The liquidation of Saks Off 5th digital operations has been approved by the U.S. Bankruptcy Court for the Southern District of Texas in Houston, undoing part of the unusual breakup five years ago of Saks’ online and offline retail operations.
In 2021 Saks Fifth Avenue spun off the e-commerce operations of full-line Saks Fifth Avenue, then followed suit at its off-price Saks Off 5th banner. Those digital entities are now part of Saks Global’s Chapter 11 process, launched Jan. 14, but have their own chief restructuring officer, Andrew Hede, who is also an executive at consulting firm Accordion Partners.
Saks Global owns 80% of the Saks Off 5th digital business, and the other 20% is owned by outside investors, including funds affiliated with private equity fund Insight Partners, per court documents. At the time of the split, Insight Partners led a $200 million investment.
The idea behind the separations was to attract talent — something that the company and observers noted at the time — and capitalize on the shift to online shopping spurred by the pandemic, Hede told the court. But, as many analysts warned in 2021, things didn’t work out as planned.
“The SO5 Digital Debtors made substantial investments in the infrastructure to operate an e-commerce business, and additionally incurred substantial expenses towards digital marketing, for example, which have not led to the anticipated return on investment,” Hede said.
While Saks Off 5th’s store operations are part of the overall Saks Global bankruptcy, this liquidation involves just Saks Off 5th’s e-commerce — and doesn’t apply to the full-line digital operation. In November, several weeks before the bankruptcy, Saks Global announced it would shutter nine Saks Off 5th stores.
On its own, the liquidation doesn’t say much about the online/offline splits, especially since off-price in general is more conducive to shopping in stores than online, according to GlobalData Managing Director Neil Saunders. Therefore the off-price digital entity was probably fairly fragile.
“The root cause of the failure here is that parent group, Saks Global, has dragged all its divisions into the mire because of its huge debts,” he said. “Saks Off Fifth Digital is likely liquidating as it is technically a stand-alone division and is one of the weakest parts of the group with little viability.”
The e-commerce/brick-and-mortar splits do reflect “a wider pattern of game playing with finances that has been a hallmark of Saks Global” and may have led to under-investment in the brick-and-mortar side of the business, Saunders said by email.
“It will be interesting to see how much money has been lost,” he said.
