Why Saks Global’s bankruptcy wasn’t just about the debt

If Saks Global’s bankruptcy has taught us anything, it’s this: Don’t bite off more than you can chew. In this context, we’re referring to its acquisition of Neiman Marcus and the enormous debt ($4.7 billion) the retailer took on, which ultimately backfired.

But is that the sole reason for the iconic retailer’s downfall? Not according to experts. In the past year, we’ve seen a wave of bankruptcies and store closures—most notably at Macy’s and Lord & Taylor—raising broader questions about whether the traditional department store model still works, even at the high end.

“Where Saks really had a struggle was having the demand driving the consumer in, but not having the inventory makes it meaningless, because the consumer then reorients and looks for other channels to find that demand in,” Nora Kleinewillinghoefer, partner in the consumer practice of Kearney, told Retail Brew.

While that certainly eroded the trust between the key vendors and Saks, another major factor, per Kleinwillinghoefer, was competition from brands that have invested in their own DTC channels.

“We’re seeing far more flagship boutiques,” she said. “We’re seeing more premium expressions of the brands in their own environments where they’re really curating and articulating that and are able to create that elevated, unique experience that is very brand nuanced, and hard to create in the department store model. So those consumers who want the Dior, the Chanel experience, they’re going directly to those brands and allowing themselves to be immersed in the culture and the essence of that brand.”

Wendy Zajack, adjunct faculty at Georgetown University’s McDonough School of Business, agreed, saying a key misstep on Saks’s part was a failure to understand that consumers have fundamentally changed the way they shop, especially when it comes to luxury.

“We move in cycles, and this idea of a department store isn’t something that—unless you’re adding entertainment, unless you’re adding food—that’s just not how we shop right now,” she said.

Currently, the inflation-hit, price-conscious consumer is ready to shop but only where they can find real value. For a luxury department store building that sense of value cannot come from laying out different brand assortments alone. And as Saks looks to reorganize in the future, it needs to do so with that understanding.

For both Zajack and Kleinwillinghoefer, that means leaning into building an experiential space that offers more than a simple shopping destination, whether that’s through more elevated food and beverage offerings, or a spa or wellness area. The idea is to essentially make the consumer excited to go to a department store again.

“Don’t be frugal in the experiential; create something that is unique,” Kleinwillinghoefer said, citing the example of the Tiffany’s café in midtown Manhattan.

“There was a Breakfast at Tiffany’s [café] many years ago. It drives traffic, and people are competing to get a spot there. It’s a destination beyond what Tiffany’s core business is,” she said. “So maybe you do a day of wellness at a department store, and it includes everything from injections to facials to makeup artists to a wardrobe refresh, and that is an experience you offer. It can take so many different ways that can be a more holistic experience, and that’s where you invest.”