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Saks CEO on new standalone business: 'It’s a win for consumers and e-commerce'

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HBC and Insight Partners are launching Saks as a stanadlone e-commerce company. Saks CEO Mark Metrick and Insight Partners Managing Director Deven Parekh join Yahoo Finance Live to discuss how Saks will accelerate growth as a luxury e-commerce platform.

Video Transcript

JULIE HYMAN: Well, Saks is spinning off its e-commerce business, or more accurately, the parent of Saks Fifth Avenue is splitting off the e-commerce business. It will be a separate business valued at $2 billion, and it's also getting an investment from Insight Partners of $500 million. It will be minority partner. Mark Metrick, Saks' CEO, and Deven Parekh, who is managing director at Insight Partners are both joining us now.

And Mark, I would start with you very simply by asking why? Why did you guys decide to spin off this business, and what advantages, perhaps, will it have as a standalone entity, versus being part of the parent organization?

MARK METRICK: Thanks for having me, first. I think the answer here is we are now at the 2.0, at the second launch of luxury in the digital universe. And when this happened 20 years ago, department stores like Saks, and all of our competition, we couldn't make the right decisions. We couldn't fully invest and really go wholeheartedly into this new space.

And with the addressable market going to triple in the next few years, it was time to really say, how do we focus the organization? How do we take capital, and how do we grow it in a way that is going to be exponential? And enabling the team to think and be focused on the consumer and be digital first is the big unlock here with, of course, the moat of that all all channel experience that we can still provide in partnership with our stores. So it's a win-win-win for the consumer, for the stores, and of course, for Saks.com.

BRIAN SOZZI: Deven, what's your play here? $500 million investment. Is your play more an e-commerce play or more of a luxury goods recovery play?

DEVEN PAREKH: It's really both, and the interesting thing about luxury is it's really not a recovery play. The luxury market has been resilient through the entire pandemic, and if you look at various categories of e-commerce, it's actually been-- and you look historically, it's amongst the most resilient categories.

I think really, this is a play about kind of unlocking an iconic brand online. Saks probably has amongst the highest unaided brand recognition of any retailer, and I think what we want to do is couple that brand recognition with a tremendous amount of premier merchant relationships. So we've got relationships with all the best brands globally, and then really bring to best in class user experience.

And I think that's been one of the things, frankly, that, as part of Hudson Bay, they've not invested enough in. And I think Mark and I share a common vision of really making sure that we create that best in class experience. And even since Friday, we have free shipping, we have all the things that people expect today that we didn't have historically, and I think you're going to continue to see, over the next 6 to 12 months, continued investment in that site experience, and really creating the best luxury experience online. That's really what we see.

MYLES UDLAND: Mark, it's Myles here. I want to ask a little bit about maybe how the world has come to you in a sense of everyone is now shopping online. It's not weird anymore to buy any one item online, and how that maybe can play a role in figuring out a way to be more Saks on the internet, if that makes sense. Certainly the store experience, when I walk down the street here in New York, I know where I am. Online can feel a little flat. How do you think about those trends, again, coming to you with this 2.0 as you outlined.

MARK METRICK: Yeah, and I think that was what Deven articulated so well. I think it's about bringing that luxury experience to the digital native customer that hasn't had that opportunity. The difference of the experience when you're in one of the Saks Fifth Avenue stores versus online, with way too big of a spread. And I think it's everything from how it's received, how the packaging comes, how it looks and how it feels when it gets to you, what it's like to contact us if you don't like what you purchased, how it feels to return it.

These were all things that probably in the digital world of department store retailing were fine, but when it was luxury, if you looked at the NPS that we experienced on our website versus in our stores, too big of a spread. So I think it's all about the relationship with the customer, it's about winning with fashion, and Deven said it. Luxury's really held on during the pandemic, and that's great, but the fact of the matter is that we need to be able to, through new data, through mining that data a different way, through having an expanded assortment, be able to deliver fashion. We are a fashion company first, that already has technology, but just needs, with inside support and help, a strengthening of those capabilities to really bring the luxury fashion experience to life online. And that's what's really exciting about this.

JULIE HYMAN: And Deven, from an investment perspective, you guys have a broad portfolio across tech, some other sort of e-commerce adjacent plays as well. What is your end game? Do you envision this Saks spin off eventually coming public, for example? You've done that with a number of your other portfolio holdings. What do you think is the longer term strategy here on that front?

DEVEN PAREKH: Look, our thesis is, you build a great business with a big moat, really happy customers, growing quickly, and anything can be an option. I think that we're actually generally pretty bad at predicting what our eventual exit strategies will be. There have definitely been companies that I thought were going to go public, they end up being acquired. There are companies that I thought were going to get acquired, they ended up being public. But the common characteristic in those companies was that they had great business models.

One other point I want to make here, and I think it's really, really important, whether we go public or something else happens over time. If you look at how most of these e-commerce carve outs have happened historically, they've ended up, which is ironic, given it's the next generation, they've ended up being the ugly stepchild. The intellectual property, estate of the parent company, the management team of the parent company, estate of the parent company, this is exactly the opposite of that.

The entire management team of Saks is in the dotcom. The entire merchandising function is in the dotcom. The intellectual property of Saks is in the dotcom. So I give credit to Hudson Bay's vision in really seeing that the unlock here was to invest heavily in the dotcom, not just as it relates to taking dilution and raising money from us, but really contributing the entire management team, and contributing to intellectual property.

So Hudson Bay has really said, we're betting it all here, and that's really, really distinct from how these transactions have happened in the past.

BRIAN SOZZI: Mark, I remember covering the retail recovery after the Great Recession, and I remember not a lot of people wanted to be seen with name bag Coach bags. They didn't want to flaunt their purchases. Is that how do you think it will play out this time as well, moving beyond the pandemic?

MARK METRICK: Absolutely not. I was at Saks-- I was the chief strategy officer during the Great Recession, and I can tell you, we definitely had that fear. We had customers asking for nameless bags. No, I see-- and Deven mentioned it-- what's been selling for us, what's been working for us has been luxury, has been aspiration. I actually see this opportunity as we emerge from this as a growth, as explosive. I think people are going to be excited to dress up again. I think people are going to be excited to feel good.

And I said this once before, luxury has been the comfort food during the recession. It's been the Oreo cookie of the recession, of the pandemic. And I think when we come out of this, we're positioned to grow, and it's going to be a great time for us.

JULIE HYMAN: Guys, thanks so much for being here. Appreciate it. Mark Metrick is Saks' CEO and Deven Parekh is managing director at Insight Partners. Looking forward to catching up with you guys again as the deal goes through, and the business progresses.