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Since merging with Neiman Marcus in December to create Saks Global, the retail group has been off to a rocky start. Staggering debt, extended payment windows and precarious financing have made headlines as the company works to transition through the merger and reposition itself as the leading luxury retail group. A lot is riding on its success. Despite this turbulence, a Saks failure would have serious implications for a US fashion industry in which multi-brand retail is already dwindling.
Last week, as speculation about Saks’s financial situation grew, came a lifeline: the company announced $350 million in new financing commitments from SLR Credit Solutions, with the loan consisting of a $300 million first-in, last-out facility and a $50 million secured term loan facility for subsidiaries. The transaction is expected to close by 30 June, just before past due payments to vendors are set to begin in July. “As we have always planned, Saks Global is implementing measures to further bolster liquidity and fortify our balance sheet as we continue executing on our transformation strategy and investing in our business,” Saks Global CEO Marc Metrick said in a statement.
It’s a large sum, especially in this environment, says Bryce Quillin, economist and co-founder of luxury strategy agency It’s A Working Title, who points to Saks’s brand equity among luxury consumers and real estate value as drivers — even with the company’s ongoing issues.
On 30 May, Saks reported an adjusted loss of more than $100 million for the last fiscal year, ended 1 February. On a call with investors, the retailer said it has $275 million in overdue payments to suppliers. On 29 May, lender Pathlight Capital (which was involved in the Saks-Neiman merger) sued Saks Global for what it says is $8.8 million in unpaid restructuring-related fees. Metrick said the company’s outlook is improving and that he’s confident in improved sales and performance in fiscal 2025 and beyond.
The $350 million should help to alleviate some of the stressors on the business. “With the financings announced [on Thursday], the company [Saks Global] will have approximately $700 million in available liquidity on a pro forma basis,” Metrick continued. “Along with synergy realisation and business performance exceeding our plans, we are well positioned to continue delivering for all of our stakeholders, including our brand partners.”
“We’re pleased to support Saks Global and its leadership team as they execute on their strategic plan,” SLR Capital Partners CEO Michael Gross said in Thursday’s release. “This financing reflects our confidence in the company’s platform and long-term growth trajectory.”
On its current position, Saks Global shared with Vogue Business: “We are thoughtfully managing our liquidity position, including by securing the new financing commitments announced last week, which will bring our available liquidity to $700 million on a pro forma basis. Along with synergy realisation and business performance exceeding our plans, we are well positioned to continue executing on our transformation strategy and deliver for all of our stakeholders.”
There’s a lot hinging on this growth trajectory. With Neiman Marcus under its wing, Saks Global is now one of few major retail groups in the US. For brands still reliant on wholesale — be it for a sales lift or marketing purposes — there’s hope that this period of turbulence will result in a more sustainable future for the multi-brand stores in Saks’s remit. What does this next phase look like?
The road ahead
The $350 million is a cushion, but not a solve, experts caution.
“Saks continues to face profound brand, marketing and financing challenges that will not be immediately solved,” Quillin says. “The improvement in their short-term liquidity, however, will buy them some time to initiate some restructuring, improve vendor relationships, and make the closely watched $120 million interest payment that falls due on 30 June, which resulted from the $2.2 billion in bonds sold to finance the Neiman Marcus acquisition.”
Saks’s first priority needs to be to get its operations in order, Neil Saunders, managing director of retail at Globaldata, says — namely paying vendors and suppliers. “It basically needs to use the cash to try and get back onto a stable operating footing so that it can run the business and drive cash flow,” he says. Saks confirmed that it has begun making payments on the new terms and that it will meet all of its commitments to brand partners as outlined in February. “We have made significant progress to reduce the past-due payables to our vendors,” the company said.
Beyond making payments to both creditors and vendors, what Saks needs to do now that it has the cash is level up. In Quillin’s view, customer experience should be the company’s number one priority. This involves improvements to the in-store experience, as well as fleshed-out omnichannel retail operations. “Without a significant investment in customer experience, this $350 million merely postpones the inevitable,” he says.
Saks says that its priority is to deliver for all of its stakeholders, including customers, brand partners, investors and employees, This includes: resetting the business model; unlocking alternative revenue streams; and making the most of combined strengths across Saks and Neiman Marcus.
A major challenge for the retailer is luxury’s general shift away from wholesale. In recent years, luxury has moved heavily towards direct-to-consumer (DTC), says Jessica Ramírez, co-founder of retail consultancy The Consumer Collective. It’s not just a Saks problem, she flags. “A lot of these department stores have lost their footing in terms of assortment, in terms of experience — they just don’t compete.”
What Saks needs now is to better understand — and execute on — what the luxury climate is today and how to compete with DTC offerings and smaller boutiques, Ramírez says. She recommends looking at how to partner with brands they stock to get them (back) on board and pull consumers to the retailer.
As far as the positioning of Saks and Neiman Marcus, Saks Global will need to figure out how to differentiate the two, Quillin says. The company might focus Saks on more accessible luxury, and Neiman Marcus continue to focus on ultra high-end luxury, he says. “But that strategy will create its own operational and market perception challenges,” he flags. “Creating differentiation will, therefore, require a regionalisation strategy that recognises and builds upon the perceptions that consumers have of the two brands in different parts of the country.”
In Ramírez’s view, it’s less about differentiating the two and more about Saks Global gaining physical coverage across the US. “You don’t have as many Neiman Marcuses on the east, it’s more in the south. With Saks, vice versa,” she says. (Seven of Neiman’s 36 stores, for instance, are in Texas.) “Them coming under one umbrella is more of a strategic Ramírez’s says. Saks says it views the two brands as “distinct, not different” and that it’s aiming to take the already-established brand platforms and scale them within their respective markets. “The true distinction between the two brands will be how we leverage exclusive launches and activate in markets with a client centric approach that caters specifically to customer preferences,” according to the company.
Saks could well need more liquidity, Quillin flags. Luxury retail is highly capital intensive, he says, pointing to the costs eaten up by inventory, store upkeep, staffing, marketing and tech upgrades. “A lot will depend on whether sales rebound meaningfully in the next 12 to 18 months,” he says. “If they hit continued softness in consumer spending or lose share to DTC, more liquidity will be needed.” After all, following the payments fiasco, brands were promising to invest further in their DTC operations.
The likelihood that Saks will wind up needing more liquidity is especially high given the steep interest rates on the Neiman Marcus deal loans, Saunders flags. “This will sap cash,” he says, noting that, even once this first financial hurdle is cleared, there are more to come.
And if it doesn’t work?
Saks still has a way to go. Is there a world in which it doesn’t recover, even with extra liquidity? Certainly, Saunders says: “No company is too big to fail.”
That may be so, but a bankruptcy would rock US luxury. This is, in part, why Quillin believes Saks was able to attain the $350 million in the first place. “With investors like HBC and possible interest from private equity, there is a willingness to back Saks as a way to stabilise and restructure luxury retail in North America,” Quillin says, adding that a bankruptcy or a collapse would be highly disruptive. Saunders notes that a bankruptcy could be used to restructure debt, and that a total dissolve of the company is unlikely.
That said, Quillin believes that a collapse would escalate what’s already happening in the retail landscape. “Department stores have been fading out for many years and we have already seen the market begin to transition towards new distribution models,” he explains. “A Saks failure would exacerbate many of these ongoing trends.”
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