms and more teams will be downsized. Saks Global should take the winning practices from Saks and Neiman’s and implement these quickly into HBC and Bergdorf’s. They should shutdown the bottom performing stores, sell the real estate and invest in digital transformation. The Bay should follow Macy’s plan and close at least 50% of low performing stores and open a handful of small community stores.

But let’s be clear: department stores are not as relevant as they used to be.

The merger here is not so much about delivering something exciting for customers. Rather, this is about two names coming together and trying to stabilize themselves in the luxury market. As they try to do so, Amazon and Salesforce serve as the walking poles to help them move along their path.

What’s even more interesting is this statement in a WWD article, regarding how Saks could respond if the FTC tried try to block the merger:

“Saks would argue back that the luxury market in the U.S. has expanded, that it’s a lot more competitive with designers operating their own shops and websites, and selling to a rising number of independent fashion websites. Designers and vendors have become less dependent on distributing to Saks or Neiman’s.”

And that’s exactly the issue at hand.

Department stores as a whole have to work hard to reinvent themselves.

The dynamics of the customer will force the reinvention or, as in the case of Macy’s, activist investors can be a driving force.

Otherwise, the department store will continue to be on their own amusement park ride that only goes in one direction: down.