Does Amazon Need Saks Global to Conquer Luxury Retail?

Amazon turned 30 on July 5th and did something that nearly 70% of all women also say they do on their birthday: They bought themselves a present.

On July 4th, the day before their three-decade birthday milestone, it was announced that Amazon would take a minority stake in the new luxury department store confab Saks Global. The $2.65 billion acquisition of Neiman Marcus by Saks will create that single luxury department store platform combining the 39 existing Saks stores, the 36 existing Neiman Marcus stores and the two Bergdorf Goodman flagship stores in New York.

At least, that’s the size of the footprint right now.

We don’t know how much of a birthday splurge that stake was for Amazon — details about total dollars invested were not disclosed.

The acquisition isn’t exactly a news flash. Saks and Neiman’s have been doing the acquisitions dance for more than a decade. Their private equity investors wanted an exit after taking Neiman Marcus private in 2005 for $5.1 billion. Neiman’s filed for bankruptcy in 2020, blaming COVID for at least some of its poor financial performance and using the filing as an opportunity to retire debt and streamline operations.

Rumors floated again a year ago that an acquisition was in the offing, but the deal collapsed at the end of the year over price. Whether the Amazon stake and its potential to add shareholder value longer-term got Neiman’s over their previous sale price hump is unknown.

So, too, is whether even Amazon can save these once larger-than-life iconic luxury department stores from their largely self-inflicted demise.

The head of Saks eCommerce says Amazon will accelerate the path forward for the merged entity. Geoffrey van Raemdonck, the CEO of Neiman Marcus, says that Saks Global (the new entity which includes Amazon’s minority stake) will create greater efficiencies through a more streamlined inventory management and more favorable (read tougher) negotiations with suppliers. That people still love going to the store to touch and feel the merchandise and interact with salespeople.

That luxury buyers are still buying.

Maybe. Lately, even wealthy buyers have become more discerning.

But when they do shop, they don’t seem to be beating a path to department stores. Looking at this chart from the St. Louis Fed suggests a different, more sobering, department store reality.

Department store sales are 50% below their peak in 2000, and 30% below where they were in the 1980s.  The 80s, as in 40 years ago. It’s hard to understand what people mean when they say, “department stores are back.” Back from what, exactly? Coming back from zero sales during COVID to levels which don’t even match sales made four decades ago is hardly a comeback story worth writing.

“But things are looking up,” proponents of the department store model still say. Not really. According to Collier’s April Real Estate barometer, foot traffic to department stores in April rose 5.1%, but sales fell 5.3%. People are walking into department stores but walking out empty-handed — as it seems they have been for nearly a quarter of a century. In fact, annual sales for department stores are down by 22% over the 10-year period from 2013 to 2023.

Now, whether Amazon’s minority stake in Saks Global becomes an opportunity for two desperate luxury retail department chains to think and act more like Amazon by streamlining logistics, inventory and supply chain operations — or whether it is the equivalent of a last-ditch retail Hail Mary pass — won’t be known for a while.

Neither will Amazon’s real interest in Saks Global.

Maybe they want a ringside seat into the ins and out of a retail category where Amazon doesn’t have much of a presence right now — but could over the next five years.  To learn the ropes, the relationships, the frictions. The role of the physical store in luxury retail’s future. According to Bain, the share of luxury goods sold online is expected to reach nearly a third of all luxury retail sales — taking most of that share from the department stores — up from low-double-digits five years ago.  The future is trending digital.

Or perhaps Amazon wants a better understanding, more generally, about why, after thirty years of raising the expectations for the consumer retail buying experience, Census still reports that 84% of retail sales still happen in the physical store.

Where innovation has stagnated for at least as many years.

Where data about the share of online versus physical retail sales is about as clear as mud and easily misinterpreted.

But where there’s an opportunity to (finally) reinvent the retail model by making the physical store an extension of the digital experience. Where the physical store remains relevant, but maybe not so much for shopping.

Physical Retail’s Innovation Desert

If I asked you to name the biggest innovations in the physical retail shopping experience over the last thirty years, what would make that list?

For most people, the innovations that are top of mind are those that give consumers a way to avoid going into the store.

Buy online, pick up in store is the granddaddy of omnichannel, getting its start around 2007. It got its true digital mojo in 2020 as the world was in the throes of COVID and more retailers were forced to get on board. Today, globally, PYMNTS Intelligence finds a marked increase in that use case, with 9.2% of the U.S. consumer population using buy online, pick up at the store when shopping for groceries.

