Hudson's Bay, Lord & Taylor parent, buying luxury retailer Saks for about $2.4 billion

  • Article by: ANNE D'INNOCENZIO , AP Business Writers
  • Updated: July 29, 2013 - 4:50 PM
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FILE - This Aug. 15, 2011, file photo shows Saks & Company in New York. Hudson's Bay, the parent of Lord & Taylor, is purchasing Saks for approximately $2.4 billion.

Photo: Seth Wenig, Associated Press - Ap

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NEW YORK — Don't let the global economy fool you: Luxury is hardly dead.

Saks Inc. agreed to sell itself to Hudson's Bay Co., the Canadian parent of upscale retailer Lord & Taylor, for about $2.4 billion in a deal that will bring luxury to more North American locales.

The acquisition combines three department-store brands — Hudson's Bay, Lord & Taylor and Saks Fifth Avenue— and creates a North American upscale retailing behemoth with 320 stores in some of the biggest and most populous cities in the U.S. and Canada.

Lord & Taylor and Hudson's Bay, Canadian's biggest department store chain, both cater to well-heeled shoppers who can afford $98 Free People blouses and $250 Coach handbags. Saks customers, on the other hand, are more affluent and can shell out $800 for Christian Louboutin heels or a couple of thousand dollars for Gucci handbags.

During a conference call with investors on Monday, Hudson's Bay Co. Chairman and CEO Richard Baker said the goal is to bring Saks luxury brand into Canada. The company plans to open up seven Saks Fifth Avenue stores and 25 Off Fifth outlet stores to Canada, while creating a Saks website targeted to Canadians. The parent company also plans to renovate Saks stores and to make the brand more "luxurious."

"With the addition of Saks, (Hudson's Bay) will offer consumers an unprecedented range of retailing categories and shopping experiences," Baker said.

Hudson's Bay is making a play for luxury at a time when shoppers still appear to be willing to shell out money for posh handbags and clothing despite global economic challenges. Global luxury sales, including higher-end jewelry and clothes, rose an estimated 10 percent to $281.96 billion last year, according to the latest study from Bain & Co. In North America, luxury sales were up an estimated 12 percent to $81.33 billion.

Still, Saks has lagged behind its peers in the luxury sector. It's been trying to keep up with its rivals Neiman Marcus and Nordstrom, which have performed well post-recession.

After getting battered by the Great Recession, Saks discounted heavily to bring shoppers back. That move hurt the chain's image, which is higher-brow.

Saks since has returned to selling clothes and other merchandise at full price and focused on closing unprofitable stores. But its sales haven't rebounded quickly to the level before the U.S. financial meltdown in 2008.

In the latest fiscal year, Saks reported annual revenue of $3.15 billion, up more than 4 percent from the previous year but still below the $3.28 billion in the year ended in January 2008. Saks' net income fell nearly 16 percent to $62.8 million in the latest year.

Belus Capital Markets analyst Brian Sozzi said that Saks shopping experience still isn't as inviting as that of Nordstrom and Neiman Marcus. For example, Nordstrom has been doing things like allowing shoppers to checkout in fitting rooms using sales associates' hand-held gadgets. And Neiman Marcus, which didn't suffer during the Great Recession, has a long-held reputation for coddling its affluent shoppers through its loyalty programs.

"There has been a lot of promise in terms of potential, but Saks hasn't lived up to the hype," Sozzi said.

Still, Hudson's Bay sees promise in Saks. Hudson's Bay will pay $16 per share for Saks, a 5 percent premium over the company's Friday closing price of $15.31. The companies put the deal's total value at about $2.9 billion including debt.

Saks' stock jumped more than 4 percent, or 64 cents to close Monday trading at $15.95. Shares are up 48 percent since the start of the year.

The acquisition will marry two storied retailers. Hudson's Bay was founded in 1670 as a trading firm for furs and other goods. It is considered the oldest company in operation in North America. There are about 90 Hudson's Bay location in Canada. The parent company also operates Home Outfitters, Canada's largest home specialty superstores, with 69 locations in Canada.

The company has seen steady revenue increases for the past few years. For the fiscal year ended Jan. 28, 2012, revenue rose 5.9 percent to $4.07 billion Canadian dollars ($3.94 billion). The company had a loss of $44.8 million Canadian dollars ($43.4 million) for the year from the year-ago profit of $1.45 billion Canadian dollars ($1.40 billion) as results were dragged down by one-time costs.

Founded in 1924 by Horace Saks and Bernard Gimbel, Saks' flagship store on Fifth Avenue in New York City is a landmark of retailing and sits on some of the most valuable real estate in the world. The company employs about 15,000 people across 41 stores.

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