Saks fires three executives for improper vendor allowances

Saks Inc., Birmingham, Ala., fired three executives and punished other high-level officials after an internal audit committee found wrongdoing in how its Saks Fifth Avenue chain was collecting “markdown money” from vendors.

Saks said Monday that it had fired three senior executives along with “anyone who was directly involved” in improper vendor allowances at Saks Fifth Avenue. According to the internal audit of fiscal years covering 1999-2003, the total markdown allowances improperly collected from vendors was estimated to be $20 million.

Saks noted that the audit committee found no direct “culpability” among other senior officers. But directors criticized “the level of communication” between them and the audit committee and, in a rare move, determined that bonuses for several executives—including CEO Brad Martin—”should be reduced or eliminated.”

Those fired included Brian Martin, the CEO’s brother, who was general counsel at Saks Inc. in 2002—when a previous markdown investigation was done—and is now a senior vice president; Donald Watros, the chief administrative officer of Saks Fifth Avenue, who also was asked to forfeit vested options and face “other financial penalties;” and Donald Wright, now the chief accounting officer at Saks Inc.

Although Saks said its investigation was almost complete, the Securities and Exchange Commission and the U.S. attorney are investigating markdown money at Saks Fifth Avenue. The company also owns Herberger’s, Carson Pirie Scott, and other chains.

In collecting markdown money, retailers demand payment from suppliers to cover the cost of putting items on sale when demand is soft—or when the stores say it is. If the vendors do not go along, suppliers say, the retailers often threaten not to order their clothes again.

Vendors say the stores are increasing their demands, in their rush to bolster profits, and some privately label the practice blackmail and extortion.

Saks said management now will try to assess, more clearly, the amount improperly collected from vendors.