Tuesday marked exactly one year since Saks Global — to the surprise of its many doubters — closed on its $2.7 billion deal to buy Neiman Marcus Group.
While the acquisition did create a luxury department store giant including Saks Fifth Avenue, Neiman Marcus and Bergdorf Goodman, it did not dispel the doubters.
From the controversial decision to extend payment terms on vendors and to cover its past-due payments in monthly increments in February to a quick refinancing in August, the future path of Saks Global was a question mark for many.
Now, finishing off a make or break holiday season, the company is clearly at a crossroads with a more than $100 million interest payment due Dec. 30.
Bloomberg reported that Saks Global is “considering Chapter 11 bankruptcy as a last resort.”
In response, a spokesperson for the retailer told WWD: “Together with our key financial stakeholders, we are exploring all potential paths to secure a strong and stable future for Saks Global and advance our transformation while delivering exceptional products, elevated experiences and personalized service to our customers. Importantly, opportunities in the luxury market remain strong, and Saks Global continues to play a distinct and enduring role within it.”
Even after the refinancing in August, which brought in $600 million in new money, liquidity concerns swirled around the company.
In September, Standard & Poor’s projected that the company would have a $500 million deficit in reported free operating cash flow this year and said “liquidity will be rapidly depleted by the investments required to stabilize the business.”
Saks Global’s finances have kept it in a bind, making it difficult to buy inventory to stock its store, which in turn makes it harder to build cash to reestablish itself with vendors and pay down its debt.
Hilldun Corp., a key supporter that guaranteed vendor shipments to Saks, has a pause on approving new orders after the retailer missed a couple weeks of payments this month.
Meanwhile bondholders have once again grown very cautious on the company.
Senior secured bonds offered in August were recently priced at just 47.3 cents on the dollar, according to S&P Capital IQ. Less secured bonds in Saks Global financing were trading below 9 cents on the dollar.
Just what comes next for the company remains a vital question for the fashion industry.
Larger brands with concession shops at the retailer’s stores would hold on to their inventory if there were a bankruptcy, but they would face more change in the still-sizable department store channel.
Many smaller brands rely on Saks or Neiman’s or both and could struggle to recoup unpaid bills in a bankruptcy. Likewise, landlords would have to contend with the possibility of store closures.
Authentic Brands Group has a joint venture with Saks Global and Amazon has a stake in the company and operates much of its e-commerce business.
