As more retailers embrace omnichannel shopping, Saks OFF 5TH spins off e-commerce business

Insight assisted HBC in March in separating Saks and Saks.com. In that deal, Insight provided $500 million for a minority stake in Saks.com, giving the e-commerce entity a $2 billion valuation. Saks.com has about $1 billion in annual sales. No figures were provided for Saks OFF 5TH’s digital sales.

The split is counter to what most of the retail industry is doing. Walmart (NYSE: WMT), Target (NYSE: TGT), Best Buy (NYSE: BBY) and others are working to create seamless experiences between their offline and online customers, leveraging store inventories to fulfill orders.

Neil Saunders, managing director of retail at GlobalData, told Modern Shipper the moves by HBC provide no real benefit to consumers.

“Indeed, splitting online and stores runs counter to the way in which modern consumers are shopping which is very much about omnichannel,” he wrote in an email. “The main concern about the split is that the experience online and in stores could diverge in terms of areas like assortment which will ultimately be confusing. Operationally, having separate online and offline businesses is not optimal as it makes transferring inventory between the two and introducing omnichannel services more complex.”

Franz-Ferdinand Buerstedde, managing director of Rhône and HBC board member, believes the deal will improve the performance of the brands, and HBC said the split will not alter the customer experience, with returns, exchanges and SaksFirst credit cards accepted in stores and online and merchandise to be synchronized across the Saks ecosystem.

“The changes announced today will give the business the capital, additional expertise and resources to drive continued growth,” he said.

Saunders concurred — at least in terms of value.

“The impetus behind the move is maximizing value,” Saunders said. “Given how investors view anything to do with e-commerce, a stand-alone online business will achieve a higher value than one that has stores as part of the mix. I think HBC views stores as important, but they don’t have as much confidence in them over the longer term when compared to online.”

Paige Thomas, who was named president and CEO of Saks OFF 5TH in February 2020, will serve the same role for the e-commerce business. Rob Brooks, chief customer officer for Saks OFF 5TH, will take over the brick-and-mortar business.

“There is significant untapped potential within Saks OFF 5TH’s digital business and with the right investments to support our overall customer experience we will drive exponential growth,” Thomas said. “Saks OFF 5TH provides a compelling assortment of brands to fashion-seeking customers at the best prices. We will continue to deliver on our brand promise, while introducing an elevated experience through improved digital capabilities, new partnerships and an expanded product offering.”

Saunders added that while some may view stores as a detriment to overall company value, Saks OFF 5TH operates in a slightly different sphere, and removing the e-commerce from the business could add pressure to the store.

“The store side of the business is also at greater risk over the longer term from asset impairment so by separating the two sides of the business they can protect the online side,” he said. “[But] for Saks Off 5TH this is somewhat surprising as off-price remains a growth area and the prospects for stores are much better than they are elsewhere in retail.”

Click for more Modern Shipper articles by Brian Straight.

You may also like:

Social Auto Transport raises $1.5M in seed funding to expand gig economy auto-moving business

Bringg’s collaboration with Uber opens new doors for e-commerce

Walmart to begin drone delivery pilot this summer