Saks' bankruptcy is a warning sign for department stores
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The department store's place in the American shopping landscape slipped further into obsolescence with Wednesday's bankruptcy filing of Saks Global.
Why it matters: The bankruptcy of the luxury retailer behind Saks Fifth Avenue, Neiman Marcus and Bergdorf Goodman shows that affluent shoppers are no longer enough to protect chains from financial missteps.
State of play: Saks is aiming to stay in business by restructuring its debt load and canceling unfavorable leases. The company has lined up a $1.75 billion finance package to keep stores operating during its overhaul.
Zoom in: Saks' bankruptcy is the latest in a series of retrenchments that have reshaped the department store sector over the past decade.
- Sears, once one of America's most powerful retailers, filed bankruptcy in 2018 and has largely evaporated along with the Kmart brand it owned.
- Lord & Taylor filed bankruptcy in 2020, underscoring then that luxury chains were not immune from the department store's decline.
- JCPenney also filed bankruptcy that year after years of decline, later stabilizing only after deep cuts.
Meanwhile, Macy's has closed hundreds of stores and in its latest turnaround plan is choosing to rally around 350 locations it has deemed core to its success.
- And Kohl's continues to operate more than 1,000 stores, but has struggled to reinvent itself.
Reality check: The sell-it-all model has fallen out of favor as brick-and-mortar stores have gotten more niche, while nimble digital rivals have provided a viable shopping alternative.
- But Saks was largely felled by excessive debt and stumbles of its own, GlobalData retail analyst Neil Saunders tells Axios.
"Inventory stopped flowing because the debt caused a huge cash crunch that meant vendors did not get paid and so stopped supplying," Saunders said in an email. "Well-run department stores, like Bloomingdale's and Nordstrom, generally do not have inventory problems."
- Foot traffic at Saks Fifth Avenue and Neiman Marcus fell more sharply late last year than at Bloomingdale's, according to Placer.ai data, underscoring uneven performance within the luxury department store sector.
By the numbers: Today the company says it has nearly 160 locations, including 33 Saks Fifth Avenue stores, 81 Saks Off 5TH locations and 36 Neiman Marcus stores.
- The company's revenue fell 13.6% in its most recently completed fiscal year, "largely driven by lower retail sales across all channels," chief restructuring officer Mark Weinstein said in a court filing.
- Saks owes hundreds of millions to the world's biggest luxury brands, including $136 million to Chanel.
Between the lines: It has faced " sustained liquidity issues," which have undermined its ability to take advantage of luxury customers who continue to spend, Weinstein said. "In that respect, the constraints faced by the Company are not driven by declining demand; where product is available, performance has remained robust."
Threat level: If Saks can't survive bankruptcy, the economic fallout would cut deep.
- The retailer has about 14,610 full-time employees and 2,220 part-time workers, according to a court filing, and it owns or controls 39 retail properties totaling more than 5.5 million square feet.
- Founded shortly after the Civil War, Saks became an icon of American luxury shopping. Its flagship store on Manhattan opened more than 100 years ago.
