Inside the Saks Saga

0:00This episode is sponsored by Universal Pictures presenting Wicked for Good, featuring fashions from Oscar-winning costume designer Paul Tazewell. Wicked for Good has been named one of the best films of the year by the American Film Institute and the National Board of Review and is now nominated for five Golden Globe Awards, including Best Actress Musical or Comedy Cynthia Erivo and Best Supporting Actress Ariana Grande. For your awards consideration in all categories, including Best Costume Design Paul Tazewell and Best Picture of the Year. Wicked for Good, now playing in theaters and available to watch at home.

0:45Hello and welcome to Fashion People. I'm Lauren Sherman, writer of Puck's Fashion and Beauty Memo Line Sheet. And today with me on the show is finance journalist Bill Cohan, author of Puck's Dry Powder. We're here to talk Saks Global, what happened and what happens next.

1:28Puck gains you access to an unmatched roster of experts reporting on powerful people and companies in entertainment, media, sports, politics, finance, the art world, and much more. If you're interested, listeners of Fashion People get a discount. Just go to puck.news slash fashion people to join Puck or start a free trial. Happy Friday, everyone. Hope you had a great week. The Golden Globes are Sunday night. There are a lot of parties and events and things. If you didn't know, I'm in Los Angeles. I am going to a culture dinner for Tessa Thompson tomorrow. I'm going to W Magazine's Best Performances party on Saturday night.

2:09And I'll be at a few other things. It's a fun time. Get to dip in. There are a lot of people in town. I've gotten to see a lot of folks from Europe and New York, which is great. I will be back on Monday with Hilary Kerr to discuss the Globe's red carpet and plenty more. In Line Sheet, I've got as many updates as I can muster on Saks Global. The story is developing fast, so check out Puck for the latest. And now, enjoy the backstory of Bill.

2:42William Cohan, welcome back to Fashion People. Lauren Sherman, so nice to see you and looking so chipper early in the morning. I love it. Thank you. Thank you. I'm getting up. I have 6 a.m. calls or podcasts every single day this week. So I've been going to bed very early and getting up at 5, which is fun. I love it. This is the best life. L.A. lifestyle. I love it. Definitely. Did you have anything good for breakfast this morning? I'm enjoying my cup of Scottish tea. which is sort of a low key buzz that sustains me through the morning as I do my important puck work. It's very important. Are you filing today?

3:28Or did you already file? I wrote it yesterday but I have to update it today. I don't like to miss deadlines. Yeah, you and I are the best. I don't like to get near them. And not just for this. many reasons. You and I are the A students when it comes to filing, I've been told. Really? Interesting. You have to do every day, so you're in a whole other league. Yes, but my big days, I always file the day before. Sometimes, like yesterday's, today Rachel Sturgatz publishes, I filed the top of it yesterday, but a lot of times I'll do the top in the morning if there's news or whatever. But I like to file the big chunk the day before.

4:17No, no, you can't risk it. No, no. One of this sort of, Dylan, what am I going to write about at three in the afternoon? What are you talking about? Just joking around. Just joking. Just joking. I wonder what Dylan is writing about today. He's got a lot he can write about. Yeah, that's true. Okay, so you are here to talk about the last time you were on this podcast. And I hope that this is not the end of our collaboration. The good news is that Saks Global will be around for a long time in some iterations. So there will probably be more things for us to discuss. But we have been working together quite a bit on the sort of trajectory of this business, which was formed with the acquisition of Neiman Marcus Group at the beginning of January 2025.

5:15and now it's looking like they are going to. So just for anyone who I don't know who would be listening to this, who wouldn't know this, but Saks Global includes Neiman Marcus, Saks Fifth Avenue and Bergdorf Goodman. And do you want to kind of set up what happened at the beginning of 2025 and where we are now and why I felt like it was time for you to return to the podcast to explain what may happen next. Right now, we don't exactly know, but can you start from the beginning and give us the elevator pitch of what happened the past year? Sure. Well, first of all, it's nice to be back considering my last appearance was so well received by the folks at SACS.

6:02So I'm hoping they will receive this equally well. I mean, it really goes back to the premise of the deal itself, Lauren, and the way it was structured. You know, Neiman Marcus itself had been in bankruptcy and come out of bankruptcy and was owned by his creditors, who I'm sure were eager to have somebody, as you reported so well for so long, eager to have somebody come along and buy it. and Richard Baker at Saks, who owns Saks, stepped up.

