What went wrong at luxury retailer Saks?

On a recent January morning, tourists admired the rows of Balenciaga and Burberry handbags on display at the Saks Fifth Avenue flagship store in midtown Manhattan.

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

Longtime customer Penelope Nam-Stephen approached the Diptyque counter looking for a room fragrance she usually bought at Saks. Nam-Stephen, who splits her time between New York and Boston, was surprised to find the product wasn’t available in the Boston store right after Christmas.

She hoped the New York location would have better inventory.

“Do you have anything in the Berries scent?” she asked an employee. Her response: “Everything is out of stock – candles, diffusers.”

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

Saks has been plagued by growing financial woes since Saks parent company Fifth Avenue acquired Neiman Marcus in 2024 to create the luxury retail giant. Executives had argued that the $2.7 billion deal would cut costs and strengthen brands.

Department stores were already under strain due to growing debt burdens and changing shopping habits that benefited e-commerce competitors. Saks Fifth Avenue began reporting double-digit quarterly sales declines in early 2023.

But the touted benefits of the acquisition did not materialize. Saks failed to pay $100 million in interest to creditors due at the end of December, related to about $2.2 billion in debt taken on to finance the merger.

The missed deadline comes as Saks continues to frustrate its suppliers, who have reported months-long payment delays and many of whom have halted shipments of their products.

Saks did not respond to requests for comment on inventory shortages and its plan to pay suppliers.

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

A restructuring process at Saks Global, which also owns Bergdorf Goodman, would not necessarily mean Saks would close its doors any time soon.

But retail analysts and longtime suppliers question whether the company can regain its footing after acquisition-related strategic missteps just over a year ago.

“This business has all the hallmarks of a train wreck,” said Mark Cohen, former head of retail research at Columbia Business School.

The retail giant has been trying to raise cash in recent months. She sold assets, including a property in Beverly Hills.

Yet the company’s disarray persists.

Some of Saks’ woes, Cohen said, predate the acquisition of rival Neiman Marcus, which previously filed for bankruptcy.

He traced the problems to Baker’s purchase of Saks more than a decade ago. At this point, the retailer’s management focused less on the integrity of the company and more on negotiating new deals that ultimately harmed the company, he argued.

Brands that fill Saks store aisles and online catalogs have been complaining of late payments long before the Neiman Marcus acquisition — an early sign of cash flow constraints.

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

“Right off the bat, they stopped paying their bills,” Cohen said.

“You cannot stand tall as a retailer, whether you are a discount retailer or a luxury player, without maintaining a reliable and consistent financial relationship with your suppliers.”

For shoppers, the company’s financial crisis has manifested itself in the form of dwindling inventory on shelves and online — and, in recent weeks, order cancellations.

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

But last summer, the first signs of change appeared. He noticed that several items were marked as out of stock.

Inventory issues didn’t immediately deter Browne from shopping at Saks. He placed an order on January 1 on the Saks Fifth Avenue site for Michael Kors jeans, at the reduced price of $77.

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

“It was just frustrating that I spent time finding an order and then they said, ‘We’re sorry, no luck,’” Browne said.

He said he was now “less likely” to shop at Saks.

In October, Saks lowered its financial outlook for the full year, citing falling sales partly due to inventory problems.

Tensions with sellers have intensified since the 2024 merger with Neiman Marcus, which had been touted as a move to solve the retailer’s cash flow problems.

Last February, Metrick, the company’s former chief executive, sent a letter to suppliers announcing that overdue payments would be made in 12 installments.

This didn’t really put the brands at ease.

Some sellers continued to do business with Saks for fear of severing their business relationship with a major player in the luxury sector.

Others have recently severed ties with the company.

Financial firm Hilldun, which guarantees orders for about 130 brands working with Saks, announced in November that it would stop approving new orders from Saks. This announcement marks a notable change for a company which, a few months earlier, had reiterated its confidence in the department store.

“We had no choice,” said Gary Wassner, Hilldun’s general manager. All orders remain on hold.

One seller, who spoke to the BBC and requested anonymity for fear of a backlash from Saks, said he was still owed at least $20,000 in late payments for shipments sent to customers last year. (His company ships items directly to customers, who place their orders through the Saks catalog – a process called dropshipping.)

In addition to these late payments, the supplier said his company has more than $35,000 in outstanding orders that have been held up since October, when Saks asked it to stop all shipments.

“Even though we have had two or three such problems in the past, this time the response ‘Let’s cancel the orders’ seems to be a desperate decision,” he said.

“Nothing they do makes any sense.”