Hallo, Saks Fifth Avenue? Luxe chain could be Germany-bound

June 16, 2015, 4:32 PM UTC
Shoppers On Fifth Avenue Ahead OF Consumer Comfort Figures
A mannequin stands on display in the window of Saks Fifth Avenue as pedestrians walk down 5th Avenue in New York, U.S., on Tuesday, April 8, 2014. Consumer Comfort figures are scheduled to be released on April 10. Photographer: Craig Warga/Bloomberg via Getty Images
Photograph by Craig Warga — Bloomberg via Getty Images

Could Germany be the next stop on Saks Fifth Avenue’s international expansion?

The luxury department store’s parent Hudson’s Bay Company (HBC) earlier this week announced a $3.3 billion deal to buy Kaufhof, an old, struggling German retailer, from supermarket retailer Metro AG in a move that takes the department store conglomerate outside of North America for the first time.

HBC — which also owns Lord & Taylor in the United States and Hudson’s Bay in Canada – will be getting its hands on 103 Galeria Kaufhof locations, including prime spots in major cities such as Frankfort and Dusseldorf, and 16 Sportarena stores. Kaufhof also owns Belgium’s only department store with 16 Galeria INNO locations.

But perhaps more importantly, HBC gets its hands on a local management team with deep expertise in how German retail works, something that could prove useful if HBC decides to take Saks Fifth Avenue into Germany at some point, something that looks likely.

“We do believe that there is an opportunity to bring Saks Fifth Avenue to Germany to Belgium, and the opportunity to bring Saks Off Fifth there too,” HBC CEO Jerry Storch told Fortune in an interview. “We believe those opportunities are ‘substantial.'”

HBC bought Saks nearly two years ago, and it wasn’t long before it announced it would open six stores in Canada (the first is due to open next year in Toronto), where Nordstrom (JWN) is also setting up shop in that retailer’s first international foray. (Saks has operated stores in Mexico City for eight years but those are licensed, so Canada will be its first significant international expansion.)

For years, department stores were purely domestic businesses in part because most home markets were still growing and in part because of deals with vendors that gave luxury retailers exclusive rights in a given country.

But all that is changing, as department stores look abroad for growth.

In addition to Nordstrom and Saks looking North, Macy’s (M) is set to open its first overseas store in the United Arab Emirates in 2018, while its upscale sister chain Bloomingdale’s will open a second store in that market, building on the success of a first location opened five years ago. (Macy’s is also looking into opportunities in China.) And sometimes the battle is fought online: Neiman Marcus last year bought German online luxury retailer mytheresa.com.

And so HBC is betting that being the first bona fide international department store conglomerate will give it even more clout with vendors, something that will help in its expansion ambitions.
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“Many of our vendors are global and this gives us the opportunity to get more global exclusive product – additionally this gives us scale in our own label programs because we can bring those to the entire company,” said Storch, a former CEO of Toys R Us earlier in his career.

Indeed, one can find Lord & Taylor branded clothing at a Bay store in Canada, but also find the iconic multicolored Bay peacoat at some U.S. stores.

Another big enticement? The growing appeal of discount fashion retailers known in the biz as “off-price” stores. Witness the exploding popularity of TJX Cos’ (TJX) T.K. Maxx, a European equivalent to T.J. Maxx that is primarily operated in Germany and Britain. Indeed, HBC is bringing Saks Off Fifth to Canada, in addition to an aggressive expansion plan for it in its U.S. home market.

Storch said a big key to HBC’s success in Germany, whether it be Kaufhof or an potential Saks expansion, is that it is keeping the Kaufhof management team in place, rather than seeking to impose American managers and an American way of doing things on the European retailer.

Further down the line, HBC sees other opportunities in Europe, particularly in markets where the incumbent department store chain is dusty and tired.

“There should be global roll up of luxury department stores and we’re interested in leading that,” said Storch.
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