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- [00:05]
A
Hello and welcome back to the Glossy Podcast. I'm your host, senior fashion reporter Dani Parisi, and I'm here with our international reporter, Zofia Zvaglinska. Hello, Zofia, how are you?
- [00:15]
B
Hi, Dani, how are you doing?
- [00:17]
A
I'm good. It's good to talk to you. I'm just getting finished with nrf and that was like preoccupying most of my time. And we were planning this episode today to talk about Sax and we had it in the back of our minds that Saks might file for bankruptcy at any moment. It is Thursday, January 15, and as of this recording, they officially filed for bankruptcy yesterday morning. So worked out. Perfect timing. We'll briefly go over what exactly Saks Global's bankruptcy filing is, the details, but mainly we wanted to talk about the ripple effects from their bankruptcy. We're going to talk about the effect on the brands that sell at Saks. We're going to talk about the effect on luxury shopping in general because it feels like no real multi brand luxury retail, online or offline is really working. We'll talk about all of that stuff. But as of Wednesday morning, Saks Global officially filed for bankruptcy protection. We've talked about this on the podcast and we've written about it. Everyone was kind of expecting this. They have been really struggling to stay on top of a massive load of debt in the last year, ever since this merger with Neiman Marcus, which seemed really ill fated from the beginning in my opinion. They've gotten several emergency injections of cash and it still was not enough to staunch the bleeding because I think sales were just not nearly enough to keep up with all the money that they owed. Richard Baker, who replaced Mark Metric as CEO only two weeks ago, is now replaced again with Jeffrey Van Raymdonk. I think that's how you say his name. There's a whole new leadership team who will allegedly lead Saks Global through this reorganization. They got another 1.75 billion in bankruptcy financing to fund them through the reorg. Otherwise they would have had to liquidate and that would have been truly like the end of sac. So. So that's everything that happened as of yesterday. It's now Thursday. Zofia, did I miss anything? Any other new big updates in the last 24 hours?
- [02:14]
B
Yeah, so we have had one more update from Amazon, which has been. It was a partner to Sachs. When Sachs acquired Neiman Marcus, the tech company invested 475 million into it. And it's a stake that apparently Amazon now considers to be worthless. So it's apparently saying that it's potentially going to be pursuing more drastic remedies, which essentially would make that process longer, more expensive and more public. So things like maybe forcing court oversight by an examiner, objecting aggressively to DIP financing, even delaying or blocking some of the plan confirmation. So I think that they're very upset and they do see themselves as a kind of harmed operating partner rather than just a kind of passive investor. And I think the other thing is that with Saks and Amazon, Saks had guaranteed Amazon at least 900 million in referral and related payments over the next eight years. So it's not just a kind of issue with money that they had paid, but a promise of future payments as well that they now feel they will not be able to get back. So, yeah, I think that's a big issue. And obviously with Amazon being such a big player, it could throw a very big spanner into the proceedings.
- [03:36]
A
Okay, any other notable details about this transition, about the bankruptcy filing?
- [03:42]
B
Yeah, so obviously you mentioned the change in CEO, but there's also two additional hires that have come in. So that's Darcy Pennock, who's coming in as President and Chief Commercial officer, and Lana Todorovic, who's coming as chief of Global Brand partnerships. And both have previously worked at Neiman Marcus with Van Randunk.
