Saks Fifth Avenue, the luxury mega-retailer best-known for pricey handbags and dresses, is on the brink of bankruptcy. These challenges have led to production delays and unexpected inventory shortages and the recent resignation of its chief executive. The ruction began when the firm began defaulting on payments to suppliers. This judicial decision lit significant concerns about its operational sustainability and its capacity to nurture relationships with suppliers.
Mark Cohen, the former head of retail studies at Columbia Business School, indicated that Saks’ issues trace back to its takeover by Baker over a decade ago. He called the unfolding disaster his agency’s “train wreck.” Only a few months before the crisis hit, Saks had touted its position in the market. Recent moves have shown that there is a stark break, both in strategy and fiscal health.
According to Cohen, “Right out of the gate, they stopped paying their bills.” This failure to pay has resulted in diminished inventory both in-store and online, leading to a slew of canceled orders in recent weeks. According to one vendor, they are still owed a minimum of $20,000 for shipments made last year. At the same time, more than $35,000 worth of unfilled orders has been in limbo since October when Saks ordered the vendor to cease all shipments.
These economic realities have hit retailer Saks Fifth Avenue hard, with significant drops in the yearly sales numbers. In reaction, the retailer lowered its full-year earnings outlook. The company attributed declining sales in part to these inventory woes. Additionally, the anticipated merger with Neiman Marcus has intensified existing financial problems for Saks Fifth Avenue, raising concerns about its future operations.
The flagship space in midtown Manhattan attracts visitors to its spectacular kaleidoscope of luxury brands. People ogle the long, gleaming rows of beautiful Balenciaga and Burberry handbags, sparkling like diamonds. In reality, the store’s appeal is lost amid the long and fraught operational challenges it faces. Richard Browne is 66, had shopped five years from Saks’ online catalogue. He made news last week for calling out the ridiculous – though entertainingly Machiavellian – things that were done to the site.
As Browne described it, there was nothing more frustrating than having to waste time hunting down a missing order. Then, much to his chagrin, they just told him, “Too bad, so sad.” His thoughts are emblematic of a rising frustration among former patronage members as they’re forced to watch their beloved, former retail juggernaut, succumb.
As Saks Fifth Avenue attempts to navigate this crisis, it has sought ways to raise cash in recent months, indicating an urgent need to stabilize operations. As Cohen explained, without trusting financial relationships with suppliers, you can’t keep a retail operation alive. “You can’t stay upright as a retailer, whether you’re a discount retailer or a luxury player, without having a reliable, consistent financial relationship with your suppliers,” he stated.
Amid these challenges, former chief executive Marc Metrick’s abrupt resignation in early January raised further questions about the retailer’s leadership and future direction. Observers note that such instability at the top could exacerbate existing problems as the company struggles to regain its footing.
Not surprisingly, the luxury market is cutthroat competitive. Saks Fifth Avenue’s woes will help its rivals further eat into its sales during this bleak period. There’s no time to waste, as the retailer needs to move quick to address its fiscal woes. Beyond that survival in an incredibly dynamic world, it must create a new era of trust with suppliers and, most importantly, consumers.