As Saks Global prepares to exit bankruptcy, it’s working with a business model that has been evolving in fast forward, but also shaped by its recent history of financial woes.
In part, that is reflected in the contracts the retailer has and plans to carry forward beyond the Chapter 11 process, which could be completed next week.
While chief executive officer Geoffroy van Raemdonck has rebuilt the company’s relationships with brands, the retailer’s long list of concession and consignment agreements reflects, in part, vendors’ efforts to protect themselves in the bad old days.
When Saks Global is out in the wild again, most of its business will be conducted under a wholesale model — buying goods up front and selling them to shoppers. But it will also carry with it about 90 concession agreements that essentially rent space to brands and another 280 consignment deals that let the vendor retain ownership of the inventory.
While about 220 of those contracts are consignment agreements with jewelry brands — a common practice in that sector — the full list includes a who’s who of fashion labels.
The big brands, of course, are known for having concession agreements and that is the case at Saks Global for LVMH Moët Hennessy Louis Vuitton brands like Christian Dior and Fendi as well as Brunello Cucinelli, Chanel, Christian Louboutin, the Puig brands and others. But much smaller ones, like La Ligne, The Elder Statesman and Amanu, also have concessions agreements.
The list of consignment agreements runs from Aeffe through Kiton to Yves Salomon.
Saks Global’s ongoing agreements offer only an imperfect lens on the business, especially since some agreements are as narrow as covering one store, but they do reveal some of the inner workings of what remains the top luxury department store player in the U.S.
“As a leading destination for multibrand luxury retail in the U.S., Saks Global primarily operates under a wholesale model and remains focused on expert curation — thoughtfully building and cultivating an assortment that will inspire customers,” a Saks Global spokesperson said. “There are select situations where we work with our brand partners under alternative models, such as within the fine jewelry category, where consignment continues to be a common business practice.”
Jonathan Lazarow, who’s an attorney and co-chair of Ambrose, Mills & Lazarow’s Corporate Group as well as an investor, said: “What I saw when I reviewed this [reorganization] plan with the consignment agreements was, ‘OK, this is different, very different.’ Everybody seems to be on a consignment model — I don’t know if that’s good or bad.”
Hip, growing brands will likely have the resources for such an agreement and get a chance for exposure that can continue to power their businesses. Brands still proving themselves could struggle to carry the costs of the inventory.
“It’s a new way to do business for them, but it allows them to get inventory without having to put up a lot of cash for it,” Lazarow said of Saks Global. “The downside risk is they probably don’t get as much margin and there’s no asset back lending available because they don’t actually have ownership of the asset. It’s [a situation that’s] definitely evolved over the past year.”
Gary Wassner, CEO of Hilldun Corp., a factoring company that pays vendors for their shipments up front and assumes the risk of collecting later, said concession deals can comfort brands.
“But unless the brand is large, or part of LVMH or Kering etc., concessions aren’t the best route,” Wassner said. “The brands own the merch. It’s not a sale. So they bear the responsibility of sales. If it doesn’t sell, they must eat the returns themselves. Smaller brands can’t take that risk. Brands with multiple outlets into which they can move the unsold merch have less risk.
“It’s not a good formula for the stores themselves,” he said. “The sales personnel work for the brand, not Saks Global. They don’t stray from their departments. If you buy a suit from Dior and want a tie from Ralph Lauren, you need to find a different sales person in Ralph’s department. Saks isn’t the primary concern of the concession’s personnel. The brand is.”
