The stationery design community was left reeling last week when retail giant Paper Source filed for Chapter 11 bankruptcy protection. Independent design brands say the announcement came on the heels of an unprecedented uptick in wholesale orders by the company. Many of these orders included expedited delivery deadlines that designers say placed a logistical and financial burden on their businesses.
“After a very difficult year, wholesalers like myself thought retail was finally getting its second wind,” wrote Janie Velencia of The Card Bureau on her Twitter account. “For my business, Paper Source ordered more in a 60 day period than they did in all of 2020. And this is true for many others in the industry.”
“For my business, Paper Source ordered more in a 60 day period than they did in all of 2020. And this is true for many others in the industry.”
Now, small designers fear that they may never get paid for the thousands of dollars worth of merchandise Paper Source ordered in recent months. It’s estimated that as many as 250 small stationery businesses have outstanding invoices with the company, whose bankrupt status protects it from having to pay them in a timely fashion — or possibly at all.
“The numbers that I’ve heard thrown around are just jaw-dropping,” says Peggy White, whose company Chateau Blanche Design has four outstanding invoices with Paper Source. “Business decisions were made based on this income that we all expected… I think we all just felt like we were kicked while we were down.”
In its bankruptcy filing, Paper Source laid out plans to sell itself to lenders and close 11 of its 158 brick-and-mortar stores, requesting debt forgiveness for unprofitable leases and other expenses. A stalking horse bid from MidCap Financial, a subsidiary of Apollo Global Management, included $16.5 million in financing to help the store continue operating as usual during the sale process.
“There is no foreseeable impact to the product, experiences and services provided to our customers as a result of the filing,” Paper Source wrote in a March 5th email reply to a request for comment. “Operations will continue as normal.”
“Business decisions were made based on this income that we all expected… I think we all just felt like we were kicked while we were down.”
Under Chapter 11 bankruptcy rules, all purchases made during the bankruptcy process as well as in the 20 days before filing are given repayment priority. But orders placed before this 20-day window fall to the discretion of the courts, meaning they may only be partially paid for, and could take months or even years to process. Small designers share that Paper Source often failed to pay invoices on time even long before the filing, but their size and reputation discouraged criticism from vendors.
“Since being in the stationery industry, Paper Source has always been the dream account,” says White, adding that many designers offered Paper Source lower prices and more lenient payment terms than their other wholesale customers. “We were all bending in our own ways to land this account, because it was a big deal to be in this chain of stores.”
Paper Source was aware that its late payments were straining relationships with many vendors, but attributed the delays to financial stress caused by the COVID-19 pandemic.
“The Company began extending payment on its trade payables with its vendors to preserve its cash position” during the pandemic, wrote CFO Ronald Kruczynski in a March 2nd court statement. As a result, “many vendors have threatened to stop doing business with the Company unless they are made whole, which has further distracted management and complicated the Debtors’ already tight liquidity profile.”
Paper Source has shown resilience in past years as one of the few stationery-focused retail chains to survive in an increasingly digital economy. Both Papyrus and The Paper Store, two of its major competitors, faced financial hardships in 2020 — a fact that Paper Source’s Bahrain-based parent company Investcorp capitalized on by acquiring 30 of Papyrus’ retail locations when it shuttered. The process of converting these storefronts into Paper Source locations was then stymied by the emergence of the pandemic last year.
“The Company never realized the benefits of the Papyrus acquisition,” wrote Kruczynski. “Less than three weeks later, on March 16, 2020, the Company decided to shut down all of its retail locations” temporarily. But to smaller businesses, many of whom were also hurt by the pandemic, Paper Source’s claims of financial hardship ring hollow.
“They made poor business decisions, but small businesses will suffer while they get a buyout,” wrote Velencia of The Card Bureau. “As a small business, I would never be able to get away with what they’re doing… Paper Source walks away and we all foot the bill.”
Soon after the bankruptcy was announced, members of the stationery community took to social media to share their experiences and offer support to fellow designers. Business strategist Katie Hunt, founder of the small business seminar Proof to Product, used her Instagram platform to share the names of impacted businesses and urge her followers to shop with them directly.
Word also spread among designers online that Steel Petal Press, a greeting card designer and stationery retailer in Chicago, had connected with a lawyer who may help affected businesses file their claims for repayment. Steel Petal Press declined to comment for this story.
While Paper Source’s auction and sale are scheduled for the end of April, it will take far longer for affected stationery companies to bounce back. While some will continue to work with Paper Source moving forward, others say that their trust in the stationery giant has been permanently damaged by its abrupt bankruptcy announcement.
“I’m sure Paper Source is going to lose accounts as well as customers because of this,” says White. “I don’t have an interest in continuing business with them as long as this is going on.”
(Author’s note: My familiarity with the stationery design industry is due in part to my own small stationery business. However, I have never done business with Paper Source or any of the companies mentioned in this article, and stand to gain nothing financially from reporting on this story.)
