Amazon Faces Scrutiny Over Saks' Luxury Store Bankruptcy Filing

Tech giants are adept at weaving tangled business webs, where investors double up as suppliers, clients or partners. But sometimes, things don’t quite go according to plan. Take, for instance, Amazon’s investment in luxury department store Saks, which last week filed for bankruptcy protection, crushed by more than $3bn in financial debt and a liquidity crisis that prevented suppliers such as Chanel from being promptly reimbursed. Amazon’s strategy was to support Saks’ expansion as an investor while also benefiting as a retail partner. Accordingly, the $2.5tn group founded by billionaire Jeff Bezos had written an equity cheque of $475mn to back the Saks buyout of Neiman Marcus. But the House of Bezos also had another arrangement with Saks, to receive commissions for a virtual Saks storefront set up on Amazon’s website. It was to be paid at least $900mn over an eight-year term. The equity investment is a total loss. However, with regard to the revenue share, Amazon, according to court filings, believes some of that is still recoverable, even as that particular Saks subsidiary that had originally offered Amazon a partial guarantee has since pledged its assets to a new $1.5bn senior bankruptcy loan. Amazon is naturally sore about all of this. Its lawyers are threatening to seek a third-party trustee or examiner in the bankruptcy, among other ways to pursue what will be long-shot legal remedies. The tech group can draw some comfort from the fact that it is in good company. The Saks debacle has in total incinerated billions of dollars for Salesforce as well as some of the smartest financial firms in the world. Besides Amazon and luxury goods suppliers, Saks has also ridden roughshod over some of its bondholders. Over the summer, it raised $600mn through fresh bonds, now close to worthless, in a “creditor on creditor violence” deal in which some existing bondholders were thrown overboard with their collateral stripped. The saga is akin to 13 months of a circular firing squad with virtually no one left standing. And, of course, even hundreds of millions of dollars in losses are but a mere drop in the ocean for Amazon. But the benefit of being a tech superpower is the ability to make bets that are not existential on the downside and moderately interesting on the up. This one, which trialled the concept of a luxury department storefront on Amazon Avenue, wasn’t a bad idea. Online sales of personal luxury goods have been rising — and could amount to a third of the market by 2030, Bernstein estimates. The problem mainly lay in its execution. In the meantime, Amazon’s investment in Saks continues, painfully, in the form of expensive litigators who might claw back a few bucks.