There is no denying it: luxury e-commerce has surged thanks to the pandemic and is poised for further exponential growth according to HBC. Saks Fifth Avenue is now looking to leverage that explosive growth by using the investment from Insight Partners to strengthen its position in the luxury e-commerce space.
Specifically, the retailer is looking to improve the online experience through “enhanced styling capabilities” and “data-driven personalisation”. Ultimately, the goal is for the online business – which currently generates around $1 billion in sales – to become a hybrid retail and marketplace platform, carrying a larger assortment yet still maintaining a curated experience.
How will it work in practice?
Both entities will trade under the Saks Fifth Avenue brand, so at first glance, not much will change for customers. In terms of management, Saks will lead on marketing and merchandising, while the 40 Saks Fifth Avenue stores will fulfill the physical functions of buy online and collect in-store, returns, exchanges and alterations. This means that cross-channel shopping will still be possible, which is a critical element given current shopping trends. HBC will remain the owner of the Saks Fifth Avenue intellectual property.
Why does the move go against established retail thinking?
While HBC has described the motivation behind the organisational changes as being able to offer a “seamless customer experience”, spinning off your online channel runs counter to what has been happening in the retail sector over the last decade.
Most retailers are currently still in the process of shifting from multichannel to omnichannel. It may seem like a bit of a buzzword, but the theory behind omnichannel is that shoppers do not care whether they are buying in stores, online, social commerce or any other channel. In their eyes, they are only dealing with a brand, not a sales channel, and they expect consistency across all touchpoints.
The practical implications of becoming omnichannel is that retailers have been breaking down internal barriers between their channels. E-commerce is no longer run as a separate silo, but is sharing management resources, customer data, merchandising and pricing strategies with the physical side of the business. While the customer benefits from consistency, retailers are able to improve operational efficiencies on the back end.
What could go wrong at Saks?
Separate management teams will be in charge at the two companies, which could raise the potential for conflict. It is telling that Marc Metrick, previously president and CEO of Saks Fifth Avenue, is moving over to head Saks. This suggests that the online business will be calling most of the shots. The physical store’s business, which is to be called SFA, will be led by Saks veteran Larry Bruce.
It seems inconceivable that an external investor like Insight Partners will not want to maximise its returns from the online company. How will the two companies manage competing goals and targets? It also remains to be seen how revenues and profits from cross-channel shopping will be shared between the two entities.
Is HBC really in it for the customer experience?
While the spinoff of the e-commerce business has been presented as an opportunity to improve the customer experience and increase personalisation, there has been speculation that other motivations are at play. Richard Baker, CEO of Hudson’s Bay Co, is thought to be keen on getting some return on his investment.
Baker was the driving force behind the acquisition of Saks back in 2013. Given the state of retailing in 2021, it might have understandably been difficult for HBC to find an investor for a business that still has a sizable bricks-and-mortar presence.
But it really raises the question whether the establishment of a separate online business was the only way to go about it. Could it not have been possible to seek external investment and then earmark those funds for further online development of Saks.com? With the spin-off being more for financial reasons than operational benefits, one really has to question the long-term success of the move.