The Saks Global Bankruptcy and the Broader Collapse of the U.S. Department Store Sector: Why Investors Should Avoid Overleveraged Brick-and-Mortar Retail and Reallocate to E-Commerce and Off-Price Retailers

The recent bankruptcy filing of Saks Global, the parent company of Saks Fifth Avenue, marks a pivotal moment in the long-standing decline of the U.S. department store sector. As the luxury retailer teeters under $10 billion in debt and a failed merger with Neiman Marcus and Bergdorf Goodman, its collapse underscores systemic vulnerabilities in a model that has struggled to adapt to shifting consumer behavior and digital competition. For investors, the Saks case is not an isolated event but a symptom of a broader crisis in brick-and-mortar retail-one that demands a strategic reallocation of capital toward more resilient sectors like e-commerce and off-price retailers.

The Saks Global Bankruptcy: A Case of Structural Weakness

Saks Fifth Avenue's financial unraveling began in December 2025, when it missed a $100 million interest payment, triggering speculation about a Chapter 11 filing. The company's debt crisis was exacerbated by chronic vendor payment delays, which led suppliers like Kering and LVMH to halt shipments. A $1.75 billion financing package, including a $1 billion debtor-in-possession loan from Pentwater Capital and Bracebridge Capital, failed to stabilize the business, highlighting the insurmountable challenges of maintaining a luxury retail footprint in an era dominated by direct-to-consumer sales.

The root causes of Saks' collapse are emblematic of the sector's broader struggles. E-commerce has eroded the relevance of traditional department stores by offering convenience, price transparency, and brand-controlled experiences. Meanwhile, luxury brands like Gucci and Chanel have increasingly bypassed third-party retailers to sell directly to consumers, further straining Saks' margins. As one analyst noted, "The rise of agentic commerce and AI-driven personalization has made physical retail a cost center for brands that once relied on it for distribution".

The Sector-Wide Decline: A $3.7 Billion Shortfall and Shifting Consumer Priorities

The Saks bankruptcy is part of a larger narrative of decline in the U.S. department store sector. In 2025, the industry generated $59.5 billion in revenue- $3.7 billion below projections-while off-price retailers captured $1 billion of this lost revenue. Traditional players like Macy's and Nordstrom, with net profit margins of 2.2% and 2.0% respectively, have struggled to compete with off-price chains like TJX and Ross Stores, which dominate 66.6% of sales and 81% of the profit pool.

Consumer behavior has shifted decisively toward value-driven shopping. Off-price retailers, which offer discounted luxury and designer goods, saw a 15.4% surge in foot traffic during Black Friday 2025, compared to a modest 7.9% increase for department stores. Meanwhile, e-commerce continued to grow, albeit at a slower pace, with global revenues projected to reach $6.56 trillion in 2025. The sector's resilience is underscored by its ability to leverage AI for inventory optimization and personalized marketing, which off-price and e-commerce retailers have adopted more aggressively than traditional stores.

Why Brick-and-Mortar Retail Is a High-Risk Bet

The risks of investing in overleveraged brick-and-mortar retail are stark. In 2025, specialized retailers like Joann Fabrics, Party City, and At Home filed for bankruptcy, leaving malls with elevated vacancy rates and forcing larger players like Michaels and Walmart to absorb their market share. Investment reports from J.P. Morgan and other firms caution that macroeconomic pressures-rising interest rates, inflation, and tariff uncertainties-will further strain physical retail's profitability.

Moreover, the sector's operational costs are unsustainable. Department stores face declining in-store traffic, with Saks and Neiman Marcus experiencing negative visitation trends in 2025. Even high-end retailers like Nordstrom and Bloomingdale's, which saw modest 3.3% and 2.7% growth in visits, cannot offset the broader decline. As Deloitte's 2026 outlook notes, 40% of consumer perceptions of brand value now hinge on factors like quality and trust, not just price-a dynamic that favors direct-to-consumer models over third-party retailers according to a major retail analysis.

The Case for E-Commerce and Off-Price Retailers

In contrast, e-commerce and off-price retailers offer a compelling investment thesis. Off-price chains like Ollie's Bargain Outlet and HomeGoods have demonstrated consistent traffic growth, particularly in value-conscious markets. Their ability to manage inventory efficiently and maintain healthy gross margins has allowed them to outperform traditional retailers in both sales and profitability.

E-commerce, meanwhile, is reshaping consumer expectations. J.P. Morgan analysts highlight the rise of Gen Z as a key driver, with 55% of their holiday spending occurring via omnichannel platforms in 2025. This demographic's preference for early-morning shopping and credit card usage reflects a shift toward convenience and flexibility-traits that e-commerce platforms are uniquely positioned to deliver. Retailers that integrate AI-driven personalization and agentic commerce tools, as recommended by J.P. Morgan, are poised to capture this market.

Strategic Recommendations for Investors

For investors seeking to navigate the retail sector's transformation, the path is clear: avoid overleveraged brick-and-mortar assets and reallocate capital to e-commerce and off-price retailers. The latter two sectors have demonstrated resilience in the face of macroeconomic headwinds, with off-price retailers capturing market share and e-commerce platforms adapting to evolving consumer demands.

As Saks Global's bankruptcy illustrates, the traditional department store model is structurally unsound in a digital-first economy. By contrast, e-commerce and off-price retailers are not only surviving but thriving-offering scalable, profitable, and future-proof investment opportunities.