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Proximity Of Store Locations Could Factor Into Potential Saks, Neiman-Marcus Deal

More than half of Neiman Marcus' stores are within 20 minutes of a Saks location.The overlap could be one reason why a private equity firm is reportedly considering a plan to combine the two luxury retailers.

Posted on May 24, 2013, at 8:55 a.m. ET

Rumors are swirling this week about a potential tie-up of two high-end department stores: Neiman Marcus Group Inc. and Saks Inc.

After the New York Post reported that Saks hired Goldman Sachs to help it explore strategic alternatives, including a possible sale of the company, Bloomberg News followed with a scoop saying that private-equity firm KKR & Co. is weighing making an investment in Saks with an eye towards merging it with Neiman Marcus, which is looking to go public or sell itself.

If that were to occur, there would be an awful lot of overlap between the companies — particularly between Neiman's outlet brand, Last Call, and Saks' version, Off 5th, according to an analysis by Buzzfeed. At least 40 of Neiman Marcus' namesake or outlet locations are within 20 minutes of a Saks store from Hawaii to Hanover, Maryland, according to locations listed on each company's website. Neiman only had 78 stores as of Jan. 26, compared with 108 at Saks.

That means a lot of stores selling $1,000 dresses and $425 candles right near each other. Neiman most recently made $4.3 billion in annual sales compared with $3.1 billion at Saks.

Put another way, more than 20 percent of the two companies' combined 186 stores can easily be merged or eliminated, resulting in cost savings that could potentially provide the rationale to make a merger worth exploring.

As the Wall Street Journal pointed out this week, Neiman Marcus is stronger in Texas and parts of California while Saks is dominant in New York and Palm Beach.

Pam Danziger, president of luxury retail research firm Unity Marketing, described the two companies as essentially "carbon copies" of each other, and said a merger would result in a slew of store closings.

"I foresee the luxury market as becoming much more competitive and challenging through the rest of the decade and potentially even beyond if the Millennial generation doesn't embrace the idea of luxury as reflected by the current market leaders," Danziger said in an e-mail. "These retailers tend to flock together and who needs two such close competitors together in the same market."

So, a potential rationale underlying a merger would be to close one brands' stores in the areas where they overlap, eliminating real estate, workforce, and inventory costs, leaving the remaining stores as the major luxury brand in that geographic market.

Saks is already dealing with internal changes — the company recently posted an opening for a job as "director of change management."

A Saks representative said the position is related to Saks becoming an omnichannel retailer — that is, without lines between the brick-and-mortar and digital business. But, Saks may also be hiring people to help it operate at "peak efficiency" in preparation for a sale, according to Howard Gross, managing director of the retail and fashion practice at executive search firm Boyden in New York.

Regarding that possibility, the Saks representative said the company doesn't comment on rumors or speculation.

From "Careers" portion of Saks website.

From "Careers" portion of Saks website.

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