What the Saks Spinoff Signals About the Future of Luxury Shopping

Prior to the pandemic, shopping for luxury goods was predominantly an in-store affair. Now, however, it’s clear consumers' appetite for ecommerce includes not just groceries and household staples, but luxury items as well. In 2019, these luxury items represented a $100-billion market in the U.S. alone. Holding company HBC, which acquired luxury retailer Saks Fifth Avenue in 2013, announced an agreement last week with private equity firm Insight Partners to spin off Saks’ ecommerce business as a standalone entity. Meanwhile, Saks’ 40 stores will remain a wholly-owned subsidiary of HBC. More focus on digital experiences As part of the deal, Insight invested $500 million in the ecommerce unit for a minority stake that values the business at $2 billion. However, the Saks site and stores will remain connected. While the ecommerce business will lead marketing and merchandising for both platforms, the stores will continue to accept returns and exchanges—and enable in-store fulfillment of online orders. According to Matt Moorut, principal analyst at research firm Gartner, physical stores and ecommerce platforms face “completely distinct challenges” in luxury retail, so “spinning off Saks as a digital business makes sense.” “It means they can drive more focus on the digital experience, which will be necessary if they want to put a stake in the ground before online-only players take too much of the market share,” he added. “To an extent, it also frees up [the stores] to focus efforts on the logistics necessary to bring its physical retail back to life as we move out of this phase of the pandemic.” Saks says it will make strategic investments "to evolve and expand" its online experience. This includes “elevated styling capabilities and data-driven personalization.” It will ultimately serve as a retail and marketplace platform, which opens up the possibility of third-party sellers. A dedicated effort to try and capture as many of those consumers as possible.Zach Weinberg, Reprise Digital Zach Weinberg, vp of ecommerce at performance marketing network Reprise Digital, noted that Amazon—which dipped its toe in the luxury market thanks to a partnership with Oscar de la Renta in September 2020—has not seen much traction. Weinberg believes this might bode well for Saks whose “suppliers and customers would trust them more.” Luxury ecommerce The move also reflects another way the pandemic has changed consumer behavior: Luxury ecommerce. “They are trying to go after a luxury consumer specifically because their luxury consumer, in the past, has wanted much more of a personalized experience, [an] in-store personal shopping experience,” Weinberg said. “And those shoppers have now clearly changed their behavior and are shopping online more. I think they're making a dedicated effort to try and capture as many of those consumers as possible.” “Luxury ecommerce is poised for exponential growth and as a standalone digital company with an existing strong position in luxury, Saks is primed to win significant market share," Richard Baker, HBC’s CEO and executive chairman said in a statement. Livestream luxury The U.S. is far behind China in luxury goods sales, which reportedly grew 48% to $53 billion in 2020. The online segment specifically grew from 13% in 2019 to 23% in 2020. According to Weinberg, luxury ecommerce in China is being driven by another trend—livestream commerce, which has also started in the U.S. "As you see more of the technology adoption, I think we will start to see more of the category adoption," Weinberg said. The real question, however, is whether it’s too late for Saks here. "We are five years into the exponential growth of ecommerce and the investment that many large retailers have put into their ecommerce platforms,” Weinberg said. “We've seen Nordstrom [pivot], we've seen Neiman Marcus already announce an $85-million investment in their supply chain, and so I'm wondering if it is 'too little, too late?' for Saks to try and climb back up that ladder of competition for those luxury consumers?” Saks Fifth Avenue Parent Company Hudson’s Bay Agrees to Take-Private Offer