- [04:04]
A
Yeah, so new leadership coming in, like I said, another new big pile of cash to fund them through the reorganization process, which has happened several times so far. Like I said, just one more thing about this. But this has been a long time coming, I think, and we've talked about it on the podcast, we've written about it several times that it really feels like just this was a doomed venture from the start. You know, I think the, the merger with Neiman Marcus was barely two years ago, less than two years ago at the time. I remember speaking to a lot of brands who were very bitter that they were. This, you know, billion dollar merger was happening at the same time as Saks owed them like millions of dollars and, and wasn't paying them, wasn't paying them for months and months. And then there was, you know, SAC's leadership laid out a new payment plan and, you know, we're going to start paying our vendors at this time, over this time period. And that kind of didn't work out either. So it just felt like this was a long time coming. So let's talk about some of the ripple effects. The first one that I want to talk about is the effect on brands because there's been lots of reporting about this. We've reported on it. It's not just small brands. Saks Global's top 30 kind of list of creditors was released and it's big brands and they are owed a lot money. Between Chanel, Kering and LVMH, they're all jointly owed over $200 million by Saks. Chanel alone is owed over $100 million. Capri is owed $30 million. There's Zegna and even non fashion brands. Google is owed almost $10 million by them. So it's a lot. I mean a lot of the brands I had been talking to leading up to this were, I would say maybe more mid sized brands or indie brands who were owed $20,000 or $100,000 or a million, which is a big deal. But now we can see it's like even, you know, Sachs's most valuable partners were still owed a humongous amount of money. So I think the first big ripple effect is I don't think a lot of those brands are going to get any of that money back, or maybe I shouldn't say any because I think they will get some based on how bankruptcy filings and protections usually work. But they are not getting all of that money. I think that's. That seems very clear. I'll pause there. What do you think?
- [06:25]
B
Yeah, no, I think that there's also going to be a big delay with those repayments. It's not something that they're going to be able to get immediately. First there's like a whole process in terms of kind of Sachs ordering their books and making sure everything's kind of in order before they even approach vendors. And then typically that goes in order of those who are owed the most or those who have kind of the strongest relationships with Saks. And so typically smaller brands or even mid sized ones would be further down the list in terms of those repayments.
- [07:02]
A
And I think the financial terms and the contractual obligations are pretty complicated. But I think there's a good example. We can look to something we've talked about off the podcast. But when Matches Fashion filed for bankruptcy, they owed I think 35 million pounds to brands. And when they filed for their bankruptcy protection, when those brands eventually did get paid out, in total, they collectively received £800,000. So a fraction. And that had to do with the way Matches had set up their deal. It was like when the goods were received by Matches, ownership was transferred and they owed a debt to the brand instead of the product still technically being under the ownership of the brands. And that gave Matches like, you know, Broad rights to kind of delay payments. And. And then I know, Sophia, you've done some reporting on when a company files for bankruptcy, how their. Their creditors are allowed to respond. I mean, I know from before the bankruptcy filing that Sacks Brands were threatening Saks with legal action. They were sending their unpaid or their unreceived funds to collections agencies and all sorts of stuff. And I know that after the bankruptcy has been filed, a lot of that changes, like you're not supposed to threaten legal action against a company that's currently in bankruptcy protection. That's the reason they do it. I know you got some more information about that. Can you tell me what you learned?
- [08:31]
B
Yeah, absolutely. I know that companies like Fixer Advisory are advising their clients who have brands who might have been working with SACs, to one, centralize their records, organize them, make sure they're on top of everything here to stop all of that collection activity. Because from a legal perspective, you can't do that once a bankruptcy has been declared. Same for even routine communications. It's better to stop all of those if they're still seen as collection kind of activity, and also be very deliberate with shipments, which I think is the biggest thing. The reason why, you know, Saks has been going after such a big amount of money is because they want to resume normal operations, or as normal as can be, as quickly as possible so that brands don't end up pulling out of Saks. And as a result, consumers aren't really as aware of what's going on there and can still shop there normally. However, if there are advisory firms that are saying to their clients, maybe you shouldn't resume shipments quite yet, that could also affect the fall season or next spring, and as a result, the assortment that Saks will have across its stores. So that's something to note, but I think for brand sides, it's basically, don't move fast right now. Try and be very deliberate. Consult advisory firms or lawyers and focus on having proof of all of your different payment terms and collections so that they have the right paperwork when they do contact you.
