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A Valentine\u2019s Day memo to Saks Global vendors from CEO Marc Metrick is doing little to alleviate concerns about unpaid invoices and instead is raising questions about the newly formed entity\u2019s prospects.<\/p>\n
Ahead of the $2.7 billion merger of Saks Fifth Avenue and Neiman Marcus late last year, some analysts warned that broken-down vendor relationships had already impeded inventory management and revenue. Yet, while in his Feb. 14 note Metrick acknowledges an 18-month backlog of unpaid vendor bills, he also lays out a prolonged payment plan and appears to play hardball with brands.<\/p>\n
\u201cOur expectation is that this provides the clarity and certainty you have been seeking,\u201d he wrote.<\/p>\n
For many, it doesn\u2019t.<\/p>\n
Seeking payment<\/h3>\n
Vendors supplying Saks have complained to press outlets, including Retail Dive, that they haven\u2019t been paid for several months. Some small brands, owed tens of thousands of dollars, say they are beginning to struggle. Saks Global declined to comment to Retail Dive for this story.<\/p>\n
Most vendors understand that risk is endemic to the retail-wholesale relationship: A brand may not make its margins, customers may not buy the goods or the retailer may not reorder, according to Liza Amlani, principal and co-founder of Retail Strategy Group. Department stores are more volatile than ever, which can make the setup that much riskier, she said.<\/p>\n
But Metrick\u2019s<\/span><\/span><\/span><\/span> memo, which was viewed by Retail Dive, is atypical in key ways, experts said.<\/p>\nTerms have changed, \u201ceffective immediately,\u201d which applies to agreements with Saks Fifth Avenue, Neiman Marcus and Bergdorf Goodman. Not all changes are alarming. For example, purchase orders will be paid 90 days from receipt of inventory, with payments sent by wire or electronically \u201cat the earliest date commercially possible.\u201d This timeframe is now common in the industry, though marketplace sellers who drop-ship often enjoy faster turnarounds, according to Amlani. Sellers on Walmart\u2019s marketplace, for example, are paid 14 days after they fulfill an order.<\/p>\n
More unusual is Saks\u2019 decision to delay past-due payments until July and dole them out in 12 installments. Especially ominous to some is Metrick\u2019s implication that unless brands resume shipments or order fulfillment \u2014 even if they haven’t been paid \u2014\u00a0they risk getting cut from Saks Global’s roster.<\/p>\n
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\u201cWithout product, Saks would fail. They would not exist.\u201d<\/p>\n
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Liza Amlani<\/p>\n
Co-Founder, Retail Strategy Group<\/p>\n<\/div>\n<\/div>\n\n<\/div>\n
\u201cWe are looking forward to seeing the flow of merchandise return to normal levels so that we can begin to focus on driving our businesses together,\u201d Metrick said. \u201cIn the absence of the normal flow of goods, we anticipate that we will have to make changes to our brand partner matrix.\u201d<\/p>\n
It\u2019s helpful that Saks Global addressed the nonpayment concerns, but, ideally, communications and negotiations occur between vendors and buyers on a personal basis, rather than via a mass memo from the CEO, according to Amlani.<\/p>\n
\u201cIt’s almost like a bully, saying \u2018We’re doing this, whether you like it or not, and if you don’t do this for us, guess what, we could drop you,\u2019\u201d she said. \u201cBut without product, Saks would fail. They would not exist.\u201d<\/p>\n
Indeed, Saks Global may not be able to afford the latest upheaval in its relationship with vendors, given its track record. In December, ahead of the deal, S&P Global Ratings analysts led by Frederico Carvalho forecast 5% pro forma revenue growth in fiscal 2025 for Saks Global, assuming that additional funds, including contributions from shareholders like Amazon and Salesforce, would help improve supplier partnerships.<\/p>\n
\u201cWhile the broader retail sector has faced weak consumer demand for discretionary categories, deteriorated relationships with vendors have aggravated the drag on Saks Global’s revenue trends, including disrupted inventory flow as some vendors withheld products,\u201d Carvalho said<\/span>.\u00a0<\/p>\nTake it or leave it?<\/h3>\n
Metrick\u2019s note has left some brands wondering about the financial viability of Saks Global more broadly, and they have reason to worry, according to Mark Cohen, a retail veteran who previously ran retail studies at Columbia Business School. The payment delays suggest that the years-long difficulties at Saks and Neiman Marcus may have only been exacerbated by their merger, he said by email.<\/p>\n\n\u201cLate payment for merchandise receipts at Saks has been a longstanding chronic issue. Saks was a House of Cards before the NM acquisition,\u201d he said. \u201cNow, it’s anyone\u2019s guess what kind of liquidity exists after the NM deal closed.\u201d<\/p>\n
Metrick addressed this, telling vendors, \u201cWith the closing of the NMG acquisition, our financial position is strong and our leverage is reduced, which will allow us to make investments to be a better partner to our brand partners.\u201d<\/p>\n
To back this up, he pointed to a Jan. 29 note from S&P Global Ratings, which conferred a \u2018CCC+\u2019 issuer credit rating and stable outlook following the deal\u2019s closing. According to Metrick, those analysts reinforced \u201cthat the company has ample liquidity to execute on its strategy and the integration of the business.\u201d<\/p>\n
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\u201cLate payment for merchandise receipts at Saks has been a longstanding chronic issue. Saks was a House of Cards before the NM acquisition.”<\/p>\n
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Mark Cohen<\/p>\n
Former Director of Retail Studies at Columbia Business School<\/p>\n<\/div>\n<\/div>\n\n<\/div>\n
But that commentary applies somewhat narrowly. Also in that note, S&P Global Ratings analysts, again led by Carvalho, describe Saks Global\u2019s capital structure as \u201cunsustainable because it is highly dependent on favorable business, economic, and financial conditions,\u201d and maintain that any synergies would have to be significant. They also point to new debt \u2014 a $1.8 billion asset-based lending facility and $2.2 billion in senior secured notes \u2014 and \u201ca persistent free operating cash flow deficit.\u201d<\/p>\n
The state of Saks Global\u2019s vendor relationships may already be having consequences. On a recent visit, Saks Fifth Avenue\u2019s store in Toronto had a dearth of spring merchandise, though that could be because the company may plan to close that store, Amlani said. Saks Global didn\u2019t immediately respond to requests for comment regarding plans for that location or the reason for the merchandising issue.<\/p>\n\n\u201cI would doubt that the larger luxury houses will accept these dictates under any circumstances,\u201d Cohen said. \u201cFor smaller luxury players this is a \u2018take it or leave it\u2019 moment they will have to deal with.\u201d<\/p>\n<\/p><\/div>\n
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