Retail Stocks: 3 Lessons from the Saks Sale

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

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.

  1. HBAYF:
  2. SKS:
  3. retail space is often more valuable:
  4. SHLD:
  5. WMT:
  6. struggling to expand:
  7. facing roadblocks abroad:
  8. TGT:
  9. eyeing Canada for growth as well:
  10. Will Ashworth is quite bullish on:
  11. AMZN:

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