The recent Saks bankruptcy brought up something I always think about when a major company collapses under unpaid obligations: When did they know they wouldn’t be able to pay? At what point does entrepreneurial optimism turn into something more troubling — carelessness, or even deception?
The answer is complicated.
Corporate failure is rarely an overnight event. It unfolds gradually, over time, through tightening liquidity, delayed payments and a growing reliance on hope.
In most cases when businesses don’t pay it isn’t a crime, it’s debt. But there’s a gap between legal and ethical.
In the United States, most commercial relationships are governed by contract law, not criminal law. If a company orders goods or services and later fails to pay, that failure is typically treated as a breach of contract, handled through civil litigation. Criminal liability generally requires evidence of fraud. It’s the intent that matters.
The legal question is not whether Saks paid its vendors, but whether it intended to pay them at the time it placed the orders. If the company reasonably believed it could meet its obligations and later fell short, that’s a business failure. If, however, it knew otherwise, that’s a crime.
But either way, the question still remains: When does financial distress cross from business risk into ethical failure?
Saks certainly isn’t the first retailer to leave vendors hanging. In fact, it’s a common occurrence as store chains start to sputter. But why is that the case when we could never get away with the same thing in our own lives?
Imagine going to a restaurant, eating $400 worth of food. Then when the check arrives, you say you can’t pay. But you offer alternatives: maybe you’ll settle the bill for $320 now, or maybe you’ll need two weeks to pay the full amount and ask the restaurant to send you an invoice.
The answer will be no, if for no other reason than the owner has overhead and hard costs associated with your little dinner out. He can’t then turn to his staff and hand out IOUs that may never be fulfilled.
That’s what retailers expect from their suppliers, who also have a host of financial responsibilities. Already, the factories producing those goods are financing the transaction, often waiting 30, 60 and 90 days (or more) after delivery to get paid.
One of the least discussed realities of distressed retail is how often vendors become de facto lenders. As access to traditional financing narrows, companies stretch accounts payable to preserve cash. On paper, this is routine working-capital management. In practice, it shifts risk upstream, onto vendors.
The model already depends on vendors carrying the risk—and that’s in the best situations.
Even when things get bad, vendors continue shipping product in hopes of maintaining the relationship, should the retailer have a future. Inevitably, payment timelines get extended, even as new orders are placed. But unlike banks, vendors do not charge interest, demand collateral or receive equity.
Nor do they have any leverage when the money starts to run out. In periods of financial strain, retailers prioritize obligations that carry immediate consequences: payroll, rent, lenders, legal expenses and strategically critical partners. Vendors fall to the bottom of the list.
This hierarchy of payment reflects choices. And those choices have consequences.
For vendors, delayed payment is not an abstract accounting issue. It can threaten their very solvency, as they struggle to make payroll, cover manufacturing costs and meet debt obligations.
While brands like Chanel and Gucci have been highlighted as some of Saks’ largest creditors, the more consequential and far less visible story is the smaller, independent designers and suppliers. For many, Saks represented a meaningful share of wholesale volume, and as a result their survival depended on the retailer’s orders and timely payments.
Saks may emerge with a restructured balance sheet for a second life. Many of the smaller brands that helped keep its shelves stocked during its most uncertain period may not.
Why bring this up now?
Because it feels like the model in which brands rely on major retailers like Saks for revenue, visibility and legitimacy, while shouldering an outsized risk may be ending.
As we’ve seen, brands have learned that direct-to-consumer alone is not enough. But wholesale through department stores may no longer be the answer either.
So what replaces it? Marketplaces have increasingly taken over the role of discovery once held by the traditional department store. At the same time, influencers now launch brands off of the strength of their own communities, introducing products to consumers at scale through distributed, algorithm-driven channels rather than a single gatekeeper.
That does not mean risk disappears. Even in a marketplace model, brands still have to determine their appetite for inventory and uncertainty. But these platforms increasingly solve what wholesale once provided: exposure, credibility and access to large audiences, without requiring fashion companies to extend credit to a retailer.
This does not erase what Saks, Barneys or Lord & Taylor represented. Those stores mattered. They shaped taste and discovery. But nostalgia is not a business plan.
And pretending the old model still works when it survives by quietly pushing risk onto vendors may be more damaging than admitting it is time for something new. Think of how social media now gives emerging artists the platform they could only once enjoy by signing exploitative record industry contracts.
I’m referencing Saks here because it’s the most recent example but given the long list of retailers that accepted goods they couldn’t pay for, I think it’s time for relationships that more evenly distribute the risk.
Courts decide what is permissible. Markets can rewrite the rules on what’s acceptable.
Edward Hertzman is the founder of Hertzman Global Intelligence.
