Saks sued in connection with chargebacks scandal

By Staff -- Home Textiles Today, 5/17/2005 12:48:00 PM

NEW YORK — In the midst of a mounting scandal over chargebacks and allowances that has embroiled Saks Inc., the first of what promises to be many lawsuits has been filed against the retailer, claiming a company that sold Oscar de la Renta women's sportswear was put out of business after Saks Fifth Avenue deducted nearly 35 percent, or $31.4 million of the more than $90 million the company billed Saks.

The suit was filed in the U.S. District Court for the Southern district of New York by International Design Concepts, LLC, which owns the assets of Apparel Group International, a company now out of business, which for years produced sportswear under the de la Renta brand. Saks accounted for about 60 percent of the company's total annual sales, the complaint states.

The complaint, filed by attorneys Phillips Nizer LLP, says the apparel producer was "forced out of business" by the actions of Saks, and charges "contract fraud, deceptive acts and practices, unjust enrichment and interference with prospective economic advantage."

At least some of the chargebacks and deductions were improper, the complaint alleges, and Saks "failed to provide any itemization or accounting."

International Design Concepts charges in its suit that because of "the extreme disparity in economic and bargaining power" between Saks and other major retailers on the one hand, and between most vendors on the other, Saks has "been able to coerce many, if not all, of their vendors into not challenging the chargeback practice whether or not the chargebacks were justified."

The suit said Saks admitted it "improperly collected vendor markdowns totaling $21.5 million between 1999 and 2003.”

Because the retailer applied the chargebacks to the annual profits on which executives' bonuses are based, "senior executives had a personal financial incentive" to encourage the company to "issue improper and excessive chargebacks to their vendors."

Saks has already fired three senior executives, including the brother of CEO Brad Martin, in connection with the mounting scandal.