Saks Bankruptcy Watch: Holiday Retail Surge, Luxury Vendor Risks, and a 2026 Survival Guide

Preliminary consumer sales data suggests the retail market may have cause for optimism. But it’s not all good news. Warning signs persist and fashion executives are taking critical stock of their retail partners. When end-of-year sales figures are finally tabulated, some retailers will be confronted with uncertain futures.

Industry observers are closely watching Saks Global. Despite being a private company, reports indicate that Saks is in need of a strong holiday shopping season to meet its $100 million interest payment due on December 30 in order to remain current on its $2.2 billion in debt. The beloved retail brands that comprise the Saks enterprise (Bergdorf Goodman, Neiman Marcus, and Saks Fifth Avenue) have accumulated goodwill among the fashion houses that sell to the luxury department store chain. But many of those relationships are strained due to chronic issues with delayed vendor payments. Moreover, S&P Global Ratings downgraded Saks in August following a debt restructuring that infused the company with $600 million of new cash.

The final days of the year will be critically important for Saks. The company just offloaded Neiman Marcus stores in Beverly Hills and San Francisco on December 29 in sale/leaseback transactions estimated to have brought in between $100 and $200 million. This move could mean the company is raising cash for its upcoming payment or funding for a restructuring. A resurgent Saks in 2026 could generate tailwinds across the luxury retail sector. But a Chapter 11 filing will be disruptive and force fashion brands to reconsider future business with Saks. Fashion brands that sell to Neiman Marcus and Bergdorf Goodman (but do not sell to Saks) may be swept up in a Saks bankruptcy filing. Fashion brands need to plan for a Saks bankruptcy and reassess all customer relationships in the event of market disruption in 2026.

Veteran fashion executives are not merely reading headlines about consumer confidence; they are evaluating their financial and legal strategy for next year. Ideally, you have a standby letter of credit against which you can draw in the event of a default by your retailer. For many fashion brands selling to distressed retail operators, letter of credit protection is unfortunately not available. Looking ahead to 2026, fashion executives need to take a deep dive and ask tough questions. This survival guide outlines concepts to include in your assessment of next steps.

Seller Rights Under State Law

The year-end review is a time to develop tailored solutions for retail customer accounts that show indications of strain or actual distress. Do you know if your customers are meeting (or will be able to make) their existing funded debt obligations? Can you determine if they are in default (either monetary or non-monetary, e.g., failure to meet a financial covenant) under the terms of those credit facilities? Is a customer late with you and other vendors?

If your retail partner checks any of these boxes, you need to consider tools available under state law. For example, if you have not already shipped product, you may be entitled to make a demand for adequate assurance in accordance with Section 2-609 of the Uniform Commercial Code (UCC). It provides that “[w]hen reasonable grounds for insecurity arise with respect to the performance of either party, the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.” When the contract is between two merchants, “the reasonableness of grounds for insecurity and the adequacy of any assurance shall be determined according to commercial standards.”

For fashion brands who have already shipped products, you may be able to reclaim goods under the UCC (and bankruptcy law, under certain circumstances). Making such a reclamation demand can afford a fashion brand the possibility of avoiding further losses if assurance is not forthcoming or potentially receiving payment of past due amounts or on more favorable terms (such as COD or payment in advance). A fashion brand needs to weigh the importance of retaining the economically troubled customer against the possibility of suspending performance and finding another purchaser on surer economic footing.

Consignment Agreements

Vendors who sell on consignment should review whether their liens are properly recorded and perfected and comply with relevant state law with respect to inventory liens. It is not enough to have a consignment agreement. Consignors need validly perfected liens. If your consignee ends up in distress, a validly perfected lien could be the difference between a potential loss and the ability to reclaim and resell.

Trade Insurance

Vendors should also check that their trade insurance is in force. Trade insurance can be an invaluable safety net should the worst occur. Given the emergence of the so-called “k-shaped” economy and its as of yet uncertain impact on the broader retail world, coupled with the rapidly approaching end-of-year debt obligations, now is an appropriate time to explore the potential advantages of trade insurance.

Bankruptcy Tips

In the event your troubled retailer files Chapter 11, you need to be ready and familiar with certain bankruptcy concepts:

• 362 Automatic Stay: Once the bankruptcy case is filed, vendors are immediately stayed from self-help or taking collection action without permission of the bankruptcy court.

• 546(c) Reclamation: Vendors could make a written demand to recover specific goods received by the bankruptcy debtor that spans a 45-day period prior to bankruptcy. Such a demand is subject to a 20-day time limit following the commencement of the bankruptcy case. It is essential to act quickly.

• 503(b)(9) Administrative Expense: Vendors could have a special right to payment on account of goods received by the debtor within 20 days prior to bankruptcy (referred to as an “administrative expense”). Asserting an administrative expense in a Chapter 11 bankruptcy case could be the difference between payment in full or cents on the dollar.

• 547 Preference: Retailers in bankruptcy may be able to “avoid,” or claw back, payments a vendor received within the 90 days prior to bankruptcy. One potential solution to preferential exposure is to negotiate a prepayment arrangement, as Section 547 is premised upon payment of preexisting debts (though other provisions of the Bankruptcy Code may provide grounds for avoidance with separate arguments on both sides). Creditors may also be able to assert certain defenses under the Bankruptcy Code, including that the payments were made in the ordinary course of business or the creditor offered contemporaneous or subsequent new value in exchange. The efficacy of these defenses will depend on a large part on the factual circumstances of each case.

• Critical Vendor Agreements: Vendors whose goods are particularly important for the debtor to remain operational may be able to negotiate so-called “critical vendor” status, meaning they may be able to get amounts owed to them paid in full and continue doing business on standard or more favorable trade terms during the course of the bankruptcy. There are advantages to being a critical vendor, so long as the critical vendor agreement is carefully negotiated.

• Creditors’ Committee: The Bankruptcy Code provides for the appointment of a committee of unsecured creditors, who will act on behalf of the interests of all unsecured creditors. Any unsecured creditor may seek membership on the creditors committee. Being on the creditors committee affords numerous advantages. Creditors should weigh their situation and consider applying for committee membership.

If you have questions, contact Anthony V. Lupo, Angela M. Santos, R. Erica Roque, George P. Angelich, Justin A. Kesselman, or James E. Britton of ArentFox Schiff.