Saks Global’s financial troubles, nearly leading to bankruptcy, stem from high-risk transactions and a failure to focus on fundamental business principles

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Good morning. The recent difficulties encountered by Saks Global—a company that oversees Saks Fifth Avenue, Neiman Marcus, and Bergdorf Goodman—serve as a reminder that business success often hinges on prioritizing core operations over complex financial strategies.

In late 2024, Richard Baker, the executive chairman and majority owner of Saks Global, achieved his long-standing goal by acquiring Neiman Marcus, which also included Bergdorf Goodman. This move brought together some of America’s most prestigious luxury department stores under one umbrella. However, to make this acquisition possible, Saks Global took on $2.7 billion in debt—a burden that now threatens the company with either bankruptcy protection or a significant refinancing effort. While few expect Saks Global to disappear entirely, these financial strains are certainly damaging its retail prospects.

The merger between Saks and Neiman was the result of a vision Baker had back in 2005: to acquire retailers with valuable real estate assets. Over the years, the company—formerly known as HBC—has owned Lord & Taylor (his first major purchase) and Canada’s Hudson’s Bay, among others.

Baker’s strategy relied on the idea that iconic properties like the Saks and Lord & Taylor flagships in Manhattan, or The Bay in Toronto, could generate significant returns, provided the retail business remained healthy.

Yet, the retail landscape—especially for department stores—has been anything but predictable. Lord & Taylor closed all its locations in 2019 after HBC sold the struggling chain, and Hudson’s Bay in Canada was liquidated last year, ending a 355-year legacy.

To his credit, Baker has made some savvy moves in retail, such as selling store locations for its ill-fated Canadian expansion in 2011. Still, department stores have been in decline for decades.

Frequent financial maneuvers—like spinning off Saks’ online business, introducing co-working spaces in underused stores, and operating with high levels of debt—have provided some short-term gains but have not replaced the need for fundamental investment. Although Saks Global claims to have invested heavily in its brands, it hasn’t been sufficient. The resulting cash shortages have caused some suppliers to halt shipments, making it difficult to keep shelves stocked and leading to a 13% sales drop last quarter.

Recently, I reported on the resurgence of Macy’s, Bloomingdale’s, and Nordstrom—all of which have benefited from Saks’ troubles—as well as the steady performance of Belk and Dillard’s. These retailers have focused on enhancing customer service, updating their stores, and maintaining fresh inventory, which in turn has increased the value of their real estate holdings.

Looking Ahead for Saks Global

Now that Baker has stepped in as CEO of Saks Global, he will be directly involved in managing the company, not just overseeing its finances. For a deeper dive into the ongoing story of Saks Global, you can read my full article.

Written by Phil Wahba

This article was first published on Fortune.com.