As with Macy’s, merger talks between Hudson’s Bay Co. and Neiman Marcus Group Inc. are breaking down, unnamed sources told The Wall Street Journal.
Hudson’s Bay Co. was reportedly hoping to avoid taking on Neiman Marcus' full $4.9 billion debt load, and little progress was ever made on the deal. Price was a sticking point (as with the Macy’s talks), according to the Journal’s report.
Last week, Hudson’s Bay Co., parent of American banners Saks Fifth Avenue (plus its off-price unit, Off 5th) and Lord & Taylor, unveiled a "Transformation Plan for North American Operations" that includes cutting some 2,000 positions in order to create a “flatter, more nimble organization.”
Hudson's Bay, a self-described "global consolidator," has been gobbling up department store chains in North America and in Europe, but now it's taking a closer look at streamlining its own operations. Various deals have enabled it to gain retail footholds in premier corners of the two continents and acquire prime real estate in major metropolitan cities.
But the company's dedication to physical expansion and real estate investments appears now to be getting checked by the need to examine its size, explore efficiencies and give attention to its digital side. Moreover, a Neiman Marcus takeover could have hit Hudson’s Bay’s sales, particularly at its relatively healthy American banners, Mark Cohen, director of retail studies at Columbia University's Graduate School of Business, told Retail Dive last month.
“Saks and Neiman go head to head fighting for substantially the same customer, “ he said. “So what often happens is you get formerly hyper-competitive players who continue to be hyper-competitive and are a part of the same company.”
Plus, Neiman Marcus’ nearly $5 billion debt burden (and counting) has added to the woes of the declining luxury department store. "Neiman is a walking death march," Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates Inc., told Retail Dive about its debt troubles. "That is what happens when private equity takes over. As long as you’ve got money you have the time to fix your problems, you have the luxury to fix things. If you don’t have money but you have debt instead, you’re in the realm of divine intervention."
Despite mounting debt, however, Neiman Marcus doesn’t have any major debt maturity until October of 2020, Philip Emma, a retail analyst at Debtwire told Retail Dive, adding that the company isn't forced into making a decision on a sale in the near future.
“The Neiman Marcus name still has value. It has deteriorated, but it’s still substantial,” Emma said. “There’s a revenue stream to buy at a discount — that’s an intriguing possibility. In low growth environment for retail, the ability to add sales cheaply could be viewed as compelling.”