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It’s over a year since diginomica last took a look at the omni-channel transformation efforts of Hudson’s Bay Company (HBC), owner of luxury retailer Saks Fifth Avenue. At that time I was none-too-impressed by what looked like tinkering with digital fundamentals far too late in the day.

Fourteen months and one global pandemic later, HBC has thrown a major transformational gambit into the mix and – spoiler alert! – I’m no more impressed, but significantly more baffled as to what the long game is intended to be, as HBC takes its strongest brand asset and heads off in the opposite direction to the rest of the retail sector.

Here’s the plan: Saks Fifth Avenue is to be split in two, with its online arm spun off as a separate business after venture capital firm Insight Partners agreed to cough up $500 million for a minority stake in what will be saks.com. The forty bricks-and-mortar Saks outlets meanwhile will now be part of SFA.

That stake in the new e-commerce-only outfit values that business at roughly $2 billion, which is not to be sniffed at, especially against the backdrop of red ink that was bleeding all over the HBC balance sheet back in 2019, prior to last year’s decision to take the group private.

But what’s so eye-catching here is that the decision to spin-out an e-commerce pureplay, particularly one that operates in the luxury retail space that has been slow to adapt to online retail, looks almost completely anti-omni-channel. In other words, as rival retailers, such as Nordstrom and Macy’s, are doing everything they can to create a seamless, channel-agnostic approach to retail, where offline and online are part of cohesive whole, HBC thinks that creating a formal divide between digital and physical worlds is the way to go.

What’s the thinking?

This turn of events is the latest in a long line of changes over the centuries for HBC, which was incorporated in 1670 and as such is North America’s oldest company. Hudson’s Bay is Canada’s biggest department store chain, with 88 full-line locations as well as thebay.com website. But the firm has had to shed key assets over the years, including Lord & Taylor, gilt.com and Home Outfitters, as part of a wider push to stay profitable.

The theory behind this online split is that as “separate but related sister companies”, saks.com and SFA will be “better able to appropriately plan for and invest in their respective service models”, according to the formal announcement. HBC’s CEO Richard Baker, who was part of the shareholder group who took HBC private, is quoted as stating:

Luxury e-commerce is poised for exponential growth, and as a standalone digital company with an existing strong position in luxury, Saks is primed to win significant market share.

With this move, we are redefining the luxury shopping ecosystem, supercharged by an enviable customer base, incomparable brand equity, long-standing relationships with top designers, and exquisite stores in top markets across North America. The team’s fashion expertise, combined with a renewed digital focus, will provide customers with an unmatched shopping experience.

Furthermore, this transaction re-inforces HBC’s ability to unlock significant value within our company’s assets. We are delighted to partner with Insight Partners, a firm globally recognized for its ability to scale Internet, software and e-commerce leaders, to unleash Saks’ full potential as the pre-eminent luxury e-commerce platform.”

Marc Metrick, who was CEO of the combined Saks businesses, will become CEO of the new digital entity. He says:

For nearly a century, our customers have loved and trusted the Saks Fifth Avenue shopping experience, cementing the brand as a leading fashion authority and setting the bar in luxury retail. As a standalone company, we are well-positioned to make the appropriate investments to drive exponential growth and deliver the same exceptional experience online. We are energized by the opportunities that lie ahead for our customers and our vendor partners. This is a pivotal beginning of Saks’ next one hundred years as a leading luxury retailer.

All that said, closer inspection suggests that despite the separation, the two businesses won’t be quite as far apart as might first seem. Returns, exchanges and SaksFirst credit cards will continue to be accepted both online and in SFA stores, which will also fulfill Buy Online, Pick Up In-Store for saks.com.  And both online and offline businesses will stall be fronted up as Saks Fifth Avenue. Metrick adds:

The Saks Fifth Avenue brand is rooted in delivering the best in fashion and beauty. Saks’ expanding online presence will drive brand awareness while the physical locations will continue to serve as an important customer touchpoint…We look forward to maintaining a symbiotic relationship and working together to provide a seamless customer experience across all channels.

My take

Given that the split has attracted a lot of attention, the Saks Fifth Avenue website, in its current form, is at great pains to reassure customers there’s no need to be alarmed:

Whether you choose to shop online or in a Saks Fifth Avenue store, you will see no interruption to the experience you expect from us. Returns and exchanges will continue to be accepted at any location. From the card you use to the points you earn, you can continue to shop the way you want, including buying merchandise online to be picked up in-store.

Over time, this change will lead to enhancements we think you’ll love – everything from elevated online styling to updated services in our stores. Together, we look forward to delivering a seamless and ever-improving experience for you both online and at your favorite Saks Fifth Avenue location.

In practice, this all looks like a financial manoeuvre more than anything else, with $500 million from Insight Partners coming in rather handy when dealing with the cost of HBC going private. It immediately makes the online business look more appealing with that $2 billion valuation attached to saks.com and presumably would make any future divestment of assets easier, should the need arise. As for most customers, well, chances are they won’t even notice the divide.

This idea has been brewing for a while. At the National Retail Federation Big Show in January, Metrick made a big play of how Saks Fifth Avenue has always plowed its own furrow. This spinning off of an online while rivals are upping their efforts to make the online/offline divide seamless makes for unusual optics, but can be said to be in keeping with the ‘Luxury Disrupted’ mantra that Saks has pushed for some time now. As Metrick pitched a couple of months back: 

I want [Saks] to be the definition of the word [success]. I don’t want to define it; I want somebody to use Saks as the example of something great, something special, something unique. There is the elevator pitch – I want to be Saks. That’s it. And I want that to define itself.

With this gambit and his new role, he’s certainly going to be at the forefront of putting that into practice, one way or another.