6:43Let me just interrupt really quickly to say that he has wanted to own both of these companies and for them to be a group for like 15 years. It's been his, and it was the dream of people who owned the business before sacks with having it before richard owned it this is like an inevitability the consolidation of these the two biggest luxury department stores in america was inevitable in many people's eyes so yeah right and i think uh you know the strategic logic uh i don't have any problem with the strategic logic uh it really comes down to uh when it comes to you know the risks associated with the deal comes down to how it's financed, really.

7:33I mean, if they had used all equity, we wouldn't be sitting here talking about it today. We wouldn't have been writing about it all year long. So, you know, but if you go back to how they financed it with, yes, some equity, but mostly debt in the form of a$2.2 billion, essentially publicly traded junk bond that was upsized from$2 billion because of the demand for it from the market. And why was there demand? Because they were offering an 11 % coupon, which was pretty high in the scheme of our relatively low interest rate environment. So that attracted a lot of attention. There's a lot of money, institutional money that was looking for a place to go and to get a return.

8:35So that bond was upsized and blew out and the deal closed. And then, you know, as you wrote, you know, incredibly and perceptively, I mean, basically on the so-called Valentine's Day massacre, when, you know, the men of the team. More innocent time, Bill. Yes. Well, I guess it was a great name, though. Well, but, you know, honestly, maybe a more innocent time. But that moment, it was clear. And that was two months into the deal, less than two months into the deal. and they're already stretching payables. Now, somebody like me who had done a lot of bankruptcy work when I was at Lazard, working on some of the biggest bankruptcies of all time, including Allied Federated and Revco and Woodward and Lothrop, you know, as soon as people, you know, retailers start stretching payables, going from paying people in 30 days to 90 days, and then saying, well, what we owed you from years past, we'll pay you in a true up in June or whatever.

9:47I mean, that is a big red flag in the financial community. Maybe not in the retail community, whatever, but it was a big, big red flag. Yeah, I would say as a layman who covers business but obviously doesn't understand the complexities of the debt structure the way you do, I was not freaked out by the 90 days I thought it was a bad look for them because like all of these retailers don't pay on time like that's the whole thing this model doesn't work like this is the fundamental thing and I've talked about this with a lot of leaders in the fashion industry and I think most of them agree some of them want to believe it does it just it doesn't work at scale, at the scale that they are at.

10:40You cannot have this many stores. You have one bad season of use. Neiman Marcus is a great example of like they were paying people on time because they were able to clear all their debt. But that wouldn't have lasted for more than a few years because you have one bad season where no one buys anything and you get behind. And even the independent stores that are able to stay in business for 20, 30, 40 years because it's only one store, you know, we'll have seasons or a year where they don't pay people. Like this is just, I get calls, honestly, on a weekly basis, this store hasn't paid me in six months.

11:18They owe me a million dollars. Like this is so common that when, when Mark did the 90 day, we're only going to pay in 90 days. I, there was a part of me that was like, you know, this, This model doesn't work, so I want to give him the sort of grace of that. Good for him that he's kind of trying to reset it. On the other hand, as a reporter, I've experienced, I don't know how many of these bankruptcies at this point, like probably six or seven. And many shutterings, liquidations, chapter 11, just stores closing and all that stuff. And for me also, what I couldn't understand from the beginning was like, and maybe you, I think this is something for our, for our real fashion people who are not on the business side listeners.

12:14Like when you, whatever, get a junk bond, I don't even know how, I don't know if it's a choir or whatever, a junk bond that big, you buy it that big. Well, you do it. Yeah. Well, there, the company issues it. The investors buy it. Is there a scenario where I got a message from Global Debt Wire that basically said, and I might just quote them because it was an on-the-record quote. Let me find it. Tim Hines said, the deal was built on aggressive earnings and cost cut assumptions that have not been achieved, while the added leverage has proven difficult to sustain a structurally shrinking retail sector.

