E-commerce

Why are department stores a target for e-commerce spinoffs? – Retail Dive

Summary

Just when retailers thought their imperative was to combine their e-commerce and stores into one, smooth, silo-free operation, along comes Saks Fifth Avenue, attracting hundreds of millions of dollars from investors after splitting them apart.

In a series of conversations, various people familiar with the design and execution of the Saks separation declared it a success and suggested that other retailers should — and ultimately will — follow suit. That c…….

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Just when retailers thought their imperative was to combine their e-commerce and stores into one, smooth, silo-free operation, along comes Saks Fifth Avenue, attracting hundreds of millions of dollars from investors after splitting them apart.

In a series of conversations, various people familiar with the design and execution of the Saks separation declared it a success and suggested that other retailers should — and ultimately will — follow suit. That could happen quickly. Saks owner HBC has already gone on to give the same treatment to its off-price Saks Off 5th and Canadian department store Hudson’s Bay businesses. Activist investment firm Jana Partners, after floating the idea at a conference, is now reportedly pushing Macy’s to explore it seriously as well. And “financial sources” told Women’s Wear Daily that Kohl’s is next.

The motivation behind extracting the e-commerce side of a retail business is largely, if not entirely, financial, stemming from Wall Street’s deep devotion to tech-oriented companies. So far, though, it’s been applied just to department stores — if two only hypothetically — and not specialty or big-box retailers.

“The general view is that these are businesses in long-term decline,” GlobalData Managing Director Neil Saunders said by email. “As such, the focus is on how to extract value through reengineering and restructuring.”

The split

As of March, “Saks Fifth Avenue” is actually two entities. One, Saks.com, is an e-commerce player that is also developing an online marketplace; the other, SFA, is a fleet of 40 brick-and-mortar stores. Making this happen took months and the contemplation of thousands of “what-if” scenarios, according to sources familiar with the process.

That resulted in more than 150 operating agreements and more than 150 transition agreements to govern the relationship, ensuring that activities like merchandising and branding are consistent so that Saks customers will be none the wiser, sources said. Making the move at Macy’s similarly would require 200 to 300 such clauses, according to Cowen & Co. Managing Director Oliver Chen, whose specialty includes retail and department stores.

“There’s lots of integration and the customer clearly doesn’t want to or need to know, and needs to have a seamless experience,” he said by phone. “It’s very, very complicated, but complications can be worked out if you have 300 rules to follow.”

It seems likely that, over time, at least some of the agreements and partnerships will have to be revisited, and a person familiar with the separation process at Saks said there’s room for that. But these issues are difficult even when the online and offline teams reside in one company, and mandating coordination through legalities and fees is less than ideal, according to Colorado State University Business School Professor Jonathan Zhang.


“It’s very, very …….

Source: https://www.retaildive.com/news/why-are-department-stores-a-target-for-e-commerce-spinoffs/608682/

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