Saks Global stores are filling back up with bags, jewellery, dresses and other high-end goods. But some brands supplying the luxury retailer say doing so still carries a layer of risk — and that the danger will only grow after Saks emerges from bankruptcy.
Hundreds of labels halted shipments to Saks Fifth Avenue even before the department store giant filed for Chapter 11 earlier this year, in some cases citing months of missed or late payments.
Nearly 500 brands, including Burberry, Brunello Cucinelli, Brandon Maxwell and Lafayette 148, have resumed shipping to Saks since mid-January, Saks said, releasing inventory receipts totalling $1.3 billion in value. Saks’ website currently lists well over 1,000 brands.
“I am proud of the momentum our team has achieved with our brand partners, significantly outpacing our expectations,” chief executive Geoffroy van Raemdonck told BoF in an email statement. The volume of returning brands, he added, “exceeds the progress we had made with our brand partners in a similar time period during the Neiman Marcus Group chapter 11 process in 2020.”
Saks vendors’ mass change of heart was partly fuelled by a bankruptcy judge’s approval of $1.75 billion in financing intended to keep Saks Global running while it restructures. Much of that will be earmarked for vendors, whose merchandise is designated a necessary expense if Saks is to remain a going concern. Dedicated funds for vendor payment are approved by the court, ensuring vendors will be paid for what they ship today.
Some vendors said this arrangement had if anything increased their confidence in working with Saks.
“This is the best that we felt about their financial situation in years because [bankruptcy] has cleared up all of the past due debt and it’s given them a runway for the future,” said Gary Wassner, founder of the wholesale financing firm Hilldun.
He said about 60 out of 170 labels it works with that are typically stocked at Saks and Neiman Marcus have resumed shipping.
“We felt the support and commitment pledged to vendors through the new Saks leadership gave us confidence to continue our partnership,” said designer Tanya Taylor. “This is a pivotal time in the spring season to sell. We believe in ourselves and the brand and do not want to slow our momentum.”
Less clear is what will happen after the new funding runs out. For brands exploring a long-term partnership with Saks, the question remains whether the company can step up to navigate operational costs and interest payments without a court-mandated safety net.
Where Vendors Fall in the Pecking Order
As a necessary expense, handbag makers and ready-to-wear labels have vaulted from the bottom of the payment order to somewhere in the middle. They are a higher priority than many costs of business. But they likely rank below employees’ wages and store rent, according to Susan Scafidi, founder and director of the Fashion Law Institute at Fordham University.
The current $1.75 billion lifeline is not a guarantee of stability. The financing is designed to act as a finite bridge, and there may be unexpected costs during the restructuring process.
“Yes, they have [debtor-in-possession] financing but a lot of that might go to things like rent and employees get paid before vendors get paid,” Scafidi said. “There is the possibility of running out of money.”
Wassner, for instance, has not been able to approve every client purchase order to Saks because there is a threshold of exposure that his firm must maintain to manage its own portfolio. Even with the current legal safeguards, factoring companies like Hilldun often set strict limits to ensure they are not over-leveraged on any single retailer. His approved orders are for brands on a priority list sent weekly by Saks, he said.
Many brands have requested more favourable terms than prior to the bankruptcy in order to minimise risk, such as payment upfront or payment upon delivery. Saks has agreed in some cases to net 30 payment terms — or payment upon 30 days of receiving merchandise — an improvement from the net 90 terms it set with brand partners last February, though the retailer said the vast majority of its current receipts are on the same terms as before bankruptcy.
“You have to put a limit and think of anything that as a vendor you ship to Saks as a loan to Saks and ask yourself, if this were dollars, how much are you willing to loan?” said Scafidi. “That’s assessing your risk tolerance. Don’t ship anything you are willing to ship in a worst-case scenario.”
The risk is higher for new vendors to Saks, brands that are not deemed critical by Saks or those that don’t work with factoring firms like Hilldun, CIT and eCapital.
“If I were a new vendor, I’d be cautious and make sure I’m getting a portion upfront to mitigate risk,” said Alex Hennick, an attorney who specialises in distressed assets and liquidation.
What Comes After Bankruptcy
The real gamble, Hennick added, will be after Saks has restructured and exited bankruptcy. Even if Saks secures a healthier financial footing, external factors like consumer confidence and luxury’s value perception problem could threaten sales performance — the same issues that contributed to the company’s bankruptcy in the first place.
“The biggest risk is not in the next 30 days but next season,” said one brand executive. “They said they’ll come out of bankruptcy legally this summer … but again, so much can happen. They can have poor performance and terrible sell-throughs and more stores close, and therefore money can be allocated elsewhere.”
But in that sense, the risks of selling to Saks are no different than any number of retailers. Purchase orders are not legally binding contracts, and there is a long history of small brands burned by struggling retail partners.
So far, Saks is making significant progress on its restructuring process, including winding down most of its off-price business and announcing the closure of nine mainline department stores, mostly under the Saks name.
“Saks has exceeded expectations in terms of how quickly they’ve been able to make changes to their overhead structure,” said Wassner. “The business is very hopeful right now, though that doesn’t take the risk out of it.”