12:59And to me, that's the sort of like thing. Was there ever a scenario where this was going to be fine? Like, I guess if the sales were really good? Well, look, the size of the bond depends on the amount of—whether it's good or bad, whether it's risky or not, whether it's fatal or not, whether it's existential or not, depends on the amount of the EBITDA, the cash flow, the profits that exist to pay the interest and pay the principal when it's due. You know, this was a very interesting situation because, well, as I said, the first red flag for people on Wall Street who, you know, invest in debt and look at debt and think about distressed debt, you know, you stretch payables and immediate red flags.

13:59So I knew immediately at that moment that there was potential trouble brewing. Then you look at the trading of the bonds itself, and they traded down from par to like 75 cents on the dollar. So already, and the yield is now in the 20 % range. And I'm trying to remember this, by the way. But can you explain really quickly what any of that means? Sure, sure. And, you know, to the lawyers listening and combing over every one of my words here, I just want to make sure that, you know, I'm trying to reconstruct in my mind events from a year ago. But I believe so. Basically, you know, a bond that trades publicly, which this did, even though and this is an important point, even though the company itself is private, like the equity is private.

14:57but this bond was issued publicly and trades publicly, but, and this is important, because of the number of holders of the bond is below a certain threshold, they did not have to file any financial statements publicly with the SEC. So their filings are private, but the bond traded publicly. And this is a very important point in this whole scenario. But let me just address your question about so they stretch payables, which means, hey, that's a signal that, hey, we're having cash flow problems or cash management problems. Like if we if if we had plenty of cash, we would pay our vendors in 30 days as we agreed.

15:44But the fact that we are struggling with the in and out of the cash means that we're going to stretch the payables and we're going to just tell you that it's going to we'll pay you in 90 days instead of 30 days, which, you know, as you pointed out to all these people who are providing them with goods and services, that's a long stretch. And then for the people who we've owed money in the past, you know, we'll see you in June maybe. OK, so that a big red flag. Then the bonds, no, the bonds were issued at 100 cents on the dollar. In other words, when they were bought, people bought$2.2 billion worth of bonds, and they were worth$2.2 billion.

16:24But this bond trades publicly, so people are buying and selling it, not all the time, but it's a pretty big bond, and so it was being bought and sold. and as a result of the news that was coming out, because there was a dearth of publicly filed information, so the news was that they're stretching payables, being a big red flag, you know, bondholders said, like, either I got to get out of this or, you know, and so they tried to sell it, but they couldn't sell it for 100 cents, though they ended up selling it at 75 cents or whatever, and you could see that the bond was immediately trading, you know, after this February 14th announcement, began trading at a discount.

17:04And again, this is one of those bond comments that drive people crazy, but the yield on a bond is in inverse proportion to the price. So as the price goes down, the yield goes up. And what does that mean? That means that to compensate investors for the risks they're taking, they need to have a higher yield. They So when a bond is trading at 75%, when it had been issued at a par at an 11 % yield, and now it's trading at 75 cents on the dollar, the yield is like 20%, which means that we need to, the combination of the price that I paid and the interest that I'm paid equals a 20 % return. And that's an equity-like return, not a bond-like return.

17:53So already you can see that The market is saying, not Bill Cohen, the market is saying that this company is heading towards distressed territory. And then all through the summer, of course, the bond kept trading down and down and down and down until August when they did an exchange offer. Now, just one other point here. This business of not providing information about the company to the public, right? So there was a dearth of information about how the company's financial performance has actually been doing because they weren't required to file with the SEC, which was fine. That was perfectly legal.

18:38But that doesn't mean that there wasn't information. There was. So how do we get our hands on it? Okay. First thing to get your hands on was the bond prospectus itself, which is what they effectively promised people they would do as they were selling the bond. So I did get that, and that revealed an unbelievable series of promises that they made about their financial position, which they weren't able to keep, which they just could not live up to. And then the next, when they did the exchange offer in August, there was another whole series of documents that were filed privately. And you could see that by August, they had completely missed what they had promised they were going to do in December.

19:23So the combination of the bonds trading down, the missed promises, the over leverage, you know, blah, blah, blah. Everything you're used to with retailers, you know. Yeah. Yeah. I mean, I saw the right. I just remember in May around the Met thinking this really reminds me of what happened at Barney's. So I remember being on the phone with people from Barney's in July. And I think they filed in the fall. but they were like it's it's gonna be fine and i was like it's not gonna be fine this is the thing that is it's it's so you want the the into the fashion industry is increasingly not reliant on this model i mean it's it's unreliant on it at this point most sales of of products in luxury are sold direct to consumer and and they don't need this but but the sort of myth of the fashion industry is reliant on this model.

