Saks to Vendors: ‘We Have Sufficient Liquidity’
Amid reports of delayed payments, Saks chief executive officer Marc Metrick is telling vendors not to fret.
“Saks, which is managed separately from the SFA Stores and under its own credit group, has sufficient liquidity and a sound balance sheet,” Metrick wrote in his quarterly letter to vendors updating the Saks business.
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“As we carefully manage our business against the industrywide softness in the U.S. luxury market, we are confident in our ability to continue meeting our financial obligations,” Metrick wrote.
Metrick’s letter underscored that Saks’ parent company, HBC, recently revealed the completion of transactions raising about $340 million in cash through planned real estate monetizations in the U.S. and Canada, as previously reported by WWD. The transactions, Metrick wrote, “significantly enhances HBC’s liquidity position.” HBC wholly owns SFA, the company that operates the Saks Fifth Avenue stores, and Hudson’s Bay in Canada. HBC is also the majority owner of Saks, the company that operates saks.com.
In addition, as Metrick wrote in his letter, “HBC is the owner and developer of an approximately $7 billion portfolio of real estate throughout North America, which consistently generates $300 million to $500 million in cash per year. This valuable asset base and the incremental liquidity it generates strengthens HBC’s operating businesses, including the SFA stores.”
Reports of SFA and Saks.com delaying payments to vendors started circulating weeks ago, as have media reports that HBC this season has been negotiating hard to purchase the Neiman Marcus Group. It’s believed that HBC is getting closer to striking a deal, though there is no guarantee, and talks have been on and off for years.
According to one source close to HBC, “SFA and Hudson’s Bay are being managed as one credit group and managing through a difficult moment. It’s one credit profile,” the source said. “Store payables remain tied to HBC. Managing that cash position has a residual impact on SFA stores. There are actions being taken in Canada. Business is very difficult in Canada.” Hudson’s Bay, which operates more than 80 stores, has not recovered from the pandemic as well as stores in the U.S.
With regards to saks.com, “there is some derivative impact on the U.S. causing a lot of noise, but that’s all it is,” the source said. Payment terms vary depending on the brand. Asked if any brands decided to drop Saks, the source said, “Saks has not experienced any kind of flight.”
“HBC is getting a lot more thoughtful on how they want to conserve cash,” said another source, who suggested HBC has been seeking to narrow the time between when payables are due and when goods are received. “Ninety-five percent of the vendors in Canada are fine. There’s another five percent where the model is broken,” said the source.
In an exclusive interview, Metrick told WWD, “We have done a really good job of managing inventory. We are in a healthy inventory position. We expect margins for the year to be better.” He declined comment on the speculation regarding payables.
He did say that saks.com “really put emphasis in 2023 moving into that ‘second horizon.’ In 2021 business was all about the top line, customer acquisition and really about scale and driving the business. As we moved into the ‘second horizon’ in the summer of 2022, we started enhancing our cash flow and profitability profile, and did work around costs, efficiencies, inventory management, while not giving back the scale, but getting that free cash flow level and profitability level vastly improved, even with the top line down. We feel very good that our profitability levels are vastly improved on a percent of sales basis and on an absolute basis. We are seeing gains versus 2022 and 2021.”
Traffic on the Saks website, based on 16 million visits that occurred from Thanksgiving through the Tuesday after, was “flattish with last year, maybe slightly above, which is a good indication of what’s happening. It was sort of a nice outcome,” Metrick said.
Citing the latest Saks Luxury Pulse survey, Metrick said 38 percent of respondents indicated they will shop after Thanksgiving, compared to 28 percent last year. “People are shopping later. We’re not a big Black Friday business.” He said saks.com has been no more promotional than last year.
He also cited stronger average unit retail prices, which he attributed to “rationalizing” the assortment beginning last summer, looking at the unit economies of products, and targeting higher lifetime value customers. “That doesn’t necessarily mean rich people. It’s people who have a propensity to grow and spend with us over their lifetime.” Average order value was up 6 percent to last year, driven by stronger average unit retail, he said.
Business has been tough. As Metrick wrote, “The current softness across the U.S. luxury market has created a turbulent environment, and Saks is working to be nimble while staying true to our strategy. We believe that when it comes to luxury, we have to play the long game rather than react to this moment in time. With that, we continue to take a long-term view on our growth prospects.…Results have been exacerbated by the macroeconomic environment and softening in the U.S. luxury market.”
The letter indicated that in third-quarter 2023, Saks’ gross merchandising value fell 19 percent compared to the same quarter in 2022. However, on a two-year stack, third-quarter 2023 GMV fell slightly, though is still 75 percent above third-quarter 2019. “In Q3 2023, we were pleased by our ability to generate a double-digit increase in AOV [average order value] despite the consumer’s ongoing focus on value,” Metrick wrote. “Top-performing categories on saks.com in Q3 2023 were women’s apparel, jewelry and accessories.”
At the Saks Fifth Avenue stores, GMV fell 13 percent last quarter from the same quarter a year ago, but is above 2019 levels, according to the letter. Top-performing categories were women’s ready-to-wear, beauty and jewelry, and top-performing stores were the Manhattan flagship, and the Naples, Sarasota and Palm Beach locations in Florida.
No profit figures were disclosed, though Metrick wrote, “We are pleased with our cost management and gross profit, which has resulted in significantly improved profitability versus last year, despite the more challenging top line. We entered the critical holiday period with our inventory aligned with sales, which we expect to drive an ongoing improvement in gross profit and gross margin performance.”
Metrick noted that customers who have purchased from Saks at least once before represent 73 percent of the retailer’s total customer base, a 6 percentage points increase from the year-ago quarter and a 10 point gain over third-quarter 2021. Year-to-date, existing customers are up 8 percent to last year.
Among the highlights of the latest quarter, Brunello Cucinelli launched his first fragrances, licensed to Euroitalia, at Saks; the Saks Fifth Avenue flagship for holiday launched a “World of Dior” experience, marking the first time all categories of Dior are available online anywhere other than dior.com and the first time Saks Fifth Avenue collaborated with a luxury fashion house for its annual holiday initiative, and Saks’ chief merchandising officer Tracy Margolies was inducted into the Footwear News Hall of Fame. A Saks Fifth Avenue-branded collection was launched benefiting the Saks Fifth Avenue Foundation’s ongoing mission to support mental health initiatives, and saks.com introduced more visually-engaging product detail pages, accelerated load times and added an AI chatbot.
In early 2024, Saks Fifth Avenue will relocate its Beverly Hills store into the former Barneys New York on Wilshire Boulevard. SFA has invested $52 million in the project. SFA is also renovating its women’s store in Boston and the men’s floors in the Manhattan flagship and Atlanta store.
Next spring, Saks plans to launch a retail media network, using first-party data to help brands reach Saks customers with sponsored product features on Saks.com.
On the outlook for next year, Metrick told WWD, “We are taking a pretty measured approach to 2024. It’s an election year, which is certainly distracting. I don’t see the macro headwinds dissipating in the next six months. If you are watching the market, you could start to see rates get cut. There are a lot of unknowns, but the beautiful thing is we have our strategy. Strategically, we are focused on luxury. This segment is growing. It’s a customer that will be there when we need them to be there. It is a very resilient consumer. We don’t worry about next year or the year after. We are focused on the long game.”
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