NEW YORK — The Securities and Exchange Commission has launched a formal investigation into Saks Inc. over what could be a series of concerns, ranging from improper collection of markdown allowances to related accounting and disclosure issues.
The SEC notified Saks Inc. last Thursday that it issued a formal order of a private investigation. Saks Inc. revealed the development on Monday and said it is fully cooperating with the SEC. An SEC spokesman said the commission does not discuss current investigations.
On March 3, Saks Inc. announced it was conducting an internal probe of “alleged improper collections of vendor allowances” in one merchandise division of its Saks Fifth Avenue chain, and that it had informed the SEC about the investigation.
Saks Inc., which is based in Birmingham, Ala., also said then that its investigation, being conducted by an audit committee of the board, would be completed by the end of this month. Now the company expects the investigation to be completed in April.
Saks Inc. is said to be shopping its department store group. The SEC situation would be a distraction and a possible roadblock to any sale.
In addition to operating the 57-unit Saks Fifth Avenue chain, Saks Inc. operates 52 Off 5th stores and the 238-unit Saks department store group, which includes the Parisian, Proffitt’s, McRae’s, Younkers, Herberger’s, Carson Pirie Scott, Bergner’s and Boston Store nameplates. There are also 38 Club Libby Lu specialty stores owned by Saks Inc.
The retailer also said Monday that, in addition to the alleged improper collections of vendor markdown allowances, the audit committee’s probe relates to “the adequacy of an initial internal investigation in 2002 into this matter, and accounting and disclosure issues that have arisen in the course of the audit committee’s investigation.”
As reported, Saks has agreed to pay back, or otherwise compensate, certain resources a total of $21.5 million due to the improper collection of markdown allowances. The impropriety reportedly occurred in the bridge area of the SFA division. Saks Inc. would not confirm that.
Onward Kashiyama USA is believed to be among the vendors being repaid. 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 Inc. has said that a majority of the 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.
The problem with the chargebacks, as well as accounting errors related to leased departments inside stores, is forcing Saks Inc. to restate earnings from fiscal 1999 to the third quarter of fiscal 2004.
With the intrigue mounting, so is the question of culpability. Saks Inc. has yet to point the finger at any of its personnel, though the company has said its investigation could lead to actions against some.
There was speculation among retail executives outside of Saks that, with the SEC getting more deeply involved, the degree of culpability could be wider than initially believed, possibly involving individuals at divisional and corporate levels.
“This basically means that the SEC wants to know if something improper was going on,” said one retail executive.
Sources outside Saks have said the situation there could open a can of worms in the industry and put more retailers and their margin and markdown money agreements on notice, and under the watchful eye of the SEC. These practices fall under the umbrella of chargebacks, a widespread practice where retailers charge vendors for a variety of things, generally related to strictly complying with packaging, shipping and delivery-date agreements. However, new government rules of full disclosure require that markdown money has to be taken and charged to the vendor in the year the retailer bought the merchandise.
“This could give certain vendors the impetus to go after retailers on logistic and markdown chargebacks,” the retail executive said. However, he acknowledged that most vendors wouldn’t want to jeopardize a relationship with a retailer by vigorously contesting chargebacks, assuming they did a big volume of business with that retailer.
Breaking News: @louisvuitton's men's artistic director @mrkimjones is leaving the French fashion house after nearly 7 years. Jones joined Louis Vuitton in 2011, following a three year tenure as creative director of British luxury goods brand Alfred Dunhill. Jones is to exit Louis Vuitton after showing his fall 2018 collection for the brand in Paris on Thursday. Read the full exclusive story on WWD.com. Link in bio. #wwdnews #wwdfashion
For men’s fall 2018, @giuseppezanotti drew on elements from streetwear, sport, biker, combat and rock ‘n’ roll. Pictured here are a pair of shoes from the collection, featuring zippers, rhinestones, and silver hardware. Head to WWD.com to see a roundup of the accessories from Milan’s men’s fall 2018 shows. #wwdfashion (📷: Andrea Delb)
To celebrate the 25th anniversary of @ralphlauren’s snowboarding collection, the brand is mining its archives. The iconic brand is reintroducing vintage styles and dropping new designs for a color capsule that will be available in Ralph Lauren stores and @openingceremony on January 25. The capsule will consist of 10 pieces, including the Snow Beach Pullover, pictured here, which is a collector’s item that rapper Raekwon wore in Wu-Tang Clan’s “Can It Be All So Simple” video. #wwdfashion (📷: Tom Gould)
For @rochasofficial’s pre-fall 2018 collection, creative director Alessandro Dell’Acqua channeled the sophisticated and intriguing Catherine Denevue in the film “Belle de Jour.” Polished collarless coats, midi skirts, suits and ’60s graphic motifs were all featured in the collection, adding a sense of discreet luxury. See the rest of the photos on WWD.com #wwdfashion
“We tried to produce clothing of that couture quality, but the most daunting part was that we only had a matter of days [to do it],” said costume designer Lou Eyrich, who recreated Gianni Versace’s iconic looks for @americancrimestoryfx. Eyrich searched online retailers and vintage shops for original pieces from the design house and for @penelopecruzoficial, who plays Donatella Versace. Head to WWD.com to read how she created the Versace world. #wwdfashion
Only three months after her stellar debut catwalk season, @kaiagerber has inked her first big design collaboration –– with @karllagerfeld. The collection blends Lagerfeld’s Parisian chic aesthetic and the model’s signature West Coast casual style via RTW, accessories, footwear and more. The #KarlLagerfeldxKaia collection will launch in September with a series of events. Get all the details on WWD.com. #wwdnews #wwdfashion
Harrods plans to remove the famous statue of Princess Diana and Dodi Al Fayed from the bottom of the Egyptian escalators and hand it back to Mohamed Al-Fayed. “We are very proud to have played our role in celebrating the lives of Diana, Princess of Wales and Dodi Al Fayed at Harrods and to have welcomed people from around the world to visit the memorial for the past 20 years,” said Michael Ward, Harrods managing director. “With the announcement of the new official memorial statue to Diana, Princess of Wales at Kensington Palace, we feel that the time is right to return this memorial to Mr. Al Fayed and for the public to be invited to pay their respects at the palace.” More on the news, with reporting by @loreleimarfil, at WWD.com. #wwdnews