20:23And they, I mean, it hasn't worked since the 1990s. Like, it hasn't worked since the 1980s, since specialty retail took over department stores. And so it's... It probably hasn't even worked since Sears Robo Catalog. I mean... Exactly. Yes. That's when it started. When I wrote my book about Victoria's Secret, we had a big section on this because Victoria's Secret was one of the big early specialty retailers, meaning that they only sold one thing and it was direct to consumer and a lot of what and they started with a catalog a lot of what i wrote about in the research i did was about the like destruction of the department store in the late 70s when gap and all these things and the and the catalogs and the move to the suburbs like it really the move to the suburbs is really what like ruined the department store.

21:16And then in the 80s, it just by if you look at how much stuff was bought at department stores in 1975 versus 1985, it's shocking. It was like some huge majority of stuff was bought at department stores. And then it was a vast minority in by 85. It's crazy, the split. And so I the thing that is so frustrating to me as someone who I talk to these executives all the time they know that it's not a good model but no one is trying to recalibrate because people like going to stores and enjoy that experience so like how can they create an experience there's there's all these stores there's all these boxes i mean look what look what pa look look what uh eddie lampert tried to do with sears and kmart and i written a bunch about that for vanity fair including interviewing Eddie once upon a time.

22:13But I mean, he tried to refashion the lower end of the big box store industry and it didn't work. To me, it's quite clear that it's about scale. And so you can have New York is a great example. Even in New York City, Neiman Marcus couldn't succeed. I mean, it was in that Hudson Yards, which was a design. It opened right before. A retail dead zone. Yeah. I think it's actually fine now, but it opened right before the pandemic. But you can have a Bergdorf, a Saks. Nordstrom does okay there, but I think if that family could look, they signed the deal in 2013 and opened right before the pandemic, I think if they could go back, they probably wouldn't have opened in New York.

23:05Nordstrom, Saks, Barney's, Bergdorf could do that barney's burgdorff sacks fine in new york city the biggest city in america here in la like there's no reason there's no one no one goes to these places anymore and so you need to have the scale needs to be much smaller and none of the big brands rely on these things for distribution anymore anyway it's all marketing and you have one or two stores in each city it's very obvious and I think the thing to me that is shocking is Richard Baker is a real estate person he understands that he did that amazing deal for the Lord and Taylor building he sold it to WeWork he made tons of money it's very clearly an anomaly clearly but it it's very clear to me he's had his problems with Hudson Bay which has been liquidated we should acknowledge I acknowledge that this summer, Hudson Bay, the oldest - Retailer in the world.

24:10And I believe the oldest business in Canada was liquidated, which Baker also owned. It did go to liquidation. But I think the challenge is, the thing about people in the fashion industry, and I can't speak to Richard Baker. I do not know him, but the challenge of people in the fashion industry is everybody thinks fashion is about being ahead of the trends and like understanding culture and and seeing things. But like most people who work in the fashion industry are lemmings and uncreative and that's on the executive and creative side. Like they will they just follow the trends of what other people are doing.

24:51And I think they were very afraid the the wholesale model is seductive. You can make a lot of money if it's going well. And so there are all these ways to like also make money and profit off of the fact that it's not successful. Like you can loan brands money to up front, you know, there's there's all these ways to make money off of it, even though it's like a faulty model. And I think I'm hoping that whatever happens at the end of this, that like everybody's like, OK, this is actually our finally our chance to reset and stop. because when Neiman Marcus went bankrupt during the pandemic, which many, many companies filed for Chapter 11, the thing that they did wrong was that they didn't close enough stores.

25:38I was talking about this with someone yesterday. They should have closed 75 % of their stores and just kept the top performing, the really profitable stores open. But instead they bought a ton of inventory to fill these underperforming stores. and now and that's part of the reason this happened too was that they had all this inventory they didn't no one no one is like okay how can we actually make this like a hugely profitable business nobody is thinking that way they're all just thinking like how do we get volume like i think they've all been thinking about anyway i'm i i went off track there for a minute but um well So, I mean, it's important to remember that this is, as you said, a long-term trend and problem.

