The failure of Saks Global is calling into question the future of luxury department stores, curated emporiums battling against competition from single-brand boutiques run by their own suppliers and the rise of ecommerce.
Saks, the world’s largest luxury retailer, filed for bankruptcy protection in the US this week with total debts of about $5bn — a failure that came just over a year after it purchased rival department store chain Neiman Marcus for $2.7bn.
The ambitious deal, orchestrated by real estate executive Richard Baker, created a luxury retailing group with more than 60 stores and $10bn in projected annual revenue.
The collapse of the historic department store chain, founded two years after the end of the US civil war in 1867, has sparked a debate in the retail industry.
Does Saks’ unravelling simply reflect its management’s mistakes? Or does it expose a model of luxury retailing that no longer caters to modern shopping habits?
Baker’s aim was to create a dominant department store group providing unparalleled reach for luxury brands. But the $2bn of borrowings the company took on to complete the deal came back to haunt it within a matter of months.
The ensuing cash crunch forced Saks to delay payments to luxury suppliers, which then withheld merchandise, leaving holes in inventory that alienated Saks’ customers.
Those suppliers, a who’s who of the most prestigious labels in the sector, have plenty at stake in bankruptcy proceedings. Saks-owned stores “are the largest global partner for nine of the top-10 luxury brands,” company chief restructuring officer Mark Weinsten said in a court filing.
The chain’s creditors include Chanel, which is owed $136mn. Gucci’s owner Kering is $60mn out of pocket, while LVMH and Richemont are owed about $30mn each.
The global clout of these gilded brands, and their commercial importance to Saks, means they may be well placed to eventually recoup these sums. However, smaller vendors will feel less secure given how many have been left with losses from other recent retail bankruptcies.
Despite the long-standing challenges endured by department store chains, Saks’ representatives claim its underlying business was sound.
“The company’s troubles are not related to a decrease in demand for luxury goods or a lack of interest in department store shopping,” Debra Sinclair, a restructuring lawyer for the company, told the bankruptcy court as she sought approval for emergency financing at a hearing late on Wednesday. “It’s actually quite the opposite: the customers are there.”
But there are fewer luxury consumers today than a few years ago. And those who are shopping are discovering new places to spend.
The luxury industry has just endured its toughest two years since the financial crisis of 2008. Sales of personal luxury goods such as bags, clothing and jewellery have fallen 3 per cent from 2023 peaks to €358bn in 2025, according to estimates from consultancy Bain.
The industry was hit by a sharp drop in confidence among shoppers in China and a growing reluctance to spend on luxury goods among some US consumers, where years of price rises took a toll.
“After Covid you had a lot of aspirational luxury buyers that came into the market” flush with savings and government stimulus money, said Mickey Chadha, retail analyst at Moody’s Ratings. “[Now] those aspirational buyers are gone, and you’re left with core customers.”
The top 3 per cent of Saks’ customers each spend more than $10,000 a year at the retailer and collectively contribute 40 per cent of its gross merchandise value, according to a company bankruptcy filing.
David Schick, managing partner at research firm Optimal Advisory, said Saks has also suffered from a shift in consumer spending from “things” to “experiences”.
“Travel and dining have become more important. And then, even within luxury ‘things’ spending, home furnishings have become more important at the expense of apparel,” he said.
Even within luxury fashion, consumers are no longer dependent on department stores. Ecommerce has captured a growing share of spending and luxury maisons are opening more of their own boutiques. These stores are spreading from the glitzy shopping districts of the world’s premier cities into suburban shopping centres, drawing away footfall in the process.
At the Somerset Collection mall outside Detroit, for example, Neiman Marcus and Saks Fifth Avenue stores sit at either end of a stretch lined with luxury boutiques, including Prada, Louis Vuitton and Hermès.
“The brands are supreme in all of this,” said Michael Ward, managing director of London luxury department store Harrods. “There was an idea [at Saks Global] that ‘we will be able to use weight and size and scale to dictate terms to brands’. But brands have their own personalities and ways of doing things. They will not be brought to heel.”
These are difficult times for luxury department stores across the pond, too. Selfridges, which operates four stores in the UK, reported a pre-tax loss of £102.8mn on revenues of £1.45bn in the 48 weeks to January 4. Meanwhile, pre-tax profits at Harrods almost halved last year to £85.1mn.
Despite the challenges, Saks intends to restructure after securing more than $1bn to help finance operations through bankruptcy, mostly from its bondholders.
Geoffroy van Raemdonck, former head of Neiman Marcus before it became part of Saks, has been appointed as its new chief executive and the company said all stores and ecommerce operations will remain open for now.
“We remain committed to delivering the exceptional products, elevated experiences and personalised services that you expect from us,” van Raemdonck said in a note to Saks customers late on Wednesday. “Importantly, this announcement does not mean we are going out of business.”
While Saks lives to fight another day, some of the smaller brands that supplied it may not. When it emerges from bankruptcy, the retailer will have to battle to rebuild trust with luxury brands that came to depend on it as a portal into luxury’s biggest market, the US.
One luxury retail executive said: “I know brands who have pulled out [of Saks] entirely. Far more brands have scaled back, picking a few key doors rather than being exposed nationwide. Then there are lots of brands lower down the list who are just left scratching their heads.”
Additional reporting by Michelle Chan in New York