Saks Off 5th Splits E-commerce and Retail

Saks Off 5th is following in the footprints of its namesake, splitting off its e-commerce business and eyeing big-time growth with some new backing. 

Parent company Hudson’s Bay Co. teamed with investor Insight Partners to establish the Saks Off 5th e-commerce business as a standalone operation.

Insight invested $200 million into Saks Off 5th, valuing it at roughly $1 billion and shining a light on the value potentially sitting in the digital operations of any number of fashion retailers. 

The luxury off-price site is setting out on its own with some momentum. 

“Year to date the Saks Off 5th digital business is up over 100 percent to the same period in 2019,” said Richard Baker, HBC’s governor, executive chairman and chief executive officer, in an interview. 

Baker said HBC has invested in fulfillment and technology infrastructure for the business, but that now Saks Off 5th can charge on, bringing in more digitally savvy talent and focusing more specifically on the e-commerce potential.  

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Now e-commerce is not just growing, but coming decisively to the fore in fashion.   

“These businesses got too big and you need a separate team and separate investors focused on each one of these businesses,” Baker said. “The investors have different expectations on each of these… You need a digital type of team.

“I’m sure you will, over time, see other people in the industry following the road that we set out here,” he said.  

The Saks Off 5th deal mirrors the structure of the partnership HBC used this year to remake Saks Fifth Avenue. In that transaction, the Saks e-commerce business was spun off as a standalone entity as Insight pumped $500 million into the business at a $2 billion valuation. 

Sources expect both partnerships — for Saks and Saks Off 5th — will eventually lead to initial public offerings. 

Saks Off 5th’s 105-door retail business remains wholly owned by HBC and will now go by O5, although consumers shouldn’t notice much of a difference as the two businesses will continue to work together to provide a seamless shopping experience. Marketing and merchandising for both businesses will be led by Saks Off 5th to help present a united front for shoppers. 

Paige Thomas Michael Nakamura

Paige Thomas, who joined Saks Off 5th as president in February 2000, will lead the e-commerce business as president and chief executive officer. And Rob Brooks, previously chief customer officer for Saks Off 5TH, is now leading O5 as president. 

The Saks Off 5th move will prepare the business to go after the still underdeveloped space of digital off-price — two facets of the industry that have grown dramatically, although not together as off price is still largely a brick and mortar affair.  

“No question we believe this is an untapped opportunity,” Thomas said. “There are very few competitors that are in the online off-price space. Other large retailers that actually have scale in off-price, they are not playing in online and they are pretty vocal in saying they won’t be playing in that space. We’re very familiar with those that have scale in online off-price and we believe that we can be larger.

“There are very real industry trends that are calling out the growth of online, the growth of luxury, the growth of value and when you put those things together, that’s where Saks Off 5th is uniquely positioned to win,” Thomas said. 

“We have unbelievable access to highly desirable brands,” she said. “We describe ourselves as sitting in a moat in the online off-price space.”

The company is also branching out more. Saks Off 5th added 200 brands in the past year and plans to double that in the future.  Saks Off 5th has a steady assortment of goods that is always available and then some surprises mixed in, giving that treasure hunt feel that off-pricers have used to bring in customers, she said. 

And Thomas and team have some new backing as they go to takeover/create a new world.

“There is a category-making growth opportunity within luxury off-price, and we believe Saks Off 5th has carved out a differentiated position in an underserved market,” said Deven Parekh, Insight Partners’ managing director. “We’ve been consistently impressed by the Saks Off 5th management team and their focus on developing an unparalleled e-commerce experience. We look forward to working with HBC on this new partnership as they continue to build on Saks Off 5th’s momentum and growth trajectory.”

\Franz-Ferdinand Buerstedde, managing director of private equity firm Rhône and an HBC board member, said: “This is another major step in our partnership with Richard Baker at HBC, and Insight Partners. Paige Thomas and her team at Saks Off 5TH have done an incredible job of reimagining and transforming the business into the premier off-price destination for designer fashion, both through its thriving digital platform and its retail stores. The changes announced today will give the business the capital, additional expertise and resources to drive continued growth.”

 

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