- [10:11]
A
Yeah, and I know that, you know, again, I mentioned this. I talked to a lot of the smaller brands that were owed money. And even if you're not owed anywhere near, you know, the $100 million that Chanel is owed, that can be really an existential amount of money. You know, even being owed $15,000 if you have tight margins and like a kind of cash flow that requires getting paid on time. So you can put that right back into next season's Collection, not getting paid the full amount that you're owed because of the bankruptcy, I feel like can be a really bitter pill to swallow. And I think a lot of brands are already feeling very bitter towards Saks over the last couple of years because of the just, you know, lack of payment. And many have told me, and I've said this on the podcast, that Saks is not the only retailer to be really slow. But I've seen data that like, you know, the average retailer, if they're late, it's like a delay of seven to 10 days or something. And Saks was at like 40 or 50 days. And I know some companies were owed money way longer than that before they finally got it. So I think for the bigger brands, obviously Chanel does not like to be owed $100 million and not get it or to get only a fraction of it. Nobody does. But Chanel can weather that. I think there's a lot of smaller brands that are owed a smaller amount of money, but it's a bigger deal for them who will be have a much bigger effect on their, the health of their business from this.
- [11:39]
B
Yeah, absolutely. And I think that one of the bigger recommendations right now is still an investment in D2C and kind of focusing on those channels if you have them. You know, if you were planning on sending out goods to Saks, maybe hold off on those and see if you can put them into other kind of delivery streams just because at the moment it doesn't seem quite clear. And if there's anything to learn from, you know, the matches side of things, I know that a lot of those brands didn't actually end up getting their stock back or they had to go to the matches stockrooms and actually pick up their own stuff just to be able to make sure that that isn't a loss. So I think that, you know, if this is something that is happening to you right now, just make sure that you're not sending more goods out and repurposing it to go elsewhere.
- [12:28]
A
We're already talking about it. But just to officially move to this topic, I also thought we should talk about the ripple effect that the Saks bankruptcy will have on brands relationship with wholesale retailers and the contracts that they form. I know that a lot of times, especially the more independent brands that we're talking about, they do not have a ton of leverage to set terms. But I have spoken to brands and analysts about this, that they really think it will have a negative effect on brands willingness to or leniency toward retailers. If I were a small brand and got burned that bad by Saks, I would definitely be a lot warier about entering into another partnership with a similar big retailer. I think those retail relationships can be really valuable. And a lot of brands always say it can be worth the annoyance of accepting terms that aren't super great just to get into one of those big department stores. But, I mean, is it worth losing out on millions of dollars of not being paid? Maybe not. I feel like I've heard and will probably see more pushback from brands on wholesale contracts and pushing for things like cash on delivery and terms that are more favorable than what Saks was offering. And if those negotiations aren't possible, like I said, a lot of times, the retailer has a lot more leverage just walking away, just not taking it. You could push for certain terms and you might not get it, but you can always just not take a deal if you're not liking the terms. And I feel like we'll see some of that too. Like some brands just not going into wholesale or not entering into partnerships with certain retailers at all, rather than risk the kind of unfavorable terms that leads to a situation like this.
- [14:08]
B
Yeah, I agree. And I think that we're talking about these ripple effects. And considering how big a territory the US Is, there's very few places where you're able to kind of sell into one channel and therefore get the distribution across the whole of the country. I don't know if we'll be able to see that anymore anywhere else. If there are any other retailers who can replace Saks in this kind of way, obviously, if the bankruptcy kind of goes through and the money ends up appearing even then, I think that those distribution channels are not as reliable as they used to be. And as a result, I think that brands might want to focus a little bit more on kind of local things to them. If you're based in a specific area, maybe doubling down on that market rather than thinking about kind of expansive growth at all costs kind of mentality where you're only thinking about how wide can my distribution be? I just don't know if that model will really work anymore. And as you mentioned, is it really worth the risk of all of these kind of payment issues and kind of stock and inventory issues too?
