Saks Bankruptcy— What can emerging brands learn?

There is no secret that pop-ups, events, collaborations and direct to consumer marketing and distribution have become more prevalent for emerging brands and designers (same applies to established houses). But, what does it mean when an institution like Saks (who also owns Bergdorf and Neiman Marcus) files for bankruptcy?

First, Saks is not totally disappearing. Saks filed for Chapter 11 Bankruptcy, which basically means it is using its available funds to restructure, pay (some of) it’s debts and stay in business under the Bankruptcy Courts supervision. With that in mind there are three major takeaways all emerging designers can learn from Saks filing for bankruptcy.

1. Filing a Proof of Claim

   Paying attention to deadlines imposed by the Bankruptcy Court is imperative to receiving outstanding payments associated with any pre-bankruptcy invoices. It is also important that brands organize all correspondence especially communication or data that may establish how critical you are to the consignor, contracts, invoices, shipping records, UCC filings, etc…

   The consignor that filed for bankruptcy will send out a schedule with a list of what they have (assets) and what they owe (liabilities), all brands that are owed money must then file a proof of claim, to confirm or correct the schedule by the court imposed deadline.

2. The Underlying Contract

   The first step is ensuring that any goods provided to a consignor (like Saks) must be supported by a contract that at minimum names the brand or designer as the legal owner of the goods until they are fully paid for and specifies payment terms. This provides the Bankruptcy Court with proof of a brands legal right in the property that is being sold by the consignor.

3. Priority of Payment

   • Securing Your Property

     This is done by filing a form, called a UCC-1, that states you are legal owner of the goods on consignment with the secretary of state that the consignor is located in (the governing jurisdiction). Attention to detail matters here as it puts others on notice that you have a right to your goods, even if they are in physical possession of the consignor. Securing your interest in the goods gets you priority to any payments which are often distributed in a waterfall fashion. Should you have a legal right (under contract) and secured right (under the UCC) any outstanding payments are considered “Secured.”

   • Continuity of Business

     Should you need or want to continue providing new inventory to a consignor that has already filed for Chapter 11 Bankruptcy, any debts owed associated with the “post-petition” consignment will be considered “Administrative Claims.” The consignor (Saks) would have to pay for all new inventory under the terms of the new contract in the ordinary course of business, any non-paid invoices would be given a heightened protection under the Bankruptcy Court.

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