26:29I mean, Bloomingdale's was part of Federated went bankrupt. Macy's went bankrupt. Macy's bought Federated out of bankruptcy. I worked on the Allied Federated bankruptcy in the early 90s as a banker, right, as an advisor. So, you know, as soon as, again, you know, as soon as the Valentine's Day massacre occurred and the bonds traded down, I immediately knew that, you know, we had an allied federated situation, a Macy's situation, a Revco situation. I mean, this is, unfortunately, it was constructed with too much leverage and too many promises that couldn't be met about synergies and, you know, inventory adjusted EBITDA.

27:23I mean, you know, all that stuff that they put in their bond prospectus, you know, which showed that it was kind of built a little bit on a house of cards. and, you know, that's why we're in this room. I mean, this is what everything is. That's why we're, but I don't think, look, you know, just like with Allied Federating with Macy's, and what's going to happen here, assuming they can, you know, get their dip financing and they filed for Chapter 11 is that, you know, just like with Neiman Marcus, the creditors will convert their debt to equity and they'll take over the company And, you know, they'll probably close some stores, as you're suggesting, and hopefully, you know, clean up their balance sheet, clean up, you know, and emerge out of bankruptcy owned by the creditors in, you know, X amount of time and, you know, live to fight another day.

28:22This episode is sponsored by Universal Pictures presenting Wicked for Good, featuring fashions from Oscar-winning costume designer Paul Tazewell. Wicked for Good has been named one of the best films of the year by the American Film Institute and the National Board of Review and is now nominated for five Golden Globe Awards, including Best Actress Musical or Comedy Cynthia Erivo and Best Supporting Actress Ariana Grande. For your awards consideration in all categories, including Best Costume Design Paul Tazewell and Best Picture of the Year, Wicked for Good, now playing in theaters and available to watch at home.

29:06So let's talk about what's happening right now. We're recording this very early on Wednesday. This will be published very early on Friday. there is a huge chance that between now and then something is going to happen here that they might file that or get a bailout or whatever. I don't think the bailout thing is happening, but it's a possibility or something else. So let's go over, because many people aren't going to know what dip financing is. So like, let's talk about what, so they are at this point. So Mark Metrick leaves the business right before, he's the CEO of Sac Global. He leaves the business right before the end of the year.

29:46It was odd because of the fact that Richard Baker became the acting CEO. He's never had an operational role at, I don't think, any of his businesses, at least not at Saks Global, that's for sure. So he becomes the CEO usually when a company files for Chapter 11. And if they get this debt financing, a restructuring executive comes in and kind of manages the business for a year or whatever. And then they hire executives to run the business after it's like restructured. It was unique that Mark left before the filing, I thought, and before the end of the year. Why that happened, I truly don't know, and maybe someday I will.

30:26The point being that it started to emerge. They kept denying, denying, denying. It started to emerge that there was leaking in the market by whomever of that they are going to file for Chapter 11. my sources on the fashion side were like they're going to file the first week because they don't have any inventory and if they want to run these businesses in the spring they're going to need stuff no one i mean they're that is i'm being hyperbolic but many many companies are not shipping product to them at this point so chanel just closed a bunch of their concessions they're not even a wholesale partner.

31:11So it's really happening. They don't have enough product. It's January 7th. They have not filed for Chapter 11. And there is no communication. One vendor's called the silence deafening. Mark was the one who was communicating with all the vendors. There's no one communicating with them. I'm sure a couple of the top vendors are talking to Richard, but like not many of them are getting communication. The question for you is like, A, why have they not filed for chapter 11 if that's inevitable? If it's not inevitable, what else could happen? Let's start with that. Okay. Well, again, I don't want everybody to, you know, be mad at me, but it's, It is inevitable, and it has been inevitable for some time.

32:12But the exchange offer, they successfully executed it, but the bonds that were newly issued as part of that have already traded down well into distressed territory. I mean, as you know, vendors are not shipping. you know retailers I mean I've had people say to me oh well they're going to file before Christmas no they're not going to file until January because that's what basically retailers do they wait and see how Christmas comes out you know that's sort of their last best hope and I don't know how it worked out because they don't have to share information but you know anecdotally in the market you know it's clear that they're going to have to file they didn't make their bond payment at the end of the year in December, as was predicted, that they wouldn't do, which is like one of the first smart things that they've done.