Saks Fifth Avenue sets up a dedicated online entity

In the United States, the Saks Fifth Avenue department stores (40 physical stores for an annual turnover of around US$1 billion) has just made a radical choice. They are splitting business into two separate companies for either e-commerce or physical department stores. Eager to capitalize on the explosive growth of e-commerce, the retailer has raised US$ 500 million from the venture capital firm Insight Partners. This will be invested to speed up delivery times, manage returns and improve customer service. Saks hopes to provide a greater access to capital for its online business.

“At the moment, investors don’t want to put money into physical stores,” said Richard Baker, C.E.O. of HBC, which owns Saks. “By doing this, we can demonstrate to investors the value of our online business”. The future online company will be led by Marc Metrick, current C.E.O. of Saks Fifth Avenue. Sebastian Gunningham, former Vice President of Amazon’s marketplace from 2007 to 2018, will be on the Board. On the customer side, this change will be minimal. Customers continue to order online and pick-up in stores, and exchange Web orders at stores. Saks. com’s offer will be expanded, listing smaller and independent brands. In stores, salespeople will earn a commission on e-commerce sales.

“When digital started 20 years ago, choices had to be made and retailers directed their investments into physical retail,” said Marc Metrick, C.E.O. of Saks Fifth Avenue. Today, luxury is taking off online. We are not going to miss this opportunity again”. Indeed, in 2020, luxury goods purchased online represented 23% of the luxury market (Bain), up by 50% year-on-year. The valuations of online pure-players such as Farfetch, Zalando and Mytheresa Group (valued at US$2.3 billion at the time of a recent listing) have soared. In the last quarter, the online turnover of Nordstrom’s department stores accounted for more than 50% of its total activity (+35% in annual evolution).