The luxury flash-sale site may have posted a third-quarter operating loss of $11 million, but it brings a lot more than a dying business model to the Saks Off 5th owner’s table. Namely: technology and younger shoppers.
“This deal makes strategic sense given Gilt’s strong mobile and personalization competencies, premium brand equity and store traffic lift potential as Gilt customers will be able to return at Off 5th,” research analysts at Cowen and Company said. “HBC is likely to benefit from Gilt’s tech expertise and both combined should achieve a broader customer base, inventory/buying/freight savings and lower markdowns.”
That sums up what HBC CEO Jerry Storch said in a statement confirming the deal on Thursday.
“Adding Gilt to our rapidly growing digital business is very exciting and we see tremendous potential to enhance our mobile and personalization strategies by leveraging Gilt’s advanced capabilities,” he noted, citing the company’s “loyal and devoted millennial following.”
Cowen’s analysts pointed out that while the introduction of a return program at Saks Off 5th for Gilt merchandise is expected to boost the online seller’s business, not to mention the addition of Gilt shop-in-shops at select locations, a rising tide of sales could potentially lift all boats. In this case, incremental visits from Gilt customers could not only increase store traffic but also sales at Saks Off 5th.
In addition to sharing shoppers, both brands can merge inventory to drive lower markdowns.
HBC said it expects the transaction to contribute roughly $40 million of adjusted EBITDA by fiscal 2017 and Cowen’s analysis said the deal has the potential to yield “significant revenue synergies.”
Given the success of Nordstrom’s HauteLook acquisition in 2011, it’s not hard to understand why HBC is optimistic. For the three months ended October 31, sales at HauteLook and Nordstromrack.com combined grew 39 percent to reach $129 million. By comparison, comparable sales in Nordstrom’s full-price business increased a mere 0.3 percent in the same period.