Stationery Community Rallies Together After Paper Source Bankruptcy Announcement

Small stationery designers received a shock last week when Paper Source, a popular retail chain and dream customer for many small makers, declared bankruptcy. The company, which is now planning to sell itself to lenders and close 11 of its retail locations, has stated that pandemic-related debts caused this decision.

“[Paper Source has] sustained deep damage to [its] finances and operations as a result of the ongoing COVID-19 pandemic,” wrote CFO Ronald Kruczynski in a court statement filed on March 2nd, the same day as the bankruptcy announcement. “Unsurprisingly, the impact of the pandemic was felt by all of [its] key stakeholders.”

These stakeholders include an estimated 200+ small stationery businesses, some of whom depend upon the retail giant for a substantial portion of their wholesale orders. Makers quickly took to social media to report a significant uptick in orders right before the filing.

“In the last few weeks, members of our community have shipped hundreds of thousands of dollars worth of products to Paper Source,” wrote small business consultant Katie Hunt in a blog post on her website, Proof to Product.

“This is a huge hit to independent brands who now don’t know if they will get paid.”

Paper Source CEO Winnie Park told Bloomberg News that the company placed large orders in recent weeks to stock the brick-and-mortar stores that it acquired from defunct rival Papyrus last year. But some makers say that they were asked to expedite shipping deadlines ahead of the March 2nd bankruptcy announcement, a move that has led some to question the chain’s motives.

“They did this to cook their books at our expense,” wrote greeting card designer Janie Velencia in a March 4th Twitter post. “Small business will be the last in line after everyone else they owe money to. It could take years for payouts to be made and in the end we may not see a penny.” She adds that the company “effectively stole $15,000 in product” from her business, The Card Bureau.

But as designers like Velencia struggle to navigate the claims process and the sudden loss of a major wholesale customer, the stationery community has rallied in support of impacted makers. Hunt has compiled a list of businesses awaiting payment and is urging her followers to shop from them directly. Others have spent the past week posting tips on legal and financial resources. [Read our guide: What to Do When the Company You’re Working With Files for Bankruptcy]

“I definitely don’t feel alone,” says stationery designer Peggy White of Chateau Blanche Design, which currently has four open invoices with Paper Source. “We’re all just trying to support one another… it’s made me very happy to be a part of the community.”

Shopping small

Paper Source’s announcement has also reignited the discussion around the responsibilities of retail businesses– a topic that White notes is usually reserved for the holiday season. Some makers argue that this crisis delivers a lesson in the importance of “shopping small,” since independent boutiques are often quicker to pay their invoices and forge more personal connections with the brands they carry.

“I’ve gotten a couple new stores in just the last couple of days that I know are following what’s going on. I don’t think it’s [a] coincidence,” says White. “I’ve never had a problem getting paid by my small businesses, so that’s who I choose to do my work with now.” She adds that the bankruptcy situation has led her to question whether she wants to pursue accounts with large chain stores in the future.

“It’s really made me rethink what my ultimate goals are,” she says. “I hope whoever purchases [Paper Source] completely reworks it, and they come back and revisit my stuff and they realize that it’s good and carry it in the future. But as far as any kind of relationship with them right now, I don’t see it as being an avenue that I want to travel.”

Paper Source has experienced significant growth since its sale to Bahrain-based private equity firm Investcorp in 2013. It’s expected that the company will sell itself to current lenders, led by a group called MidCap Financial, at the end of April. Until then, Midcap Financial has provided $16.5 million in financing to keep the company running as usual. For some small makers, this continued success adds insult to injury.

“Paper Source has informed us that they intend to keep placing orders and expect us to deliver on them post-bankruptcy,” wrote Velencia. “Now we’re in the position to keep selling to them, even though they’ve burned us, in hopes that we can make up some of that money.”

Bankruptcy rules state that purchases made during a Chapter 11 filing, as well as 20 days beforehand, must take priority in the repayment process. This means that Paper Source is now more compelled to pay new invoices efficiently than it was before the filing. But makers like White say that this added assurance of payment isn’t enough to make up for the trust lost.

“To continue to ask for product from these small businesses that you haven’t even paid is disgusting,” she says. “I don’t know if I [would] even have the capital to fill their orders right now, because they never even paid me what they owe me in the first place.”

Amidst the turmoil of the past week, many have praised the online stationery community for its efforts to support impacted small businesses. It’s a sign of Paper Source’s missteps, says White, that this same goodwill isn’t being offered to the bankrupt company.

“Maybe had it been done differently, we’d be rallying and supporting them,” she says. “But that’s not what happened here. We were all really kept in the dark.”

[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.]