Good morning. The current travails of Saks Global, the one-year old holding company of Saks Fifth Avenue, Neiman Marcus and Bergdorf Goodman, are a timely reminder that the key to success in business is often quite simple: focus on your core business, not on financial engineering.
In late 2024, Saks Global executive chair and controlling shareholder Richard Baker, a real estate scion, landed his dream trophy in Neiman Marcus (which also owned Bergdorf), achieving his long-held ambition to combine the U.S.’s fanciest luxury department stores into one company. To pull this off, Saks Global borrowed $2.7 billion, an untenable debt load that has put the company on the precipice of a bankruptcy protection filing, or at least a major refinancing. (No one thinks Saks Global is going under, but this can only hurt its prospects as a retailer.)
The Saks-Neiman tie-up was the culmination of a plan Baker hatched in 2005 to snap up retailers with valuable real estate. Over the years, different iterations of the company, known for years as HBC, have included Lord & Taylor (his first big acquisition), and Canada’s Hudson’s Bay.
His bet was that the value of iconic properties like the Saks and Lord & Taylor flagships in Manhattan or The Bay in Toronto could be monetized so long as the underlying retail business remained steady.
But nothing about retail, especially department stores, has been stable. Lord & Taylor shut all its stores in 2019 after HBC sold the weakened retailer, and Hudson’s Bay in Canada liquidated last year, ending its 355-year run.
To be fair, Baker has made some good deals in the world of retail. (He sold Target the locations of its ill-fated Canadian expansion in 2011.) And department stores have been cratering for decades.
But a constant churn of financial maneuvers (spinning off Saks’ e-commerce, creating co-working spaces in underutilized stores, all while being highly leveraged) brought some benefit but never obviated the need to invest more in basics. Saks Global has said it’s poured tons of money into its retailers, but it has not been enough. Its cash crunch has led some vendors to stop shipping to Saks: it’s very hard to sell merchandise you don’t have, ergo a 13% drop in sales last quarter.
A few months ago, I chronicled the comebacks at Macy’s, Bloomingdale’s, Nordstrom (all benefiting from Saks’ problems) alongside the consistent performance of Belk and Dillard’s. Such retailers have improved customer service, renovated stores, and stocked ample and new merchandise. A strong business boosts the value of their underlying real estate.
All that will be key for Baker to consider since he’s just become the new CEO of Saks Global, giving him a direct hand in running the company, not just yanking its financial levers. You can read my full story on the Saks saga here.
Contact CEO Daily via Diane Brady at diane.brady@fortune.com
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