The retail world was abuzz this week with the news that Hudson's Bay Company is acquiring Saks Fifth Avenue. No surprise really; it was common knowledge that Saks was shopping around for a buyer with rumors in previous months that Nieman Marcus would make a great suitor. I imagine the reaction from most was almost a sense of relief that they finally found a buyer. This is, however, much more than a buyout story.
[Saks Fifth Avenue's flagship store. Photo credit: Wikimedia Commons, User David Shankbone ]
So what's the big deal one might ask? Aside from the fact that an iconic U.S. luxury brand is now associated with a Canadian brand that is still struggling to regain its footing (not that this is necessarily a bad thing) - the implications are fairly significant. I've had numerous conversations with luxury brands and department stores in recent months and the dichotomy at play is indicative of an underlying current poised to explode.
In one corner we have brands. Brands have traditionally sold their products through department stores. This is in fact how many brands got their start. The thing that's changing for brands today is that they are opening their own storefronts at an increasingly faster rate. In addition to that - these new storefronts are often in very near proximity to the very department stores that helped to build their brands in the first place.
This poses a problem for both the department store and the brand as they are now effectively competing with each other for your attention and share of wallet.
In the other corner, you have department stores that traditionally have built their business on the fact that they were the exclusive purveyors of these luxury brands. Well, the conflict at hand is more than obvious - the current model is not sustainable for either party in its current form.
Department stores are complaining, and rightfully so, that the brands are cherry-picking the products that they allocate to department stores and are holding back assortments in an attempt to build up their own store presence and create the compelling driver to get you into their own stores. And who would blame them. Apple realized this long ago and bucked the trend by opening their own stores.
After all - where would you rather buy an Apple product? From Best Buy or from Apple? ... Exactly!
So how does this play out? Department stores realized long ago that they could be much more profitable by developing their own private label brands. So - is this their fall-back position to make up the growing revenue shortfall that they will inevitably see? The thing is - that strategy will only take them so far. At what point do the brands decide that they want complete control over their customer? From the curated presentation to a much deeper customer connection - who wouldn't want to own that?
There are many other factors that aren't even addressed here that will impact this love/hate relationship. So the question in my mind isn't whether or not we will see a significant shift in the value proposition of department stores - it's a question of when.
Does this foretell a new retail model that we have yet to imagine? Share your predictions of the future in our comment section.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.