Why is Amazon investing in Saks + Neiman’s?

The fashion industry has been buzzing about a deal to combine Saks Fifth Avenue with Neiman Marcus for years — decades, even — but when it finally happened last week, a surprise was thrown in: Amazon.

The e-commerce giant is among those investing in a $2.65 billion deal that will see Richard Baker’s HBC buy Neiman Marcus and combine it with Saks into a new organization called Saks Global. Cloud commerce company Salesforce also plans to invest when the deal closes.

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It’s a deal that raises many questions.

Will brands be squeezed as America’s two leading luxury department stores merge? Will U.S. regulators even allow the deal, given their opposition to Tapestry Inc.’s $8.5 billion acquisition of Capri Holdings? And what exactly is Amazon doing?

Amazon did not immediately respond to a request for comment for this story, but answers should become clearer as the deal goes before the Federal Trade Commission and then, if approved, as Saks Global begins operating.

Consultant Greg Portell, senior partner and global head of markets at Kearney, looks at how Amazon is managing the investment.

“Are they going to manage it as part of an investment portfolio like a VC or PE fund, or are they going to manage it like it’s a strategic partner where they’re going to co-develop opportunities?” Portell said.

Amazon may also be taking into account the broader dynamics of retail in general.

“You could argue that Amazon is supporting a significant competitor in the department store market just to keep that industry alive,” Portell said.

Amazon has experimented with creative deals in multibrand retail before, such as in 2019 when it struck a deal with Kohl’s Corp. to get the rights to buy 1.7 million shares of the retailer that began accepting Amazon returns. (Those rights are now fully exercised, but they have a strike price of $69.68, when Kohl’s shares are trading at $22.38.)

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By investing in Saks Global, Amazon is looking to acquire a more profitable customer, which Portell described as the company’s “final frontier.”

“Luxury consumers are an incredibly important segment of the customer base where Amazon is underrepresented,” Portell said. “Affordable consumers have purchasing power, are less price-sensitive, are more tech-savvy. They’re an incredibly attractive consumer for any retailer, and it’s hard to break into them because the brand value is so important.

“Amazon has grown into a fundamentally democratic retailer that everyone has access to and that is ubiquitous,” he said. “It’s the antithesis of luxury, which is scarcity and aspiration.”

So it looks like Amazon is interested in opening the doors to luxury.

“Amazon has a real challenge in getting luxury/affluent brands to list on their platform,” said one source, a prominent fashion investor. “By acquiring a stake in this deal, they likely plan to put pressure on these brands over time, at a minimum, by listing brands through Saks/Neiman’s on Amazon’s marketplace.

“Amazon knows that ‘true luxury’ brands don’t want to divest from Neiman’s and Bergdorf (in particular), so this is an interesting chess move for Amazon,” the investor said. “I think their investment, at least in the context of Amazon globally, is not that big.”

With a market capitalization of more than $2 trillion and cash of more than $73 billion, Amazon doesn’t need Saks or Neiman Marcus or, really, fashion.

But Amazon is so big and so successful in large part because it relentlessly focuses on its customers.

And clearly the company thinks its customers expect it to offer more luxury goods.

Amazon is patient, persistent and does not give up.

As founder Jeff Bezos told shareholders in a 2008 letter, “If we can identify a customer need and develop a belief that that need is significant and enduring, our approach allows us to work patiently over many years to deliver a solution.”

In exclusive fashion the solution proved difficult to grasp.

Amazon has been working for years to establish a presence in the luxury segment, particularly with its luxury retail platform.

But despite gaining traction with more ambitious fashion brands like Coach and premium cosmetics brands like Clinique, Amazon has only managed to break through with a handful of leading luxury brands like Oscar de la Renta.

Now the company is poised to capture at least a small share of the luxury goods retail market.

What Amazon intends to do with these shares remains unknown.

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