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HBC Splits Saks OFF 5TH Into Online and In-Store Businesses — a Path Other Brands May Follow

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HBC will spin off the ecommerce operations of Saks OFF 5TH into its own independent entity through a partnership with Insight Partners. This is the second such separation made by HBC in recent months. The department store retailer took a similar route by dividing Saks Fifth Avenue into distinct ecommerce and brick-and-mortar companies — a move that could become a trend among apparel and specialty retailers.

Saks OFF 5TH President and CEO Paige Thomas will retain her role in the new digitally native business. The company received a $200 million equity investment in a round led by Insight Partners, which will help her enhance omnichannel capabilities, including fulfillment and logistics improvements.

“There is significant untapped potential within Saks OFF 5TH’s digital business, and with the right investments to support our overall customer experience we will drive exponential growth,” said Thomas in a statement. “Saks OFF 5TH provides a compelling assortment of brands to fashion-seeking customers at the best prices. We will continue to deliver on our brand promise while introducing an elevated experience through improved digital capabilities, new partnerships and an expanded product offering.”

The brick-and-mortar operations of Saks OFF 5TH’s, which consists of 105 stores, will become a separate entity called O5 and remain wholly owned by HBC. Saks OFF 5TH Chief Customer Officer Rob Brooks will become President of O5.

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Marketing and merchandising for both businesses will be led by Saks OFF 5TH. Returns, exchanges and SaksFirst credit cards will continue to be accepted both online and in stores.

Following this spinoff, the Saks brand will be split into four distinct companies, divided by channel as well as price point. This structure could boost agility for the retailer, according to Hilding Anderson, Head of Strategy, Retail, North America at Publicis Sapient, who noted that “a digital-only focus enables the management to focus on digital trajectory, and to respond more quickly to other digital pure plays.

“There are multiple investment areas – customer experience, customer data, fulfillment spend – that tend to get prioritized more highly in digital-only businesses,” Anderson added in an interview with Retail TouchPoints. “It obviously reduces costs as well (by divesting physical assets), potentially enabling these companies to reach profitability more quickly.”

In fact, Saks may be ahead of the curve with its spinoffs. While a brick-and-mortar presence plays an important role in the wider omnichannel ecosystem, putting an increased focus on the specific challenges and opportunities of each individual channel is a great way to fine-tune each side.

“This type of digital-only spinoff is likely to become more common as companies seek to develop the next generation of digital natives,” said Anderson. “Accelerated by COVID, many apparel and specialty retailers are asking, ‘What is the purpose of the physical store?’ as well as ‘How can I maximize my profit and growth?’”

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