Retail Stocks: 3 Lessons from the Saks Sale

by Alyssa Oursler | August 9, 2013 1:17 pm

Retail Stocks: 3 Lessons from the Saks Sale

Last week, big new broke in the retail space when Hudson’s Bay (HBAYF[1])– the name behind a chain of Canadian retail stores and high-end U.S. brand Lord & Taylor — snatched up smaller, luxury-focused Saks (SKS[2]).

While the deal may seem like old news at this point, it’s actually full of key lessons for companies and investors in the retail space.

One that I pointed to immediately after the news broke: That retail space is often more valuable[3] than the retailer itself. (Yes, I was looking at you, Sears (SHLD[4]).)

That’s not all, though. I recently had the chance to chat with Vivaldi Partners Group’s Tammy Tan, and she shed some light on to what each retailer gains from the deal — and in doing so, also illustrates some big-picture retail headwinds.

To start, in explaining what Saks gained from selling itself, she touched on a tough reality of the space: It’s hard to grow. As she put it:

“Organic growth in retail can be difficult to achieve. This deal is reflective of the larger consolidation trend that has been going on in retail for a while now. The acquisition will reportedly enable Saks to expand into new markets — Canada has been cited in this case — as it continues to recover from the recession, where it saw its profits decline steeply.”

This is hardly limited to the luxury space. Just ask big-box behemoth Walmart (WMT[5]), which is struggling to expand[6] into cities in the states, and facing roadblocks abroad[7] as well. Plus, Walmart’s rival Target (TGT[8]) has been eyeing Canada for growth as well[9] — a move InvestorPlace contributor Will Ashworth is quite bullish on[10].

That hard-to-grow reality makes the deal a win for Hudson’s Bay as well. Tan explained:

“For Hudson’s Bay, this deal gives them an already established, prestige brand (Saks) in their portfolio. It will enable greater market coverage via already-established and valuable brands that collectively caters to different customer segments at different price points.”

Still, that doesn’t fix one big shift that’s affecting the entire retail environment: The rise of online retailers. And I’m not just talking about Amazon (AMZN[11]). Instead, more niche e-commerce sites keep popping up as well.

“The retail business environment has been disrupted by the arrival of online luxury retailers on the scene. Saks and Lord & Taylor will need to keep their focus on winning against online luxury disruptors like Net-A-Porter and Gilt Groupe. “

And it doesn’t even begin to touch on the biggest trouble with retail of all: Fashion is fickle, and market coverage and e-commerce won’t matter if your handbags go out of style.

As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.

Endnotes:
  1. HBAYF: http://studio-5.financialcontent.com/investplace/quote?Symbol=HBAYF
  2. SKS: http://studio-5.financialcontent.com/investplace/quote?Symbol=SKS
  3. retail space is often more valuable: http://investorplace.com/2013/07/what-sears-holdings-can-learn-from-saks/
  4. SHLD: http://studio-5.financialcontent.com/investplace/quote?Symbol=SHLD
  5. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  6. struggling to expand: http://investorplace.com/2013/08/walmart-needs-to-get-growing-again/
  7. facing roadblocks abroad: http://investorplace.com/2013/08/is-it-finally-time-to-invest-in-india/
  8. TGT: http://studio-5.financialcontent.com/investplace/quote?Symbol=TGT
  9. eyeing Canada for growth as well: http://investorplace.com/2012/08/tgt-target-is-due-north/
  10. Will Ashworth is quite bullish on: http://investorplace.com/2013/03/ride-target-to-canadian-riches/
  11. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN

Source URL: http://investorplace.com/2013/08/retail-stocks-lessons-from-saks/
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