Oil prices surge to two-week winning streak as Iran supply fears grip markets
“With the debt payment looming, time ran out.” That succinct summary ended a Wall Street Journal article titled: Saks Global Files for Bankruptcy, Undone by Debt and a Luxury Slump. A year ago, Saks Fifth Avenue’s parent company purchased its chief rival, Neiman Marcus, for $2.65 billion. The goal was to establish dominance and ultimately boost profits in the luxury retail sector.
The rationale for the purchase was that the combined luxury retailers, which also included Bergdorf Goodman, would be more financially efficient as a single entity than as competing outlets.
The merger now appears to have been a last-ditch effort. The combined companies watched sales fall, making a $100 billion debt payment impossible to cover. Bankruptcy of the luxury brands is now the course of action. At a macro level, Saks’ collapse underscores a long-running trend that investors have been overlooking: department stores, both luxury and discount, have consistently lost pricing power, supplier leverage, and relevance.
Despite billions invested in renovations, digital spin-offs, and marketing, cash flow was not enough to cover their debt. Assuming Saks emerges from Chapter 11, it will likely be a smaller, leaner, and less influential shell of its old self. This is yet another example of capital misdirecting its pursuit of yesterday’s trends, nostalgia, and optics, despite deteriorating economic conditions and changing consumer behaviors.
The picture below shows the iconic Saks Fifth Avenue store on Herald Square in New York, which opened in 1902.
PPI And Retail Sales
Like CPI, PPI was slightly better than expected. The monthly PPI increased by 0.2%, in line with expectations. However, the core PPI was flat versus a consensus forecast of +0.2%. This PPI report, like recent CPI readings and Trueflation inflation readings (shown below), argues that the persistence of higher inflation, primarily due to tariffs, is finally easing. While it is too early to be certain, inflation may begin to decline in the coming months.
Retail Sales were slightly stronger than expected, growing at 0.6%. The data were for November, so while it captures Black Friday, it doesn’t include a substantial portion of the holiday buying season. The retail sales control group, which feeds into GDP, grew by 0.4%, in line with expectations.
The second graph below shows that the year-over-year change in retail sales is 3.1%. While it is similar to pre-pandemic levels, we must remember the data is not inflation-adjusted. Thus, given that inflation is approximately 1-2% higher now than before the pandemic, real retail sales are decently weaker than the graph indicates. See today’s Tweet of the Day for more on this.
Tweet of the Day