Retail is slightly higher, at 11%, but also often comes bundled with the not-so-veiled (and friction-filled attempt) to bring consumers into the store to fetch their bundles. In Boston, the Saks buy online, pick up in store experience consists of schlepping to a counter in the way-back corner of the second floor. Quite often, the buy online, pickup experience comes with a wait of a few days, which seems to miss the point of buying something online and picking it up in the store the same day.

Instacart gives consumers digital tools to shop the entirety of physical grocery store using their app. It could be a store where they always shop, or maybe the one that catches their interest but is too far away to be practical. Shoppers still shop at the grocery store, but they work for Instacart, and push shopping carts filled with stuff to be delivered to Instacart users.

Retail subscriptions, including Amazon’s Subscribe and Save, are shopping innovations that move the weekly or monthly essential purchases online — maybe forever. Consumers can now subscribe to everything from laundry detergent to canned garbanzo beans to face cream to white T-shirts and get those items delivered on a schedule for free.

You get the point.

Innovations inside the store that make shopping more convenient don’t come easily to mind. No one marvels at the wonders of self-checkout. Even the no-checkout checkout seems to have gone nowhere. The Amazon Go experiment in 2018 was hailed as the coolest thing ever — until Amazon announced the closure of 8 of its 28 owned Amazon Go stores six years later. The new plan is to license the tech to 125 other retailers who’ve yet to fess up that they’re using it.

There was a time when going to the store to shop was fun, interesting, serendipitous — but it has become an exercise in uncertainty. And consumers who hate uncertainty have turned to the online experiences that offer a more predictable outcome.

It’s also why years of analyzing shopper satisfaction find that the in-store shopping experience is the least satisfying of all — with department stores topping that list, as the Fed data shows.

So why does the government report that 8 in every 10 retail purchases happen in physical stores?

I call it the Census Retail Data Iceberg Problem.

The Census Data Retail Sales Iceberg

The published Census Data on retail sales is a bit like an iceberg. What you see on the surface may not look that bad. The real danger sits below the surface, where the extent of the damage isn’t felt until it’s too late.

Right now, the Census reports that 84% of retail sales still happen in the physical store.

Retailers often laugh nervously when hearing these data. They hope it’s true, but staring at the reality that is their day-to-day tells them that it isn’t, for most of the big ones. They see and sense the danger below the surface, the impact of which is only getting stronger.

The PYMNTS Intelligence team has tracked the share of online versus physical retail sales for most of the last decade. That team doubled down on benchmarking that shift in 2020 and has monitored the acceleration and permanence of retail’s move online ever since. We do this by fielding national monthly and quarterly surveys of statistically significant consumer populations, producing results at a 95% confidence level.

In the U.S., we find that even as consumers have returned to the physical store, online sales are 0.4% higher than they would have been, absent the pandemic. This amounts to an incremental $28 billion in sales that are now online and no longer made in stores.

To understand the impact of that shift, and the true picture of online and physical store sales, one must examine the performance of individual retail segments.

In other words, the iceberg below the surface often doesn’t get as much airtime.

The Danger in the Data Beneath the Surface

When Census publishes reports stating that 84% of retail sales happen in the physical store, those data include reporting across 12 retail segments, including clothing and personal care stores, and a lot of other categories too, like gas and groceries.

Removing them from the retail sales tally, the online versus physical retail sales divide looks a little different. The share of retail sales made online becomes 19% of retail sales.

Examine just apparel and accessories, and the data looks different still.

PYMNTS Intelligence data estimates find that 34% of clothing sales were made online last year, double the 16% made online just a decade ago. That’s slightly more than a third of clothing and apparel sales, for all of you keeping score at home, and only increasing. It starts to put the department store sales cliffhanger in a different perspective.

Even for groceries, where 99% of all grocery sales happened in the physical store pre-COVID, we observe that 39% of consumers buy some of their groceries online today. There is no reason to believe that shift won’t continue.

How the Generations Shop

The generational shopping divide is even more telling.

Not surprisingly, the older the consumer, the greater the importance of physical retail, especially when purchasing clothing and accessories. There’s only one problem: they do that half as often as their kids and grandkids.

The younger the demographic, the more digital shopping becomes the preferred channel, their norm and their expectation of a user experience, even in a store.

The emergence of the Click-and-Mortar™ shopper, an insight gleaned from a six-country PYMNTS Intelligence study of shoppers and merchants commissioned by Visa Acceptance, finds that consumers want the same digital experience when shopping in the physical store as when shopping online — and especially when buying clothes. More than a third of all consumers participating in the study fit that profile. In the U.S., that share of consumers is 30%.

