Last week, big new broke in the retail space when Hudson’s Bay (HBAYF)– the name behind a chain of Canadian retail stores and high-end U.S. brand Lord & Taylor — snatched up smaller, luxury-focused Saks (SKS).
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 than the retailer itself. (Yes, I was looking at you, Sears (SHLD).)
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), which is struggling to expand into cities in the states, and facing roadblocks abroad as well. Plus, Walmart’s rival Target (TGT) has been eyeing Canada for growth as well — a move InvestorPlace contributor Will Ashworth is quite bullish on.
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). 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.