Saks Global’s near bankruptcy the result of high-risk trading and neglect of business fundamentals

Good morning. The current woes of Saks Global, the year-old holding company of Saks Fifth Avenue, Neiman Marcus and Bergdorf Goodman, are a timely reminder that the key to business success is often simple: Focus on core business, not financial engineering.

In late 2024, real estate scion Richard Baker, executive chairman and controlling shareholder of Saks Global, picked up his dream trophy at Neiman Marcus, which also owns Bergdorf, fulfilling his long-held ambition to combine America’s most luxurious luxury department stores into one company. To achieve this goal, Saks Global borrowed $2.7 billion, an unsustainable debt load that has put the company on the verge of filing for bankruptcy protection, or at least on the brink of a major refinancing. (No one thinks Saks Global is going bankrupt, but that will only hurt its prospects as a retailer.)

The Saks-Neiman partnership is the culmination of a plan Baker hatched in 2005 to acquire retailers with valuable real estate. The company (known as HBC for many years) has gone through different iterations, including Lord & Taylor (his first big acquisition) and Canada’s Hudson’s Bay.

His bet is that the value of iconic properties like the Saks and Lord & Taylor flagship stores in Manhattan or The Bay in Toronto can be monetized as long as the underlying retail business remains stable.

But retail, especially department stores, has been unstable. Lord & Taylor closed all its stores in 2019 after HBC sold off weakened retailers, and Canada’s Hudson’s Bay also went into liquidation last year, ending 355 years in business.

To be fair, Baker has made some good deals in retail. (He sold Target The unfortunate Canadian expansion location in 2011. ) and department stores have been in trouble for decades.

But ongoing financial moves — divesting Saks of e-commerce, creating coworking spaces in underutilized stores while keeping leverage high — brought some benefits but never eliminated the need for more investment in infrastructure. Saks Global says it has poured money into retailers, but it’s not enough. The cash crunch caused some suppliers to stop shipping to Saks: It’s hard to sell something you don’t have, so sales fell 13% last quarter.

A few months ago, I Recorded the comeback process At Macy’s and Bloomingdale’s, Nordstrom (both benefited from the saxophone issues) and consistent performance Belk and Dillard’s. These retailers have improved customer service, renovated their stores, and stocked new merchandise. A strong business increases the value of its underlying real estate.

All of this will be key for Baker to consider as he becomes Saks Global’s new CEO, giving him direct involvement in the company’s operations rather than just reducing its financial leverage. You can read my full story about the Saks legend here here.

Contact CEO Daily via Diane Brady: dianebrady@fortune.com

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