Luxury Retailer Saks Uses Real Estate Strategy to Survive Bankruptcy

Luxury department store Saks is leveraging its property rights to continue store operations during its Chapter 11 bankruptcy restructuring, according to recent court filings.

Key Takeaways

• Saks filed for Chapter 11 bankruptcy on Monday and seeks court approval to keep paying rent.
• The retailer aims to reject leases at underperforming stores while negotiating with landlords.
• It has secured $700 million in financing to maintain liquidity during the process.
• The company hopes to emerge from bankruptcy within months by closing some stores and reducing debt.

Court Request to Maintain Store Operations

Saks has asked a US bankruptcy court in Houston for permission to continue paying rent at its approximately 40 US stores. This move is crucial for the company to keep operating while it restructures its finances.

The retailer has been struggling with declining sales, a heavy debt load, and pandemic-related challenges that forced store closures and worker furloughs. Increased competition from online giants like Amazon and luxury e-commerce platforms has added further pressure.

Strategic Lease Management

Saks is seeking to reject leases at some underperforming locations but needs court approval. For its remaining stores, the company wants to continue rent payments while negotiating with landlords.

“The debtors’ stores are critical to their operations and their ability to reorganize,” Saks said in court documents. “The debtors cannot reorganize without their stores.”

Financing and Cash Position

The company is also seeking court approval to use about $200 million in cash collateral to fund operations. Additionally, Saks has secured $700 million in debtor-in-possession financing from lenders led by Bank of America Corp., ensuring necessary liquidity during bankruptcy proceedings.

Broader Industry Context

Saks’ bankruptcy filing marks another significant challenge in the department store sector. It follows similar filings by J.C. Penney, Neiman Marcus, and Lord & Taylor in recent years.

Founded in 1867 and known for luxury merchandise, Saks was acquired by Hudson’s Bay Co. in 2013. The company now aims to emerge from bankruptcy within a few months through store closures and debt reduction.