Why Nordstrom May Be Surprise Winner From Saks-Neiman Marcus Merger

Nordstrom

“As we reflect on the legacy that our dad left behind, we’ve been reminded of his firmly held and consistent values—especially his commitment to serving our customers. Those values have been integral to Nordstrom’s growth, and they remain at the core of the decisions we make as a company,” said Pete Nordstrom.

After months, even years of rumors, Saks Fifth Avenue and Neiman Marcus Group (NMG) have reached a definitive merger agreement. Saks will pay $2.65 billion to acquire NMG and its 36 department stores, two Bergdorf Goodman locations and five Last Call outlets.

Saks brings 39 stores, 95 Saks Off 5th outlets, and a separately operating Saks.com business to the party to be called Saks Global. Long-time HBC executive and current CEO of Saks, Marc Metrick, will become Saks Global’s chief executive officer.

While the combined companies will create a luxury retail powerhouse – totaling some $10 billion in sales – bigger isn’t always better in the luxury world where the personal connection between the customer and the store and its sales associates are key.

During Geoffroy van Raemdonck’s six-year tenure with NMG, including seeing it through its 2020 bankruptcy, he built a strong culture of caring among his 10,000+ strong team. This news is sure to take the wind out of their sails – pun intended – whether van Raemdonck stays or goes. Either way, things are going to change big time at Neiman Marcus.

Looking over the luxury retail landscape, Nordstrom, renowned for its customer service and carrying many of the same brands as Saks and Neiman Marcus, is ready to take care of luxury customers who may be turned off during the transition period.

These customers are the kind of folks who pay attention to details in the business world and will understand the Saks-NMG deal was made in the interest of the owners and financiers, not the customers. Their loyalty can be easily transferred, even if their accumulated loyalty points can’t.

Nordstrom’s 93 stores can become a shining beacon for luxury shoppers looking for the personal touch that may get lost in the shuffle. And with brothers CEO Erik and president Pete Nordstrom at the helm, they carry on the family legacy of patriarch John Nordstrom from the company’s founding in 1901, something that Saks and Neiman Marcus lost along the way.

First and foremost luxury retail is a people, not a product business and Nordstrom looks to be the surprise beneficiary from the merger as luxury consumers seek to find a store that still feels like home.

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Luxury industry insiders suffer from the "Street Light Effect" cognitive bias. They are looking for innovation where its easy and where every one else is looking, instead of where real innovation is likely to be found.

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“For affluent consumers, luxury is a privilege, not a right, and as they look at the challenges they and the world at large face this coming year, they are signaling a willingness to trade off excess spending on luxury. Many plan to batten down the hatches and ride out any potential economic storm, as they did in the Great Recession of 2008 and 2009,” said Chandler Mount, Affluent Consumer Research Co.

Luxury Brands Must Prepare For A Reset:

Here's The How And Why

Over the last three years, the luxury market has experienced a whirlwind of change. After rising 7 percent in 2019 before the pandemic, it suffered a steep decline in 2020, only to bounce back with spectacular growth through 2021 and 2022.

Bain-Altagamma expects the good times to keep rolling in 2023. “The personal luxury market is projected to see further growth of at least 3-8 percent next year, even given a downturn in global economic conditions,” they predict.

However, since the past is often the best predictor of the future, a different outlook is suggested based on results from the Great Recession of 2008 and 2009. Global personal goods luxury sales dropped 9 percent from 2007 to 2009, disproving the conventional wisdom that the luxury market is immune to economic downturns.

Whether the economy takes a slight tumble or a big fall in 2023, more economists are warning about an economic downfall that will impact the luxury market too. Analysts are warning of a potential "Richcession."

To prepare the Washington, DC-based Affluent Research Company has just published a new study among 2,000+ affluent consumers, called Research The Affluent Luxury Tracker. It provides a forward look at how the affluent will adapt their spending and purchase behavior if the economy falters, which they fully expect it will.

“Affluent luxury consumers are the most highly-educated and well-informed consumers, and some 69 percent see a recession coming within the next six months, if it isn’t already here,” said Chandler Mount, the study’s lead researcher.

“Anticipating the worst, the affluents aren’t waiting for the other shoe to drop. Nearly half (48 percent) surveyed said, ‘Now is a good time to limit my purchasing,’” he continued, noting that the survey sample was skewed heavily toward high-net-worth-individuals (HNWI) with $1+ million net worth (excluding their primary residence), a notoriously difficult consumer segment to survey.

Not unexpectedly, the HENRYs, with less than $1 million net worth, were more inclined to cut back (52 percent). But even 46 percent of the HNWI are lining up to reduce their purchasing. This will pose significant challenges to luxury brands that depend upon the HNWI’s greater spending power if they do pull back.

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For the foreseeable future, millennial HENRYs (High Earners Not Rich Yet) will be the consumers that every brand manager, marketer and retail executive will need to know well.

This subset of the largest generation of Americans, earns between $100K and $250K–the income cohort that accounts for 40 percent of all household spending. Most important, however, these are the consumers who are on track to become the ultra-affluent ($250K +) of the future.

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Unity Marketing | 717-336-1600 or pam@unitymarketingonline.com

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