Join Kat Chen, BoF's retail editor and luxury expert, as she unpacks Saks' shocking bankruptcy filing. With $1.75 billion in restructuring plans and immense debt, she examines the reasons behind their financial downfall, including missed vendor payments and the burdens of their merger. Chen highlights the importance of shifting retail strategies, advocating for Saks to prioritize service and clienteling while learning from successful models like Dover Street Market. Are creditors set to gain ownership post-restructuring? Tune in for critical insights!
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insights INSIGHT
Merger Began With Unsustainable Debt
Saks and Neiman Marcus entered the merger already overlevered, leaving most new cash to pay interest rather than invest in stores or vendors.
This debt burden accelerated inventory and vendor issues, creating a downward spiral in sales and service.
question_answer ANECDOTE
Vendors Stopped Shipping Over Missed Payments
Vendors began stopping shipments to Saks by spring 2024 after repeated missed payments and broken instalment plans.
This 'death spiral' cut inventory quality and foot traffic, worsening sales further.
insights INSIGHT
Debt-Fueled 'Buy Time' Strategy Backfired
Saks Global took on $2.2bn in bonds while promising $500m in cost savings, increasing interest obligations.
Rising interest payments left less cash for operational fixes and triggered the crucial missed June interest payment.
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Saks’ bankruptcy was widely expected, yet still felt like a shock to the fashion system.
The department store giant’s Chapter 11 filing outlines $1.75 billion in restructuring finance and $3.4 billion owed to as many as 25,000 creditors – including $136 million to Chanel alone. Who will get paid, and what Saks looks like at the other end of the bankruptcy process, is an open question.
Former Neiman Marcus chief Geoffroy van Raemdonck will lead the reset. As BoF’s retail editor Cat Chen puts it, Saks will need to “shrink in order to grow,” curb discounting, and rebuild trust through clienteling and service.
Key Insights:
Missed vendor payments undermined confidence in Saks Global soon after it acquired Neiman Marcus and Bergdorf Goodman. “Even after Saks created these new payment terms, they weren’t able to stick to their instalments,” Chen says. Labels “stopped shipping to Saks entirely,” creating “a death spiral where Saks wasn’t getting good inventory, and this hurt their ability to attract customers,” and sales slid further.
When Saks Global acquired Neiman Marcus, both companies were extremely levered going in, with savings being swallowed by interest. The plan pitched $500 million in cost savings, but Saks Global took on more debt — $2.2 billion in bonds. As Chen explains, with margins in multi-brand retail already slim, “they were ill-fated because… a chunk of whatever sales or savings they were able to generate would be going toward interest payments.”
As Saks has 10,000 to 25,000 creditors, owed $3.4 billion, bankruptcy court will approve a list of critical vendors that are essential to Saks’s business. While conglomerates will cope, “it's really the smaller independent brands that might be owed less money, but the amount that they're owed are just so much more critical to their business operations. These are the players that are the most vulnerable right now,” Chen warns — and it’s not just brands. A model shared she’s “owed $46,000...and can’t pay rent now.”
Now, Saks must reset its business. Van Raemdonck “took Neiman Marcus in and out of bankruptcy,” yet Chen is blunt about the reality of the situation: “Saks Global will have to shrink in order to grow.” That means closing stores, stabilising cash flow and getting ruthless about discounting. From there, Chen says Saks has to compete on experience, delivering the best customer service and catering to their VICs.
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