It is always important to learn from bankruptcies because the people who made the decisions at the time often times made many rational decisions that turnout to be wrong.

In an article by Juveria Tabassum and Arriana McLymore of Reuters, it was headline news of a $2.7 billion marriage between Saks and Neiman Marcus was meant to create a powerhouse in the world of luxury department stores, helping it fight competition from online players and rivals such as Bloomingdale’s and Nordstrom.

A year has past and the results has left the enlarged company contemplating court protection under mounting debt and sluggish store traffic.

In July 2024, Saks bought Neiman Marcus along with Bergedorf Goodman, the luxury assets were spun off to create Saks Global. Saks had equity investors such as Amazon and Salesforce.

In a large merger, often debt is taken on and it this merger Saks’ took on $2 billion in debt.

The luxury brands were undergoing a slowdown which resulted in them trying new strategies such as some top brands moved from selling inside the store to directly controlled shops, giving consumers less reason to go into the department store.

Tim Hynes, global head of credit research at financial intelligence firm Debtwire, noted the deal was built on aggressive earnings and cost-cut assumptions that have never been achieved, which the added leverage has proven difficult to sustain in a structurally shrinking retail sector.

Saks was expecting to have $600 million of annual cost savings over the next 5 years, thanks to the greater scale of the company. In 2025, the luxury markets did not recover, however equity investors did add $600 million to the company, but it was not enough.

The expected $600 million became $275 million to $325,000 became $140 million to $160 million.

Similar to every company, they were trying, first looking for investors for $1 billion. Then delaying payment to creditors, reflecting receiving products nearly a month later than rivals.

This snowballed and vendors slowed orders and in many cases stopped sending orders as cash payments became fewer and fewer which makes store selection less and less.

On the bond market, Saks missed a $100 million payment in December, raising the prospect of a Chapter 11 filing.

Sak’s replaced its CEO and its prime real estate is valued at $4 billion. The iconic 5th Avenue flagship store is worth much more if the land is used for something else besides a retail store.

Linking to dividend paying stocks, the people who ran Saks had all the best intentions but could not or did not implement their plan and the classic signs were there for the world to see. Cost cutting projections were not done. Cash is king in a buyout and cash was running out. Vendor payments were delayed, stretched out and finally not paid. The company has assets, but they take time to become cash, who is most important in a bankruptcy – the bond holders. There are always signs and looking back it was hard to miss them, but people do and did.

There are more questions than answers, till the next time – to raising questions.