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What HBC should – and should not – do with Saks Fifth Avenue

HBC's $2.9 billion offer to acquire U.S. luxury retailer Saks gives it a prime opportunity to correct the recent retail wrongs of similar American-transplant retailers. We offer some unsolicited advice.
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Carmi Levy, July 30, 2013 8:44:28 AM

There are many ways to read the Hudson Bay Company’s friendly $2.9 billion offer to acquire American luxury retailer Saks. On the one hand, it’s a bold play by the iconic Canadian – and U.S.-owned since 2005 – company to take on Holt Renfrew in the high-end retail space. On the other, the deal brings another U.S. retail brand north of the border, and it gives HBC, which already owns the tony Lord & Taylor chain, a chance to turn around the recent losing streak of U.S. retail launches in Canada.

Target, Marshalls and J Crew have all disappointed Canadian consumers in recent years. Following much ballyhooed Canadian store openings, they’ve fallen short on price, selection and service compared to their original American locations. As HBC begins to establish a Saks footprint in the Canadian market – it plans to open up to seven Saks stores in Canada by either converting existing Bay stores or building new locations, as well as up to 24 Off Fifth outlet stores – it would do well to avoid making the mistakes of its recent border-hopping competitors.

We asked leading retail expert Doug Stephens for some advice on what HBC should and should not do:

1. Don’t turn Saks into the Bay

“The brand has a unique positioning, a rich heritage and great equity in the name,” says Stephens, author of The Retail Revival. “They need to be very cautious about mixing the two brands and potentially tainting Saks positioning in the minds of consumers. The cultural identity of Saks must be maintained and that’s often where acquisitions break down: culture.”

2. Don’t treat this like a real estate deal

“Saks owns about a billion and a half dollars in real estate, and (HBC CEO Richard) Baker is a real estate guy, first and foremost,” says Retail Prophet Stephens. “We’ve seen where this has gotten Ed Lampert and Sears: obscurity. The world needs a great retailer – not just more retail real estate.”

3. Don’t overexpose Saks

Stephens says luxury is so-defined “because it’s exclusive and rare,” and warns against the perils of dilution. “Don’t litter Bay stores with Saks product and don’t try to put a Saks in every mall where The Bay is failing.”

4. Don’t under-deliver

Target and its recent-transplant competitors failed by over-promising and then failing to deliver the goods. Stephens says expectation-management in the period before Saks goes live in Canada is crucial, as is consistent execution and agility afterward.

5. Do not price-promote

Saks customers are most certainly not the same as those who shop at The Bay, and like most luxury-minded shoppers won’t respond to pricing-based messaging. Stephens says HBC needs to emphasize luxury and exclusivity in its Saks-specific marketing, and says the company needs to stay away from price-based promotion “no matter how tempting that might be.”

6. Stick to the U.S. formula

Stephens says HBC should “use the equity they bought” instead of trying to craft something else. “Don’t Canadianize it. If they do, they become Holt Renfrew.”

The HBC/Saks acquisition is far from a done deal, as the offer includes a 40-day “go-shop” period where Saks, which slashed prices following the 2008 economic downturn and has struggled to build an online retail presence in the years since, is permitted to consider competing offers. But assuming it goes ahead, HBC now has a prime opportunity to learn from the mistakes of its mass-market competitors as it opens up a new front in the battle for Canadian luxury retail customers.

Image credit: paulswansen/Flickr.com

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Carmi Levy

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