For these shoppers, physical is simply an extension of the digital experience that’s become second nature. Another place, not the only place, to go when they need or want something to buy. And when inside the store, they expect the same digital features — product reviews, price comparisons, promo codes, payment options.

The one thing that younger and older shoppers share is that fewer of their feet cross store thresholds. The bad news for retailers is that fewer younger feet today means many, many fewer younger feet, with the loss of their spending power, tomorrow.

Let’s hope that the Amazon and Saks Global tie-up starts a conversation around the retail watercooler about a shopping experience that doesn’t start with the store and simply tinkering with the retail status quo.

Scratching Thirty-Year Retail Innovation Itch

Maybe it’s taken 30 years for retail more generally, and department stores specifically, to come to grips with the reality that they’ve lost their grip on shoppers. It took the sector a good 15 years — half that time — to admit that shopping online was more than a one-off.  The Census Retail Data Iceberg is partly to blame.

It’s not just Saks and Neiman’s looking for the big retail reset — all department store retailers want the magic elixir. Macy’s new CEO has proclaimed a bold new chapter, including shuttering a slew of stores to improve operating margins. The Nordstrom family is said to be contemplating going private, again. Bloomingdales is putting their efforts into small store formats. Neiman’s just offered me a free night at a swanky hotel if I book a three-night stay.

The same stores, but smaller. Events in stores. VIP Membership and experiences. More of the status quo. Nothing that breaks the current retail model and reassembles it around shopping, not shopping channels.

Saks Global seems to believe, at least in part, that gaining efficiencies in the back of store can lay the foundation for a better customer experience in the store. That complex functions like inventory management, logistics, payments, rewards and distribution can best be accomplished collaboratively rather than building and maintaining those capabilities retailer by retailer and store by store.

That’s certainly true. For Saks Global, outsourcing logistics and distribution capabilities to Amazon could make it easier to move products between stores, to deliver products the same or next day — which could, itself, be a gamechanger.

But Amazon didn’t have to take a minority stake in Saks Global to get that deal.

The Amazon Effect on Luxury Retail

How much of a role Amazon might play in executing a newly-formed Saks Global vision is unknown. Retailers have been unsuccessful at reinventing their future on their own and could use the help.

Amazon comes to Saks Global with a retail pedigree of its own: its sales of apparel and accessories are $23.6 billion in Q1 2024, accounting for 16.1% of apparel sales, and 0.5% of consumer spending, according to the latest PYMNTS Intelligence data. That makes their apparel sales larger than Walmart’s and Macy’s. The last PYMNTS Intelligence data from July 1st finds Amazon’s share of online retail sales at 47.7% of all online sales.

Selling luxury brands on Amazon hasn’t mirrored that success. Brand selection is quite limiting. The consumer experience is also less than luxurious. Dropping a few thousand dollars on an Oscar de la Renta dress right after putting olive oil in my shopping cart seems weird.

What seems to have resonated is Amazon’s offer to ship clothes to consumers who can either keep or return before having to pay. Social media influencers have branded storefronts on Amazon to style and sell curated outfits sold on Amazon. They and their followers can have a conversation about fashion on social channels, and consumers can buy those products on Amazon to get the next day or a few days later.

There’s also the opportunity to voice-activate the retail — and the luxury retail — experience in new ways.  I remember asking an Amazon exec right after Alexa was introduced when I might be able to use her as my shopping concierge. My use case: Asking Alexa to use my Amazon Pay account to purchase a jacket or a skirt in my size from an ad without having to go to the retailer’s site.

Let’s just say… I’m still waiting.

But it’s not as crazy as it sounded ten years ago.

In a world of embedded payments, GenAI, enabling tech and logistics expertise, one can imagine the physical store as a staging ground, organized around the convenience of the shopper and not the store hours. Shoppers in the physical store assemble and send outfits curated by stylists to a shopper’s home, much like Instacart shoppers do when buying groceries for their users.  Video chats with sales associates in the store in real time could offer styling lessons and feedback on what looks good or what to mix and match with what. Items can be added or exchanged and delivered same or next day without the trip to the store. Influencers could even assume the role of trusted sales associate with business models and digital storefronts that reinvent the luxury shopping experience and the economics that support it.

The Saks Global deal and Amazon’s minority stake seems aimed at boosting the fortunes of two luxury retail franchises that have seen better days. The more interesting story will be whether Amazon needs Saks Global to conquer luxury retail. Or whether, after getting a look under the hood, they find the model so broken they decide to go it alone — taking with them the 21% of the Amazon’s 185 million Prime Members who are women with annual incomes over $100,000, just waiting to shop ’til they drop.