Luxury retail chain Saks Global Enterprises' road to bankruptcy protection was riddled with potholes, including a debt-fueled purchase of Neiman Marcus, stretched middle-income consumers, e-commerce and real-estate missteps and fashion brands' efforts to bypass department stores for sales, analysts say.
The Chapter 11 filing announced on Wednesday for the iconic, century-plus-old retailer - which oversees Saks Fifth Avenue, Neiman Marcus, Bergdorf Goodman and Saks Off 5th - could ripple through to other parts of the industry. And it lands during a bigger recalibration in the fashion ecosystem, as higher costs of living keep people from dropping thousands on a Birkin bag they didn't necessarily need, and as the industry tries to catch up with the tastes of younger shoppers following two years of flagging global sales growth in high fashion.
Meanwhile, the rise of influencers and social media have accelerated fashion cycles. Designers have less time to spend on actual design. A deeper sense also exists that luxury has become a little less about craftsmanship.
"People that are spending $25,000 a year on luxury or even $5,000 a year on luxury, they're not as romanced by what they're seeing, and they're looking at other brands," said Marie Driscoll, a retail advisor and professor at the New School with focus on fashion and luxury. "So there's a real opportunity for new brands right now."
The first Saks store opened in Washington, D.C. in 1867. Since then, it has become synonymous with high-end shopping. Some of its more immediate problems, analysts say, stem from the disruptions from the pandemic that affected the luxury space writ large.
When lockdowns blanketed the global economy, wealthier people found themselves with less to do but more money - and more government stimulus checks - to shop. More people, Driscoll said, effectively became luxury shoppers, snapping up premium-tier shoes, sunglasses and handbags.
But some of those customers got bumped out of luxury-level shopping with the arrival of 2023 and 2024, and their corresponding supply shocks, price hikes and higher interest rates.
Prices for some luxury brands, Driscoll said, rose in the double-digit percentage range. Competition emerged from a booming resale market. The boost the luxury industry got from customers abroad from 2000 to 2019 - particularly from people visiting the U.S. from China and Russia - has not come back since the pandemic hit, she said.
R.J. Hottovy, head of analytical research at retail tracker Placer.ai, said that within the luxury shopping space, more affluent customers, who take their spending cues from the stock market and the housing market, had held up. However, he said, he's seen more strain in the middle-income consumer who might be less reluctant to splurge in a better economy.
"That's where we've seen some pressures - this 'aspirational' customer maybe trading down or ultimately trading out of the category," he said. "And I think that's put some pressure on some of the luxury brands and retailers out there."
Elsewhere, he said, more upscale brands have opened up their own stores and online shops, circumventing the need for department stores. Traditional luxury retailers also might not sell the newer brands coveted by Gen Z, he said.
For Saks specifically, there were other issues. Driscoll said that after Saks split its online business and its physical-retail business into two - possibly to get more valuation of each business on its own - sales workers couldn't access products that were online to meet the demands of consumers in the stores.
"So if you needed a size six and there was no size six in the store, they couldn't order it for you," she said.
Saks' $2.7 billion deal in 2024 to buy rival Neiman Marcus - and the $2.2 billion in debt it raised to pay for it, according to Reuters - was an effort to grab more of a luxury retail market controlled by bigger players like Nordstrom and Bloomingdale's. But the deal brought its own problems.
"The cash flow from retail goes to paying off the debt, as opposed to investing in product, paying your vendors, hiring better sales associates, and running your business," Driscoll said.
Some vendors supplying products to the retailer pulled back on shipments as Saks fell behind on paying them. And the tie-up between Saks and Neiman exposed other issues with its store locations and real-estate footprint overall, said Jonathan Lazarow, a partner at the law firm Ambrose Lazarow who has worked with retailers and beauty companies in the past.
"Saks Global has too many stores and in many cases are in locations where a Saks is directly competing with a [Neiman Marcus] nameplate," he said.
"Additionally these retail locations are too large," he said. "Saks Global has brands selling the same product within several hundred feet of one another." He added that the merger didn't cut costs or make the company more efficient.
The bankruptcy filing could lead to store closures, analysts said. And the fallout could extend to the brands that Saks buys from to fill its store displays.
"Brands that have not been paid - many of whom are already halting shipments - will view the wholesale model with even greater skepticism," said Daniel Langer, the chief executive of global luxury consultancy Equite and a professor of luxury strategy at Pepperdine University.
Those brands, he said, could make a bigger retreat from department stores, and focus on their own retail locations instead.
Saks' troubles follow the bankruptcy filing of Barneys in 2019 and Neiman Marcus in 2020. Ahead of the combination between Saks and Neiman Marcus, there were other efforts, albeit unsuccessful, to consolidate in an industry dominated by LVMH (FR:MC) - the parent of Christian Dior and Louis Vuitton - and Kering (FR:KER), which runs Gucci, Saint Laurent and Balenciaga. In 2024, Tapestry Inc. (TPR) and Capri walked away from their merger deal after regulators sued to block it.
Driscoll said that recently, luxury brands had come to rely more on marketing, rather than actual product quality. Langer said ultimately, Saks' struggles came down to an inability to stay relevant. While luxury consumers had evolved, luxury department stores hadn't kept pace.
"They continued to rely on an elevation strategy that often just meant raising prices without a corresponding increase in perceived value," Langer said.
"This alienated the aspirational customer, who is the growth engine of the luxury sector," he continued. "When you combine this loss of brand love with an aggressive, debt-fueled expansion, you create a fragile house of cards."
-Bill Peters