- [15:18]
A
Yeah, and obviously, like, direct is always an option. Direct to consumer, that has plenty of challenges and downsides as well. People always tell me that digital marketing is a lot more expensive, and that's one of the biggest costs of, you know, doing DTC is you have to bring the customer in instead of getting into like a Neiman Marcus or something and you can just, you know, get some of the natural foot traffic that comes in. But there is, you know, I think if I were a brand, I would be very wary about the relationships I get into and the reputation of the retailer that I'm working with. I think I've said this before, but I've heard nothing but good things about Nordstrom in terms of being a brand or an independent brand and having a good relationship. I think they are one of the few big multi brand retailers that seems to be doing pretty well. They went private recently so we don't have as clear a picture of their financials anymore. But I've heard good things about them and if I were a brand, I'd probably be asking around and looking into like, you know, what does this retailer like to work with? Is there, are they, you know, super slow on things? Are they responsive? Will they make things right if something goes wrong? Like that kind of thing? I could see, you know, I'm sure brands were already thinking about stuff like that, but I imagine there's going to be a lot more vetting going on before you enter into a potentially risky relationship.
- [16:36]
B
I think that's a great point and obviously just think about what you're getting out of this as well. You know, there's so many tools right now in terms of what's available to you and kind of data analysis of foot traffic or sales. If a company is offering that to you, and I believe that Nordstrom does, that is something that is worth that additional kind of uncertainty, potential uncertainty, at least if you are committing to going that department store or kind of multi brand retailer route. Obviously there are other ones, but I think in the US it's mainly kind of one location places, you know, printemps, which I opened recently or else, you know, Bergdorf, which I think is also the same.
- [17:20]
A
Yeah. And on that note, we should talk about our last big ripple effect, which is just the luxury shopping space. You know, where are people going to be shopping, particularly in the U.S. i mean, you mentioned print, Tom. This week was NRF and I was out and I went into Saks yesterday before the bankruptcy filing was announced just to check out the vibe. And like maybe it's because it was a Tuesday afternoon. I don't know if that's normally a super busy time, but it was an absolute ghost town. Like I went to the fine jewelry section and it was mostly the employees like sitting and looking at their phones like it was just there was nobody there. Was nobody there. The other floors were a little bit more, a little more active, but it was, it was very empty. And I think Saks suffered from people moving away from the classic department. Like go to the department store at the beginning of the season and get your wardrobe for the next six months. Months. Like I feel like that shifted right as they did a $2 billion merger with Neiman Marcus. It was like not good timing. But also like we mentioned, Matches Fashion and you know, Net A Porter and some of these other. It feels like a lot of multi brand luxury retail destinations online or offline are like not doing so well. Some are doing okay. Mytheresa I think is an example of an online one that is doing better than many others we mentioned. Nordstrom is a physical store that I think is doing better than others. So it's not like none of them are successful. But it does feel like there's been so many challenges. I mean, since I've started working at Glossy, there's been so many big luxury department stores that aren't around anymore or are transformed in a big way. Lord and Taylor went bankrupt a couple years ago. One of my first Glossy stories was about Henri Bendel which went bankrupt several years ago and isn't around anymore. So I don't know, it feels like a very challenging sector to be in even at a time when luxury is like, you know, doing well and people are buying expensive stuff. So I don't know. Do you have any thoughts on the ripple effect on luxury as a category?
