Chargebacks Crisis: Saks Inc. to Repay $21.5M to Vendors

Saks Inc. said it is investigating "improper collections" of vendor markdowns and will restate earnings from fiscal 1999 to the third quarter of 2004.

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NEW YORK — Saks Inc. apparently squeezed certain vendors for several years, but now it’s payback time.

Saks has revealed an internal investigation involving “improper collections of vendor markdown allowances” and said it would pay back, or otherwise compensate, unnamed resources in an amount to total $21.5 million. In addition, it will restate earnings from fiscal 1999 to the third quarter of fiscal 2004 as a result of the repayments and accounting errors on leased departments.Saks said it has informed the Securities and Exchange Commission about its internal investigation of the markdown allowances and that the SEC has opened an informal inquiry of its own.

Chargebacks and markdowns long have been a major bone of contention between vendors and retailers, and Saks’ almost unprecedented decision to repay vendors could force the issue out into the open.

The news of the investigation came as Saks Inc. reported income for the fourth quarter ended Jan. 29 of $94.8 million, or 67 cents a diluted share, versus $80.6 million, or 56 cents, a gain of 17.6 percent over the same year-ago period. Sales for the quarter rose 4.9 percent to $2.07 billion from $1.97 billion.

The impropriety revealed by Saks on Friday reportedly occurred in the bridge area of Saks Fifth Avenue. Saks Inc. would not confirm that, but said it occurred in one merchandising division of SFA.

It’s also believed that Onward Kashiyama USA is among the vendors getting paid back. The vendor, which supplied Kors merchandise to Saks, has sued the retailer for $9,275,643 for “substantial deductions and credits which were not allowed under the terms of the agreement,” according to legal papers. Saks would not comment on the litigation.

Meanwhile, Saks said it will cooperate with the SEC inquiry. A majority of these improper collections occurred during the company’s 2000, 2001 and 2002 fiscal years and a lesser amount occurred during the 1999 and 2003 fiscal years. None occurred in 2004. Fred Wilson has been chairman and chief executive officer of SFA for the past year, succeeding Christina Johnson, who was ceo from February 2000 to October 2003. She succeeded Philip Miller. Saks did not lay blame on any executives, but did say its investigation could lead to actions against some personnel. The investigation is expected to be completed by the end of this month.
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