Saks hopes Gilt Group will help tackle Nordstrom’s off price lead

In the wake of the purchase of Gilt Group, Hudson’s Bay Company (HBC) will use the Gilt eCommerce platform to improve its Saks Off 5th (parent company is HBC) performance. It hopes that Gilt will be the secret weapon to compete with Nordstrom Rack in the off price retailer arena, where Nordstrom is the clear winner.

Saks was acquired in 2013 for $2.9 billion, while Nordstrom’s current enterprise value is $10.44 billion, showing just how much traction Nordstrom has in the specialty department store arena. In Q3 of 2015, Nordstrom experienced a 12% net sales growth, with 8.4% increased in store sales. Saks had only 2.8% growth in its stores in the same period. Both brands attribute their current growth to the growing trend of consumer shopping online, and want to use their digital presence to bring consumers in brick and mortar stores. 
 
The object is to grab the highly coveted millennial consumer online, drive them into the stores, and convert that to sales. Nordstrom took a serious step into the eComm arena in 2011 when it purchased flash-sale site HauteLook. HBC/Saks is now trying to catch up in with Gilt.

Gilt holds the promise of an untapped millennial pool of new consumers. In an announcement last week, HBC said they plan to use Gilt to gain market share, citing their ability to connect with the 9 million existing Guilt members.  50% of Gilt’s sales are derived from mobile purchases, an opportunity Saks needs to seize for success.
 
Michelle Peluso, Chief Executive Officer of Gilt, noted that “Our members will find having a brick and mortar presence valuable and a positive addition to the Gilt experience.” While some might think that adding off price channels would dilute the brand, Nordstrom did not find that to be the case. Instead, by expanding Nordstrom Rack offerings and HauteLook deals, millennials who had not yet gained enough buying power to spend at the full price Nordstrom prices could still enter the brands in these off price aspirational channels. 
 
This strategy works for Nordstrom, as they are on track to meet their goal of 300 Rack locations by 2020.  Like Nordstrom, Saks intends to allow consumers to return online purchases from both Saks Off 5th and Gilt in store. Additionally, taking another page from Nordstrom’s playbook, Saks plans to feature in store Guilt pop-up shops to drive traffic to brick and mortar retail. While Nordstrom has a major eComm head start, with Gilt’s 9 million members, Saks might be able to create some new action in the off price world.

By Cassidy Mantor