**New York**: Following its $2.7 billion merger with Neiman Marcus, Saks Global’s extended payment terms for suppliers have raised alarms within the fashion industry. As the company seeks to manage liquidity amid financial pressures, the long-term impact on vendor relations and operational stability remains uncertain.
Fashion industry observers have closely followed the recent developments surrounding Saks Global, which last year merged with its longtime rival Neiman Marcus in a significant $2.7 billion deal. This acquisition has raised substantial interest among brands that supply merchandise to Saks, given the retailer’s previous delays in payments which had caused financial strain.
In February, Saks Global announced a plan to alleviate these tensions, stating it would begin making payments to suppliers through monthly instalments starting in July. This payment model, however, offers little immediacy to the brands, as it is a lengthy commitment spanning 12 months. In addition to this, the company introduced new 90-day payment terms for fresh orders — a notable increase from the previously standard 30-day terms. Such changes have sparked considerable concern within the vendor community, as longer payment terms can result in a detrimental cash flow situation for many suppliers.
Industry experts suggest that the rationale for extending payment terms lies in the need for Saks to manage its cash flow effectively. Speaking to Women’s Wear Daily, Greg Portell, a senior partner and global markets lead at consulting firm Kearney, explained, “The concept of extending payment terms is not unique to Saks… It’s easier for a company to force those financing terms onto their vendors than it is for them to renegotiate with their lenders.” The strategic shift appears to be a mechanism through which Saks can bolster liquidity by pushing financial obligations further along the supply chain, thereby allowing them to settle older debts.
Although the expectations surrounding the merger were for a quick resolution of financial issues with vendors, the complexities of the luxury market have made such resolutions challenging. After a tumultuous holiday season, Saks adopted a more conservative operational approach, preparing for the anticipated difficulties ahead. The average sales cycle for Saks is reported to be around 120 days, spanning from the purchase of products to their sale, which puts significant pressure on inventory management and financial stability.
Marc Metrick, CEO of Saks Global, indicated that the company is committed to resetting the luxury distribution model to adapt to current market challenges, stating that “the model no longer works.” This transformation is occurring under considerable financial scrutiny; Saks Global emerged from the Neiman Marcus acquisition with a hefty asset-based lending facility worth $1.8 billion and $2.2 billion in senior secured notes. The company’s financial health is currently rated at “CCC-plus” by Standard & Poor’s, categorising it within the junk status territory, which is indicative of its precarious financial position.
Frederico Carvalho, an S&P debt analyst focusing on Saks Global, noted that while there are no immediate liquidity issues, the long-term outlook is not as promising. He acknowledged, “As of today, we think that their capital structure remains unsustainable… they’re burning cash.” The pressing need for Saks to streamline operations accompanies efforts to cut $500 million in costs, but the efficacy of re-establishing vendor relationships is paramount to its strategy.
Challenges remain, particularly with vendor dynamics, as the potential for deteriorating relationships could introduce further complications. Carvalho pointed out that Saks possesses real estate assets valued at $3.5 billion, which offers a financial buffer should the need arise for additional liquidity. However, given the current performance measures, the pressure is mounting, and the clock is ticking as the company seeks to stabilize its operations and reassure its suppliers.
The future for Saks Global and its partners remains under scrutiny, with the next rating downgrade by S&P suggesting a possible default trajectory within the next 12 months. This timeline adds urgency to their need for effective business transformations and the rebuilding of critical vendor relationships within the luxury retail space. As both sides navigate this shifting landscape, the implications of these changes will be pivotal in determining the course of Saks Global’s sustainability and growth.
Source: Noah Wire Services
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