In a strategic move to reinforce its retail operations, Hudson’s Bay Company, the proud owner of the esteemed Saks Fifth Avenue, has successfully raised $340 million. This infusion of capital was achieved through a series of astute real estate transactions and comes in response to mounting concerns regarding delayed payments to key vendors.
The group formally unveiled this significant financial boost on Monday, marking the culmination of days of speculation and uncertainty as reports surfaced of critical suppliers suspending shipments to the luxury department store chain due to payment delays.
Numerous vendors have come forward to confirm that Saks has been postponing payments, leading brands to rethink the quantity of products they supply to the department store. In some instances, vendors even chose to halt merchandise shipments, uncertain about when their payments would finally materialize.
One executive from an American luxury label shared, “While we eventually received our payment, it required persistent follow-ups and was subject to significant delays.”
These concerns gained widespread attention following a blind item posted on Estée Laundry, a highly influential social media account, suggesting that cosmetics giant Estée Lauder Companies Inc. had suspended credit shipments to Saks during the crucial holiday shopping season. Estée Lauder, however, declined to comment on these reports.
The payment challenges with Saks initially surfaced in the spring, as attested by multiple vendors. While the retailer eventually settled its outstanding dues with some brands, these payments were often made with considerable delays.
Moreover, CIT and Merchant, two firms specializing in factoring, which offer financial assistance and collections support for wholesale orders, have taken a cautious stance by scaling back their approvals for shipments to Saks. This development, according to several informed sources, means that brands can still opt to dispatch their products to Saks, but those shipments won’t carry the financial protection typically provided by CIT or Merchant. This decision underscores their assessment of Saks as a credit risk.
Saks, in response, has asserted that it does not face any liquidity challenges. In a statement sent via email on Monday, the company confidently stated, “As we diligently manage our business in light of the broader softness seen in the US luxury market, we remain steadfast in our commitment to fulfilling all our financial obligations.” Saks further elaborated that it had proactively and strategically reduced its inventory levels and streamlined its roster of brand offerings this year, in anticipation of a decrease in demand from US luxury consumers.
Despite these assertions, the allegations raised by vendors have triggered a crisis of confidence in the prestigious retailer. The delayed payments compound the challenges faced by the broader US luxury market, which has been experiencing a slowdown. The CEO of one fashion company, speaking anonymously, revealed that the company had reduced shipments to Saks by 30% since September due to the retailer’s inconsistencies, even though Saks eventually settled its outstanding payments.
Saks’ e-commerce division reported an 8% year-over-year decline in gross merchandise value (GMV) for the quarter ending April 29, as disclosed in a letter from Saks CEO Marc Metrick to vendors, as reported by Women’s Wear Daily in June. GMV across Saks’ physical stores also declined by 15% during the same period.
In an announcement on Monday, Hudson’s Bay Company emphasized its ownership of real estate assets valued at $7 billion across North America. This revelation aims to dispel concerns regarding the financial health of its flagship retailer.
Ian Putnam, President and CEO of HBC Properties & Investments, stated, “This valuable asset base and the incremental liquidity it generates strengthen our operating businesses as we focus on sound fiscal management and strategic growth initiatives.”
Late or irregular payments are not uncommon in the wholesale industry, with smaller designers often grappling with cash flow challenges while retailers prioritize payments to larger suppliers. Throughout and after the pandemic, numerous multi-brand retailers encountered difficulties in meeting their financial obligations to brand partners.
In theory, Saks should be well-capitalized due to its e-commerce spinoff in 2021, which saw Hudson’s Bay Company raise $500 million to establish a separate entity for Saks.com. While Saks.com handled marketing and merchandising, the 40 brick-and-mortar Saks stores remained under the HBC umbrella, retaining the SFA (Saks Fifth Avenue) branding. According to Marc Metrick, this arrangement was working well, with online sales surging by 80% above 2019 levels and same-store sales increasing by 29% during the same period.
In a noteworthy development, it was reported later that year that Saks.com was exploring the possibility of an initial public offering (IPO) with a valuation of $6 billion, marking a threefold increase from its valuation prior to the spinoff. This news spurred activist investors to encourage other retailers, including Macy’s, to consider similar online-offline spin-offs in a bid to enhance their stock valuations. However, the IPO has not yet materialized.
Adding to the intrigue, in August, the New York Post reported that Hudson’s Bay was engaged in discussions to acquire the Neiman Marcus Group and potentially merge it with Saks Fifth Avenue in a deal estimated at $2 billion, potentially reshaping the landscape of luxury retail.
As the situation continues to evolve, Hudson’s Bay Company’s latest funding injection serves as a testament to its commitment to navigate challenges effectively and ensure the enduring legacy of the iconic Saks Fifth Avenue.