Vendor Group Eyed to Fight Chargebacks

There was a time when vendors were too afraid to even think about fighting against retail chargebacks.

NEW YORK — There was a time when vendors were too afraid to even think about fighting against retail chargebacks. But this could change as momentum builds to form a committee to address an industrywide practice that some call abusive.

“We are going forward with the development of a council or committee which will broadly represent the vendor community, and develop appropriate standards with respect to the retailer-vendor relationship,” said Donald Kreindler, an attorney at the law firm of Phillips Nizer.

Kreindler was among the panelists who spoke at last week’s session at the Princeton Club on “Chargebacks & The Saks Disclosures: Have They Changed The Retailer-Vendor Equation?” The event was hosted by Phillips Nizer.

Following the session, Kreindler said there was a strong response by the vendors who attended. He said they “responded enthusiastically” to the idea of forming a committee. The law firm would likely act as a conduit between companies interested in joining the committee.

Kreindler went on to say that it’s important to create a more level playing field between retailers and their vendor partners in regard to compliance standards, which vary among retailers.

Chargebacks are a critical component of the vendor compliance requirements imposed by retailers. In basic terms, a chargeback is a charge incurred when a vendor fails to comply. The issue of chargebacks and other deductions is a hot topic in the industry following the disclosure by Saks Inc. earlier this year that one of its Saks Fifth Avenue merchandising divisions had improperly collected millions of dollars in vendor markdown allowances.

Allan Ellinger, a principal at Marketing Management Group, said that if a vendor committee is formed, it will likely have multiple roles, including interfacing with the retail community and developing a means of leveling the playing field with regard to chargebacks, as well as educating others as to the impact on consumers.

While Ellinger, in his remarks last week at the Phillips Nizer presentation, wasn’t suggesting that individual companies contact government authorities directly, he said after the session that if a group is formed, the strength of it as an official representative of the vendor community might have more impact.

Ellinger said one role of the group could be to educate others on the abuse that vendors take from retailers — abuse that ultimately results in wholesale price adjustments, which are then translated into an increase in retail prices. Another aspect of the committee could be to identify ongoing abuses, such as concealed shortages and other types of compliance chargebacks.

This story first appeared in the May 24, 2005 issue of WWD.  Subscribe Today.

One example that Ellinger gave in his presentation last week involved a discussion with the U.S. Attorney’s office in Manhattan on concealed shortages. It was noted that if concealed shortages could be proven to be deliberate and done in a repeated pattern that held back money from vendors, then it would be possible for the practice to be considered criminal.

Meanwhile, Kreindler discussed possible vendor claims that might be pursued against retailers, such as breach of contract and even fraud. During the session, the attorney told attendees that they can protect themselves by keeping a paper trail, including records of all electronic transmissions. In addition, companies can also make sure they send a confirmation of each order, containing appropriate protection language. The attorney said vendors should make sure they’re aware of the protections available from the Uniform Commercial Code, which puts the burden of proving a nonconformity on the buyer/retailer.