Saks Fifth is splitting its e-commerce business and brick-and-mortar stores into separate entities and is raising $500 million following a boom in online shopping.
The venture capital firm Insight Partners has put up the $500 million to take a minority stake in the new Saks.com and valued Saks Fifth at $2 billion. The e-commerce portion of Saks’ business has about $1 billion in annual sales.
The 40 brick-and-mortar Saks Fifth Avenue stores will become a separate business known as SFA, and they will remain wholly owned by Hudson’s Bay Co. (HBC).
“This transaction reinforces HBC’s ability to unlock significant value within our company’s assets,” HBC governor, executive chairman, and CEO Richard Baker said in a statement.
There will be few noticeable changes to the Saks operation from the consumer perspective. Saks Fifth Avenue will remain the brand name for both the e-commerce business and the physical stores. Consumers will be able to buy products online and then pick them up in stores. Shoppers will also be able to make returns and exchanges and use their Saks credit cards at the stores or online.
The online business will oversee the marketing and merchandising for both ventures. The e-commerce site will also add a marketplace component to its retail business.
The marketplace will increase the kind of products that can be purchased on Saks.com, adding smaller, emerging brands. Stylists in Saks stores will also be able to sell marketplace items and receive commissions on those sales. The company intends to control the customer interaction, making it so that shoppers will not know they are buying from a third party.
“By separating the dot-com business, we can show investors its value. Investors don’t want to put their money in bricks-and-mortar retailers right now,” said Baker.
Baker is getting at an important development in commerce that has been picking up during the pandemic – a turn to online shopping. Insight Partners’ investment into the e-commerce site is about 30% more than what Hudson’s Bay got when it went private a year ago and demonstrates just how much investors prize digital companies.
Other companies have experienced similar shopping patterns to what Saks is going through. Nordstrom, whose brick-and-mortar business is languishing, saw digital sales represent more than half of the total sales in its most recent quarter, up from 35% a year earlier.
Marc Metrick, who was previously the CEO of the combined Saks businesses, will serve as the e-commerce entity’s CEO.
“When online retailing started over 20 years ago, department stores weren’t able to jump on board. They had to make choices. They needed to make investments in their stores. As luxury shopping takes off online, we are not going to miss that opportunity again,” said Metrick.
Other e-commerce team members include former Amazon executive Sebastian Gunningham who will join the e-commerce company’s board and Saks veteran Larry Bruce who has been appointed president of the SFA business.
