What went wrong at luxury retailer Saks?

On a recent January morning, tourists marveled at the rows of Balenciaga and Burberry bags on display at Saks Fifth Avenue’s flagship location in midtown Manhattan.

But a conversation on the second floor hinted at financial troubles at one of America’s most iconic luxury department stores.

Longtime customer Penelope Nam-Stephen approached the Diptyque counter in search of the home fragrance she usually buys at Saks. Nam-Stephen, who splits his time between New York City and Boston, was surprised to see the product was not available in the Boston store just after Christmas.

He hoped the New York location would have better inventory.

“Is there anything of the scent of Berries?” he asked an employee. Her response: “Everything is out of stock; candles, diffusers.”

Saks Global, which owns Saks Fifth Avenue and Neiman Marcus, is expected to file for bankruptcy protection soon as it struggles to shore up its finances, leaving big questions among shoppers, retailers and investors about the retailer’s future.

Saks has been grappling with worsening financial troubles since Saks Fifth Avenue’s parent company acquired Neiman Marcus in 2024 to create the luxury retail giant. Executives argued that the $2.7 billion deal would reduce costs and strengthen brands.

Department stores were already under pressure from rising debt loads and changing shopping habits that benefited e-commerce rivals. Saks Fifth Avenue began reporting quarterly double-digit sales declines in early 2023.

However, the purported benefits of the acquisition did not materialize. Saks failed to make $100 million in interest payments to creditors that were due at the end of December, which is attributed to about $2.2 billion in debt it took on to finance the merger.

The missed deadline comes as Saks continues to generate frustration from its sellers, who have complained of months-long payment delays and many have stopped shipping their products.

Saks did not respond to requests for comment regarding stock shortages and the plan to pay vendors.

The company’s former CEO, Marc Metrick, abruptly resigned from the company in early January. He was replaced by Saks executive chairman Richard Baker, who oversaw the Neiman Marcus deal.

The restructuring process at Saks Global, which also owns Bergdorf Goodman, does not mean that Saks will close anytime soon.

But retail analysts and longtime sellers question whether the company can bounce back after strategic missteps related to the acquisition a year ago.

“This company exhibited all the hallmarks of a train wreck,” said Mark Cohen, former chair of retail studies at Columbia Business School.

The retail giant has tried to raise cash in recent months. He sold assets, including the Beverly Hills property.

However, the company’s troubles continue.

Some of Saks’ troubles predate its acquisition of rival Neiman Marcus, which had previously filed for bankruptcy, Cohen said.

He traced the problems back to Baker’s takeover of Saks more than a decade ago. He argued that at this point the retailer’s leadership focused less on the integrity of the business and more on negotiating new deals that ultimately harmed the company.

Brands that fill Saks’ in-store aisles and online catalogs have complained about delayed payments since before the Neiman Marcus acquisition; This is an early sign of cash flow constraints.

The merger two years ago further intensified existing financial problems. Saks took on billions of dollars of debt to finance the deal, adding to money it already owed to its vendors.

“As soon as they walked out the door, they stopped paying their bills,” Cohen said.

“Whether you’re a discount retailer or a luxury player, you can’t stay upright as a retailer without having a reliable, consistent financial relationship with your suppliers.”

For shoppers, the company’s financial turmoil has been revealed in the form of dwindling stocks on shelves and online and canceled orders in recent weeks.

Richard Browne, 66, has been buying men’s trousers, shirts and sweaters from the Saks Fifth Avenue online catalog for five years. The marketing consultant, who lives in Winston-Salem, North Carolina, was impressed by the retailer’s “quality clothing at affordable prices.”

But last summer, the first signs of changes began to appear. He noticed that several items were marked as out of stock.

Inventory issues didn’t immediately dissuade Browne from shopping at Saks. On January 1, she ordered $77 off Michael Kors jeans from the Saks Fifth Avenue website.

To his surprise, he received an email the next day informing him that the pants were sold out. “We had to cancel your order,” Saks Fifth Avenue wrote in an email reviewed by the BBC.

“It was frustrating that I took time to find an order and then they said, ‘Sorry, good luck,'” Browne said.

She said she is now “less likely” to shop at Saks.

In October, Saks lowered its full-year financial outlook, citing falling sales partly due to inventory challenges.

Tensions with retailers have risen since the 2024 merger with Neiman Marcus, which was billed as a move to resolve the retailer’s cash flow problems.

Last February, Metrick, the company’s former CEO, sent a letter to sellers stating that overdue payments would be made in 12 installments.

It did little to reassure brands.

Some retailers continue to do business with Saks for fear of ruining business relationships with one of the luxury industry’s leading players.

Others have recently cut ties with the company.

Financial firm Hilldun, which guarantees orders for about 130 brands working with Saks, said it will stop approving new Saks orders in November. The announcement marked a remarkable shift for a company that only months ago had reiterated its reliance on the department store.

“We had no choice,” said Gary Wassner, Hilldun’s CEO. All orders are pending.

One retailer, who spoke to the BBC and asked to remain anonymous because he feared a backlash from Saks, said he owed at least $20,000 in late payments for shipments sent to customers last year. (His company ships products directly to customers who order through the Saks catalog; this is called dropshipping.)

In addition to the late payments, the seller said his firm’s unfinished orders worth $35,000 have been held up since October, when Saks instructed it to stop all shipments.

“Although we have experienced 2-3 similar problems in the past, this time the answer ‘Let’s cancel the orders’ seems like a desperate move,” he said.

“Nothing they do makes any sense.”