Amazon Isn't the Solution to Saks' Problems

Business of Fashion

02-05-2025

When Saks Global announced its partnership with Amazon this week to open a new storefront on the long-fledgling Amazon Luxury Stores platform, the news was less notable than the timing.
It was inevitable that the e-commerce behemoth and department store chain would come together. After all, Amazon helped finance Saks Fifth Avenue's $2.7 billion merger with Neiman Marcus Group, alongside Salesforce, Authentic Brands Group and the holders of $2.2 billion worth of bonds that the retailer issued in December.
But Saks revealed the news amid a barrage of headlines about its tumbling bond prices.
Since late April, the value of Saks' bond has plummeted as the luxury industry grapples with the headwinds resulting from president Donald Trump's aggressive trade policies. A day prior to its Amazon announcement, addressing the rapid depreciation of its bonds, Saks Global told investors that it's exploring options to boost its liquidity, including the potential sale of some of its real estate assets and raising up to $350 million in new debt. The concerns around the viability of the business were not assuaged; Saks Global Enterprises' bonds sank another 10 percent Tuesday, though it has since recovered from that dip. It now trades at about 62 cents on the dollar.
The fact that the bonds have lost more than a third of their value reflects falling confidence among investors that Saks would be able to make interest payments, the first of which is due at the end of June. In other words, the market has signalled that Saks is in a precarious cash situation.
On top of interest, the retailer has begun making payments to vendors as promised in a February letter to brands outlining a plan to pay back late and missed invoices over the last two years. Vendors with overdue payments from Saks can expect monthly checks starting in less than two months.
'We are actively managing liquidity with rigour to drive results,' a company spokesperson told The Business of Fashion in a written statement. 'We have approximately $400 million of liquidity, and are working diligently to ensure we have the capital needed to meet our financial obligations, invest in our transformation and operate our business.'
But taking on further leverage is not a good sign for Saks — especially not in the form of what's known as a 'first in, last out' —aka FILO — loan, which is the specific type of financing that Saks is deliberating.
'A FILO is known as a last-ditch effort,' said David Tawil, president of Prochain Capital and an expert on distressed assets. 'Whoever's putting down the FILO, they'll be the most sharp-elbowed lenders in the business, the best vultures around.'
Similar to a term loan, a FILO is typically drawn as part of an existing credit facility. In the case of Saks, its FILO would be structured within its $1.8 billion asset-based loan, or ABL, 'meaning our ABL/FILO commitments remain capped at $1.8 billion,' the company said. 'This will give us greater flexibility, without any incremental debt capacity.'
Whatever additional capital the company can procure will not address the other elephant in the room: Saks Global's business performance. Theoretically, profits from sales — made greater by the economies of scale that come with a merger — would turn into cash flow that would then be used for interest payments and other costs. But since the Neiman Marcus acquisition closed, sales have softened.
'Fourth quarter 2024 performance at Saks Fifth Avenue was hampered by lower inventory levels, which we expect will continue to impact the first quarter of 2025,' the company said. 'Neiman Marcus performance through holiday was strong, but the effects of the macroeconomic environment on the consumer is contributing to continued softness in the consolidated business.'
According to credit card data pulled by research firm Consumer Edge, sales at Saks Fifth Avenue have fallen double-digits every quarter since fall 2023. Neiman Marcus fared even worse, posting declines since the end of 2022.
Saks Global said its new storefront on Amazon will help it reach new customers. So far, only a handful of brands have agreed to be on the platform, including Dolce & Gabbana and Balmain. Allocating merchandise to Amazon also means fewer products for Saks to sell directly, not to mention it runs the risk of further alienating brand partners who have yet to come around on the idea of selling on Amazon.
With lagging sales, mounting interest payments and inventory orders coming due, Saks Global is not in a good place, to say the least. It's unclear if its current selection on Amazon is alluring enough to move the needle for either the department store or Amazon, which has struggled to make headway in selling luxury apparel.
For now, it appears to be 'lipstick on a pig,' said Tawil.
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Compiled by Jessica Kwon.