The parent company of Saks Fifth Avenue has entered an agreement to purchase high-end competitor Neiman Marcus for $2.65 billion.

The newly formed entity will be called Saks Global, encompassing the Saks Fifth Avenue and Saks OFF 5TH brands, Neiman Marcus and Bergdorf Goodman, along with the real estate holdings of Neiman Marcus Group and HBC, a holding company that acquired Saks in 2013.

The deal was announced on Thursday following months of speculation regarding negotiations between the department store chains.

The Wall Street Journal initially reported the impending deal on Wednesday.

Both Saks and Neiman Marcus have faced challenges as consumers have reduced their purchases of high-end goods and shifted their spending toward experiences, such as travel and upscale dining. The two iconic luxury retailers have also encountered increased competition from luxury brands, which are increasingly opening their own stores. The agreement is expected to contribute to cost reductions and enhance bargaining power with vendors.

Saks Fifth Avenue presently operates 39 stores across the U.S., including its Manhattan flagship. In early 2021, Saks  into a separate company, aiming to expand that business in a period marked by increased online shopping.

Neiman Marcus  in May 2020 during the initial months of the coronavirus pandemic but  in September of that year. Similar to many of its counterparts, the privately held department store chain was compelled to temporarily close its stores for a period of several months.

Concurrently, other department stores are under pressure to sustain sales growth.

Storied  announced in late August 2020 its decision to close all its stores after filing for bankruptcy earlier that month. It’s operating online.  announced in February of this year that it will close 150 unproductive namesake stores over the next three years including 50 by year-end.

Consumers have shown resilience and  even amidst a period of inflation, although spending patterns have evolved, with some Americans  to lower-priced goods.

A merger between the two luxury retailers does not address all the challenges, particularly considering the tendency of high-end shoppers to acquire luxury goods online or at luxury brands’ own stores, Saunders remarked.

“As a larger entity, negotiating power will be slightly improved with the brands, but even a combined chain would not match the scale and influence of the global luxury conglomerates, which would still retain a dominant position,” Saunders stated. “Consequently, there is a possibility that the deal might ultimately create an even bigger problem for Saks.”