Most Recent Articles In Retail Features
Latest Retail Features Articles
- Think Tank: Inventory Management Key to Omnichannel Success
- Cleveland Businesses Blame Weak Sales on Trump, Security Concerns <span class='article-title-premium-container' style='font-size:.5em;display:none;vertical-align:middle;padding:.25em;margin: 0 0 0 .25em;'>Premium</span>
- Borletti Appointed Chairman of Italian Railway Retail Division <span class='article-title-premium-container' style='font-size:.5em;display:none;vertical-align:middle;padding:.25em;margin: 0 0 0 .25em;'>Premium</span>
More Articles By
NEW YORK — Retail consolidation, along with mounting pressure to meet stores’ increasing demands for margin support and operational chargebacks, is turning up the heat in the lingerie industry.
The core issue at lingerie firms is that major department stores are increasingly turning to logistics operations and seasonal markdown claims as a profit center. It’s a sore point that’s been growing for a decade, but over the last five years, suppliers of foundations, underwear, daywear, sleepwear and robes, said margin expectations have become unreasonably high for intimate apparel. The reason: It’s a fast-turn, replenishment category that has been relentlessly promoted to beef up total gross margin at stores.
Details of the $21.5 million chargeback crisis at Saks Inc. disclosed this month shed new light on what manufacturers describe as a nightmare. Saks said it had undertaken an internal inquiry of “improper collections of vendor markdown allowances,’’ and said it would pay back or otherwise compensate unnamed resources. The Securities and Exchange Commission opened an informal inquiry.
Kim Zablocky, co-managing director at the Vendor Compliance Federation, sizing up the retailer-vendor relationship, said: “The retailer is not here for the vendor. They look at the rules of engagement. If you can’t be 100 percent compliant, you can do business elsewhere.”
An industry veteran, who, like several others, spoke on condition of anonymity, said, “When I was at Warnaco, it was relentless. We had to hire an accountant who only handled chargebacks and we had a group of collectors who traveled around the country whose sole job was to collect unauthorized chargebacks.”
Concern is building among smaller and midsized firms that generate annual revenues averaging $40 million to $100 million as they struggle with a maze of compliance rules, while competing with Fortune 500 companies that have the financial muscle to invest in multimillion-dollar technology. At the same time, companies are being pressured for larger markdown allowances against product that has mainly been promoted at discounted prices.
“This is a subject nobody wants to go public about,’’ said a manufacturer and former retailer. “There’s a certain protocol in the industry and we treat it very specially with special customers. It’s suddenly become a drama because of Saks.”
This story first appeared in the March 28, 2005 issue of WWD. Subscribe Today.
Another executive said, “I’m glad the industry is starting to talk about this issue and I’m glad Saks got caught. All of the talk and exposure is keeping the issue alive. If the issue keeps coming up, it makes the stores nervous.”
Overall, the toll of chargebacks may be as much as 1 to 3 percent of a company’s annual sales. In some cases, penalties may exceed 5 percent for suppliers who lack the capital to buy or upgrade technology, or hire additional employees to track a paper trail for chargebacks, executives said.
But compliance and tough negotiating skills are not the only requisites for survival in the marketplace. The pending merger of Federated Department Stores and May Department Stores is being viewed by vendors as further shrinking opportunities to grow businesses and control the bottom line. Some believe it could drive smaller firms out of business, while others said the only way to exist will be to partner or merge with a large company.
From a factor’s perspective, Stanley Officina, president of Sterling Factors, acknowledged that the toll of chargebacks and margin support requests is excessive.
“It’s a concern expressed by many of our clients, and I’m seeing it on a daily basis,” said Officina.
He said many apparel firms are not well capitalized, so “anything that affects their cash flow and profitability is something that has the potential of being a disaster.”
Jeffrey Kapelman, principal of Hildun Corp., said, “Absolutely, manufacturers are expressing concern. The problem is, when there’s consolidation, there’s a monopoly and fewer retailers mean less buying possibilities. They tend to go more for particular manufacturers and support them.”
David Milberg, president of Milberg Factors, said, “The whole issue of chargebacks and margin support is really much worse with department stores. I think chargebacks are an issue regardless of consolidation. But more manufacturers are really taking it seriously, and it’s very important for manufacturers to deal with it head-on despite consolidation and the leverage retailers want to use against manufacturers. It’s not so much a capital issue, it’s about being smart and savvy.”
While retailer-vendor relationships are tense, a few industry executives believe both parties can coexist without friction. The idea, they said, is to be clear on the right product, price and packaging, and have a thorough knowledge of a client’s logistical needs.
Lee Chaden, chief executive officer of Sara Lee Branded Apparel, told WWD this month that developing large-scale programs, particularly during a period of retail consolidation, is a “winning combination that drives collaborative, long-term strategies for both of us.”
“The customers we are growing the fastest with are the large retailers,” Chaden said. “Larger retailers need to team up with suppliers that have scale and that can deliver big, value-added ideas to drive consumers to their doors through product innovation and strong consumer marketing programs.”
Charles Komar, ceo of the Komar firm, a maker of branded and private label sleepwear, believes in taking a proactive approach.
“In our case, we expect their [retailers’] expectations,” he said. “The vast majority of retail expectations are understandable. Today, operational chargebacks are not a problem because we’ve spent time to understand their manuals and institute technology and analyze how we can make money on their requirements.”
However, the majority of vendors said other variables come into play. One executive said, “We try to be extremely compliant, but major stores have stopped sending out routing manuals and we are expected to look up new rules on their Web sites. The problem is they don’t tell us what to look for and we have to search through hundreds of pages.
“We also have a problem with bar codes, and it’s always with the same major retailer. We ship to many retailers, but for some reason, 69 out of 72 chargebacks last month were on a bar code one retailer claimed couldn’t be read. All of the other stores could read it. They’re not fast to investigate, either. One case took a year to clear up.”
As for how smaller entrepreneurial companies are staying in business, makers said merchants occasionally give special dispensation if the resource looks promising. But today, the tender, loving care is limited.
“I used to spend a lot of time arbitrating between the accounting department and young designers to make sure they got paid,” said a former retailer. “They don’t have people doing those jobs anymore, nobody there to champion them. If it’s not a huge vendor, the store wins in the end. Buyers don’t want to get bogged down with compliance issues. The compliance office is a whole separate division.”