- [19:18]
B
Yeah, I mean, I've been doing the same over the last week or so. I've been speaking to kind of a number of people around what's happening with Saks, but also I guess like the tightening of the luxury kind of market space in the US specifically and a lot of the times what was brought up. And I think I spoke to Lucas Elka from Bernstein about this and Mark Cohen, who's a retail analyst and director of retail studies at Columbia Business School. He was formerly the CEO of Sears in Canada. And both of them have said that the actual business structure is almost broken, that there's no real niche that these department stores are addressing. It doesn't feel like they're. They kind of got a specific luxury kind of lens. It's more a kind of we're everything for everyone. And you can find such a range of brands and such a range of kind of customers that it doesn't seem like it's something that's very appealing when you've already got competition in the kind of E commerce space. You know, they've talked about how it's not kind of a liquidity problem and that it's, it's going to be a process for Saks to get out of this. But even then, is that environment going to be something that brands want to come back to when they don't even know how they fit into? I don't know 2000 brands who are also doing completely other different things. There's been a lot of comparisons, I think between US department stores and European ones and obviously places like Rinocente or some of the department stores in France or Harrods in the uk, they're more specialized and it does feel like they have a lot more history to kind of call back on a lot more storytelling they can go through. But it does feel like there's maybe a lack of niche and a lack of addressing like a certain market by the US ones. And I think maybe that's something that Nordstrom does better than Saks is that they're very targeted in that in store experience and what that looks like. And I think Prantheme's the same. You know, they've focused on this very experiential kind of shopping. You know, all of the rooms are beautifully decorated. It does feel like it's almost like a place to go rather than just a place to get the best deal.
- [21:44]
A
Yeah, well, I'm glad you mentioned some of the international stores. I mean, that's something I was thinking about too. I have never been to like a Harrods or a Selfridges, but I feel like I hear nothing but good things about them. Same with Printhomme, which also opened in New York. I have not been to the Printhomme in New York yet, but it seems like outside the US there's plenty of luxury focused department stores that seem to be doing pretty well. I think inside the US there is some thought about maybe this could be an opportunity for Macy's and Bloomingdale's to kind of fill in some of that space or same for Nordstrom. I definitely think that's possible. But I wonder if some of the same issues that affected Saks might still plague some of those other big retailers and department stores, which is just people aren't shopping that way. It feels like luxury owned stores, like luxury brand boutiques, at least in New York seem to be doing really well. Like I was at Hudson Yards a lot this week for NRF and that is full of like big, beautiful, you know, stores dedicated to a single brand like Louis Vuitton. That were packed and had lots of customers, lots of foot traffic. So I wonder if we'll see more luxury moving into more direct stores, maybe in some sort of fancy shopping center or mall like Hudson Yards. And less one big department store where you're just on the shelf. That's another, I think, potential that's already happening a little bit, but could see more of that for sure.
- [23:12]
B
Yeah, I agree with that. I think that there's more of that attention. And even within a concession model, which is where a brand almost has a little shop in shop in a department store, you don't get to control, I guess, as much of how you show up up as you'd like to, especially in the context of the wider department store. So, you know, maybe you want to be positioned in a certain way with certain brands. I know that with Harrods, that is a big thing. You know, if you're a luxury brand, you only want to sit in this like ultra luxury floor. You don't want to be anywhere near, you know, brands that are maybe cheaper. And I think that with maybe somewhere like Hudson Yards or some of the kind of more retail focused spaces, you're able to just control that space a lot better. And potentially, you know, do pop ups open and close whenever you like? You know, department stores do, I guess I don't know what their appeal is like. I think that's the biggest thing, like when you have all of these different places that as a brand you can show up in. Why would you choose to be in a department store now? You know, is there really a reason beyond just just very, very wide distribution?
- [24:21]
A
Well, I think that's all we have time to discuss today. But we have talked about Sax so much in the last couple months. This may be the last kind of big development for a little bit and they may go quiet and do their reorganization. Maybe there will be some other crazy news soon, but this may be the last like big Sax conversation we have for a little while. But whatever happens with them, you know, will be covering it more and talking about it in the future. Thank you, Zofia, for being here and thanks for talking about Sax with me.
- [24:50]
B
Thank you.
- [24:59]
A
And thank you for listening to the Glossy podcast. Don't forget to give us a rating and a review on Apple Podcasts or Spotify, wherever you listen to this because that helps us out so much. And don't forget to subscribe to the Glossy podcast to hear interviews with industry insiders. The new episodes come out every Friday. Until the next time, thanks for listening.