Saks Fifth Avenue's decision to split off its e-commerce business is 'completely at odds' with how people shop, according to a retail analyst

• Saks Fifth Avenue is splitting its online unit from stores in a "financial play," GlobalData says.
• The retailer is raising $500 million, which will value Saks.com at $2 billion.
• BMO analyst says retailers are on a "constant hunt" to optimize consumers' online experience.

Saks Fifth Avenue's decision to separate its online business from its brick-and-mortar stores is more of a financial move than a focus on consumer trends, a Global Data analyst said.

The luxury retailer is splitting its e-commerce business, Saks.com, from its store sales to raise money and capitalize on the shift to online shopping amid the pandemic, the Wall Street Journal reported, citing company executives.

The move to split the two is a "financial play" that will give the online business a higher value than if it remained part of the brick-and-mortar business, said analyst Neil Saunders, the managing director of retail at GlobalData. The separation "is completely at odds with how consumers shop and how retail is trending - which are shifting towards omnichannel where both store and online work together to drive sales," he said.

The split is designed by HBC, the owner of Saks Fifth Avenue, to raise money, Saunders told Insider. Insight Partners is taking a minority stake in Saks.com and investing $500 million, valuing the unit at $2 billion, the Journal reported, noting that the money will be put toward improving shipping, returns, and customer service.

"The plus side of separation is that it may allow the online teams to accelerate growth and innovate more than if they were part of a larger business," Saunders said. In theory, the online and store operations will act as sister companies, he added.

Saunders noted that other retailers, like Target, Walmart, and Nordstrom, are doing just the opposite by integrating online and offline operations "as much as possible."

But Insight said the online and store side of Saks Fifth Avenue will be working symbiotically together. "This split allows the digital e-commerce experience to get the technology and product investment it needs to bring the caliber of luxury experience in-store shoppers expect of a high-end digital platform," a company spokesperson said in an email to Insider.

Insight said it's thrilled to be the 150-year-old retailer's strategic partner. "Our team brings decades of data, industry benchmarks and best practices, and operating expertise to help Saks build a world class ecommerce experience for brands and consumers alike," the spokesperson said. "We are looking forward to rolling up our sleeves and scaling up Saks.com."

Saks Fifth Avenue did not respond to Insider's request for comment on the story.

The COVID-19 pandemic pushed traditional brick-and-mortar retailers to focus more on e-commerce with many businesses now looking to revamp their online presence.

The pandemic was a chance for big retailers that were struggling to pivot to "get off of the forward conveyor belt" and figure out how they wanted their businesses to be structured, said Simeon Siegel, a senior analyst at BMO Capital Markets. Though there will always be a place for stores, e-commerce has seen an acceleration because of the pandemic, he said.

"It's fair to assume the industry is going to be on a constant hunt to best optimize the e-commerce experience, to best utilize data, to best reach their consumer, and I don't think that's going to stop," he said.