Saks Global and Authentic Brands Group are looking to diversify their partnership into retail, hospitality and events as they seek to exert more control over the luxury market.
Over six months on from the creation of the joint venture, Authentic Brands Group CEO Jamie Salter and Saks Global Executive Chairman Richard Baker chose London to outline their plans as they spoke on stage at last week’s World Retail Congress.
The duo said that they believed the partnership could drive higher margins, wrest control of luxury away from vendors and towards retail and leverage the brand strength of department store group Saks – which includes Saks Fifth Avenue and Saks Off 5th, Neiman Marcus, and Bergdorf Goodman – to form global partnerships.
“We wanted to get into the luxury space but it’s all about distribution,” said Salter. “When we look at brands, what is really important with us is that they can make the right margin. If you look at the business model today, margin is everything. Getting together with Saks was critical for us. If you are not making low to high 60s [per cent]
in the maintained margin it’s very difficult.”
Authentic Luxury Group is a 50/50 joint venture between Authentic Brands and Saks Global and several luxury brands, plus Barneys New York. Salter stressed that for the retailer it meant it gained revenue via sales of merchandise plus 50% of the rent received as he likened the deal to another partnership Authentic had entered into with U.S. mall landlord giants Simon Properties and Brookfield for retail tenants in terms of a royalties and rents model.
“The model truly works. But we’re not just in retail, we’re also in hospitality business, we’ll see Saks branded residences going out, which also means people will buy home products from Saks for those. We already have projects on the go, and have people in the Middle East and Asia Pacific looking at doing a Saks store, a condo and a hotel,” he said.
Saks Global Targets Luxury
Baker said that the combined businesses under the Saks umbrella accounted for 60% of premium sales in the U.S. and said that the acquisitions to create the new department store group came after long negotiations with “an industry that was getting weaker and weaker and finally capitulated”.
Saks has launched a so-called ‘walled garden’ on Amazon in North America and is also building out sites for Japan, China, the U.K. and Middle East.
“When we sit here in five years luxury is going to be natural on Amazon,” he insisted. “We needed to bring the department stores together for efficiency, with $600 million of synergies achieved. We also had to right size our vendor matrix, because we had 2,660 vendors and we had to reset vendor relationships.”
Baker said that without making big decisions “there would be no [department store] industry left in the U.S.” and said that Saks expects to edit 500-600 brands out of its supply relationships, with a shift towards “controlled brands”, which offer the retailer a larger margin, aiming at circa 20% of total sales from these product ranges.
Salter added that combining the two company’s customer bases would also help propel the joint venture business.
“Data is critical, that tells us what brands are working and what brands are not working, which gives us such an edge in the competition. Let’s us dig into the data,” he said. “We believe we will be able to take this all over the world and find partners. In luxury the power has been at the vendor level and we need to shift it towards the retail level.”
Authentic And Saks Global Expand
Generating more than $32 billion in global annual retail sales, Authentic’s brands are present in 150 countries, including over 13,000 stores and shop-in-shops and 400,000 points of sale.
Its brand portfolio includes Shaquille O’Neal, David Beckham, Sports Illustrated, Thalia, Reebok, Champion, Brooks Brothers, Barneys New York, Judith Leiber Couture, Ted Baker, Hunter, Vince, Hervé Léger, Frye, Nautica, Juicy Couture, Aéropostale, Forever 21, Nine West, Eddie Bauer, Quiksilver, Billabong and Van Heusen.
Saks Global is owned by Hudson’s Bay Company, while Amazon also invested an undisclosed amount in the new entity when it was formed in December last, alongside Salesforce and software investing firm Insight Partner, plus Authentic Brands Group, which all agreed to be minority partners.