Saks' bankruptcy filing creates uncertainty for iconic stores, suppliers and shoppers

NEW YORK — An appeal for bankruptcy protection filing of the operator of Saks Fifth Avenue, Bergdorf Goodman and Neiman Marcus has left the luxury department stores' suppliers with unpaid bills and caused a rift with Amazon, one of Saks Global's minority investors.

Saks Global said last week it had secured roughly $1.75 billion to help finance the company toward hoped-for profitability. The company said it would honor all customer loyalty programs, compensate vendors and pay employees while seeking approval for its plan to pay off outstanding liabilities, which range from $1 billion to $10 billion, according to court documents.

While the retailer's stores remain open for now, the bankruptcy and restructuring could likely impact the assortment of designer brands customers find online or in their local Neiman Marcus or Saks, according to industry experts.

Many brands stopped shipping their goods weeks ago as Saks Global's financial distress became more evident and bankruptcy appeared inevitable, experts said. A visit to Saks Fifth Avenue's flagship store in Manhattan last week revealed noticeable merchandise gaps, including handbags and shoes spread out along shelves.

Neil Saunders of GlobalData Retail, a research firm, noted it's critical for Saks to have a good assortment including trendy items from small niche brands.

''If Saks or Neiman Marcus are not offering that, those customers will find somewhere else to shop," he said.

The bankruptcy occurred a little over a year after the parent company of Saks Fifth Avenue agreed to buy the Neiman Marcus Group, its upscale rival, for $2.65 billion. Amazon took a minority stake in the deal, which saddled the new holding company with significant debt at a time of rising competition and a slowdown in luxury spending.

Many suppliers face unpaid bills

Major brands like Chanel and Kering — the parent of Gucci and Saint Laurent, among others— top the list of creditors owed the most money. But bankruptcy lawyers and industry executives expect that luxury conglomerates will be fine.

The big worry: the small and medium-size brands that have already been squeezed financially by Saks. Some could shutter their businesses if bills are left unpaid.

''This is very painful," said Joseph Sarachek, a lawyer who represents roughly 30 brands owed money by Saks. ''A lot of these guys are going to go out of business.''

Sarachek declined to name his clients for fear of retribution by Saks but said that they're owed anywhere from $600,000 to $10 million. He said his clients don't operate their own stores, and for some, Saks had been their only big retail account.

Even before the merger with Neiman Marcus, suppliers were grappling with skipped payments from Saks, creating anger and mistrust.

Over the past year, that relationship only worsened, with management changing the payment terms for brands that supplied the stores, according to Gary Wassner, CEO of Hildun Corp. which provides credit guarantees to roughly 120 brands that sell to Saks.

For some, Saks Global accounted for 40% to 50% of their business, he said.

Wassner advised his clients not to ship to Saks starting in Dec. 19. He said Wednesday he's hoping to approve shipping next week once agreeable payment terms are negotiated.

Amazon's ire

The partnership was supposed to further Amazon's goal of attracting more luxury brands on its site.

But, as Amazon argued in a court filing to block the financing plan hours after Saks filed for Chapter 11 bankruptcy, ''That equity investment is now presumptively worthless."

''Saks continuously failed to meet its budgets, burned through hundreds of millions of dollars in less than a year, and ran up additional hundreds of millions of dollars in unpaid invoices owed to its retail partners," the court filing said.

Amazon had argued Saks' financing plan hurts the retailer, and other creditors, because it loads down Saks with additional debt. It also argued the financing plan could unfairly favor other creditors at the expense of Amazon.

Amazon threatened more ''drastic remedies'' in the court filing if Saks doesn't resolve the matter, including the appointment of an examiner or a trustee.

Amazon declined to comment further.

Fate of stores

Saks had already revealed plans back in November to close nine Saks Off 5th stores starting this month. That brings the total of Saks Off 5th locations to 70. There are also 33 Saks stores and 36 Neiman Marcus locations, as well as two Bergdorf Goodman stores.

But shoppers can expect more store closures.

Saks said this week it was evaluating its ''operational footprint" to ensure it was well positioned to invest in areas with the best opportunities for growth.

David Tawil, president of ProChain Capital, a cryptocurrency hedge fund and a former bankruptcy lawyer and distressed investor, believes the most vulnerable will be Saks Off 5th locations, which haven't fared well and have faced stiff competition from the likes of T.J. Maxx.

Among rivals that could benefit are luxury department store chains Nordstrom and Macy's upscale sister Bloomingdale's, according to Tawil and Saunders. Other beneficiaries could be luxury brands' own stores as well as online luxury players like the RealReal, which sells gently used luxury items, the experts said.

Discounts for shoppers

Shoppers are seeing generous discounts at Saks, Neiman Marcus and Saks Off 5th.

Saks' website shows up to 70% on select designer clothing, while Neiman Marcus is marking down select styles at up to 75% off, according to its website. Saks Off 5th website is promoting up to 85% off items.