Saks Fifth Avenue's online-only store is apparently wasting little time attempting to capitalize on Wall Street's affection for e-commerce, with plans for an initial public offering now in its early stages, according to the Wall Street Journal.
Owner HBC in March split its brick-and-mortar Saks from its Saks.com operations with a $500 million infusion from private equity firm Insight Partners, which took a minority stake in the enterprise.
Saks.com then was valued at $2 billion; the planned IPO has a $6 billion target, the Journal found, citing people familiar with the process. A Saks spokesperson declined to answer questions about the report, stating by email, "As a matter of company policy, we do not comment on rumors or speculation."
With retail's recovery set to wane next year, and with mounting evidence that e-commerce pure plays struggle to make money, HBC and Insight Partners may be in a hurry to go public while the going is good.
Operationally, the split-screen set-up is a head-scratcher. The online and offline businesses have had to forge a series of operating agreements, for example, in order to maintain certain merchandising activities for both entities, and a seamless customer experience.
Still, HBC has gone forward with it for its off-price Saks Off 5th and its namesake Canadian department store Hudson's Bay Co. as well.
Perhaps not surprisingly, these are widely seen as financial maneuvers rather than operational ones. Investors are keen to unlock any value perceived as trapped inside a business, whether it's real estate or, in this case, the shiny glint of e-commerce. Those operating agreements may also create new streams of revenue if one side of the business ends up paying the other for services once rendered internally. In general, though, "Wall Street tends to be overexuberant and irrational about any firm with .com in its name," GlobalData Managing Director Neil Saunders said in emailed comments.
"Admittedly there is a short-term financial gain to be made from separating e-commerce from stores because a standalone e-commerce operation would be valued at a much higher multiple than the current business," he said. "Whether such frothy multiples – such as the one applied to Saks.com – are justified, is quite another matter."
That's hard to know, although unnamed sources cited in the New York Post last week declared the six-month-old experiment at Saks a success. Some certainly hope the idea will catch on. Activist investment firm Jana Partners recently floated the possibility for Macy's, for example.
But "in terms of the operations, it is far, far too early to declare a victory," Saunders said by email Monday. If anything, these early days may be a honeymoon period that is destined to end.
"The problems of separate store and online businesses will only really set in as the companies become fully separate and start to have divergent strategies or priorities," he said. "In a sense, separating the entities in the early days is the easy part, making both businesses viable over the longer term is the challenge. This is especially so for the physical stores which don't have growth trends and general market dynamics on their side."