What Should Saks Global Try Next?

Saks Global’s CEO, Marc Metrick, stepped down amid bankruptcy rumors as the luxury chain’s merger with Neiman Marcus Group last December failed to quickly set the business on stronger footing.

The Wall Street Journal reported on Dec. 31 that Saks had missed an interest payment on debt tied to its $2.7 billion acquisition of Neiman Marcus.

Richard Baker, executive chairman of Saks Global, last week assumed Metrick’s role while continuing to serve as executive chairman of the company. A former real estate executive, Baker previously ran Canada’s Hudson’s Bay Company and led the formation of Saks Global, the would-be retail empire that includes about 70 locations under the Saks Fifth Avenue, Neiman Marcus, and Bergdorf Goodman banners -- and about 100 Saks Off 5^th stores.

Baker said, "I look forward to continuing to work with our highly experienced management team, valued partners, and other stakeholders to secure a strong and stable future for our company."

Saks Sees Trouble as Luxury Faces Broad Challenges, More Competition

Saks’ troubles come as luxury spending has seen some signs of slowing down amid the pullback toward discretionary spending tied to inflationary pressures, yet the broader business has fared better than other sectors. Third-quarter results for high-end brands helped showed some recovery in the U.S. versus earlier in the year as trade tensions eased and the stock market reached record levels.

The possible bankruptcy filing is being largely blamed on debt taken on with the purchase of Neiman Marcus, which was not only expected to deliver cost synergies, but recapture buying leverage lost. That leverage has been lost as designer and sportswear brands have opened flagships across major urban centers and started selling directly to consumers online.

Luxury players have also lost share to a wide range of newer competitors over the years, including fast-fashion chains and off-pricers. The fallout includes the liquidation of Barneys and bankruptcy of Neiman’s, both in 2020, as well as implosions at Farfetch and Matches.

Saks Hurt By Inventory Shortages, Poor Vendor Relations

Saks’ recent results, however, have been particularly hurt by inventory shortages. Some vendors stopped shipping as the retailer has been slow to pay bills for the last three years. Sales declined 13% in second quarter, which ended Aug. 2.

Last February, Saks began testing its newfound leverage alongside Neiman’s by announcing that as part of “go-forward payment terms,” vendors would be paid 90 days for new orders from receipt of inventory, instead of the traditional 60-day window. It also announced that any past due balances would be covered in 12 installments.

Saks said the 90-day cushion for payments was required for the retailer to compete. Metrick, at the time, cited rising competition, including from its vendors’ DTC expansion, that have led to many luxury stores to exit the marketplace. Spikes in marketing, distribution and fulfilment expenses costs over the years were also brought forward as substantiating reasons.

"We are resetting the multibrand luxury distribution model, not because we feel like it. It's because the model no longer works," Metrick told WWD at the time.

He told Vogue Business, “Together as partners, we have to reset the model, or else there won’t be places for brands to distribute product anymore. There are things [brands] don’t fully appreciate right now, like the cost of having your own retail. The capital, staffing and real estate investments you need to make. There’s a reason for multi-branded distribution in the United States. And it was not going to survive under the existing model.”