Saks Fifth Avenue is considering expanding its brand to hotels and luxury apartments as it looks to grow beyond the bleak retail landscape, The Washington Post has learned.
Hot on the heels of the groundbreaking announcement that Saks parent HBC had closed a $2.65 billion deal to acquire rival Neiman Marcus, HBC is building a hotel and 56 private residences in Beverly Hills and posh townhouses in Westfield, New Jersey, on the parking lot of a long-closed Lord & Taylor department store.
With retail sales stalling this year and department store sales long in decline, forcing Saks and Neiman to finally strike a deal after more than a decade of on-again, off-again merger talks, HBC is banking on real estate deals to fuel growth.
“The days are over when you could build a mall with a food court serving chicken fingers and fast food and expect it to be an exciting destination,” Gerald Storch, former CEO of HBC, told the Post. “The department store is struggling to make ends meet. Any new retail development needs residential, office and retail space.”
In Beverly Hills, HBC is applying to the city for permits to build dozens of luxury residences on Wilshire Boulevard, as well as a hotel with a private club, spa and restaurant along a two-block stretch of land owned by HBC that currently includes parking lots and the new Saks women’s clothing store.
The Saks branch moved just a few doors down into the former Barney’s building in February.
“The apartments will be magnificent and will have balconies with views of Century City and the Beverly Hills community,” Guy Leibler, president of HBC Development, told the Post.
“We believe our customers will live in the apartments, want hotel services and be members of the club and spa.”
The hotel is to be built in the former, now vacant Saks store from 1938.
HBC announced the project two years ago, but plans are now taking shape and will serve as a starting point for future projects, management said.
“We are currently working with the community to get approvals,” Richard Baker, HBC’s chairman and CEO, told the Post. “Why couldn’t (Saks or Neiman Marcus) expand into hospitality and residential, similar to what Georgio Armani did?”
The Italian designer operates Armani hotels in Milan and Dubai, as well as nearly two dozen Armani-branded restaurants, including on Fifth Avenue. The upscale hotel chain Ritz-Carleton has operated a cruise business since 2022, Storch emphasized.
“It is quite possible that it will be a Saks hotel, but we also have inquiries from the best hotels in the world,” Leibler added, without mentioning the names of the brands.
The Neiman Marcus brand could also be found on hotels and restaurants, Baker said. Together, Saks and Neimans have a real estate portfolio valued at $7 billion, according to a press release announcing the merger, which still requires approval.
Toronto-based HBC bought the nearly two-century-old Lord & Taylor chain in 2006 for $1.2 billion and sold the brand in 2019 but kept the real estate. Baker said the company has already sold or repurposed 12 of the nearly two dozen L&T buildings, netting HBC about $2 billion.
The largest of these transactions was the legendary Fifth Avenue flagship store, which HBC, along with other investors, sold to Amazon for $1.15 billion on March 12, 2020, just one day before the pandemic shut down the Big Apple.
Other Lord & Taylor buildings have been converted into Saks Off Fifth stores, including the Stamford, Connecticut, store that was remodeled in 2022 and the Eastchester, New York, store that shares about half of the building with White Plains Hospital, which leases about 75,000 square feet from HBC, Leibler said.
“Vacant department store buildings have some potential,” Baker said. “Over time, we have unwound Lord & Taylor’s business in a thoughtful and productive manner while monetizing the very valuable real estate portfolio.”
Finding a new use for these large storage areas is not easy and their redevelopment could take years, say real estate experts.
“The physical configuration of these boxes makes it difficult,” said a real estate expert who has worked with some of the largest retailers to sell their underperforming stores. “It’s very expensive to take one of these buildings and break it up.”
These two- and three-story stores “were not built for redevelopment,” the source added, which is why it has taken years to find buyers or tenants to take over dozens of vacant Sears stores across the country. The bankrupt retailer was owned by Eddie Lampert, the billionaire hedge funder blamed for the ruin of the iconic department store.
Today, Seritage, the real estate investment trust that Lampert founded in 2015 to sell his assets, still lists about 24 stores for sale, according to a report from Real Deal. Seritage said in April that it has “experienced and continues to experience a difficult market that continues to put pricing pressure on all of our assets.”
Another big-box retailer moving into a former Sears store is a rare exception, experts say, pointing to a Target store that opened last year in the Cross County Shopping Center in Yonkers. Sears stores are often located in struggling malls, making redevelopment even more difficult.
In Westfield, NJ, the town has approved a plan for HBC to redevelop 14 acres on either side of the train station in the Union County community. The site includes a defunct Lord & Taylor store and several parking lots that will be converted into public plazas and townhouses, or so-called mid-rise apartment buildings.
HBC is pursuing a similar concept for its Wilshire project, which envisages a pedestrian zone surrounded by shops.
“We will connect residential areas, hotels and shops with this attractive pedestrian street where there could be a cafe, a bakery or small retail stores that could find their way into Saks Fifth Avenue,” Leibler said.
