NEW YORK — The clamor is getting louder for vendors to band together and form a committee to fight chargeback abuses.
“This is the first time in 25 years that our industry, on the vendor side, has the opportunity to be offensive instead of defensive,” Marketing Management Group principal Allan Ellinger said Thursday.
If retail-vendor arrangements are to be true partnerships, vendors must take advantage of a “limited window in time” to get it back on track and balanced, Ellinger said during a panel discussion at the Princeton Club on “Chargebacks & the Saks Disclosures: Have They Changed the Retailer-Vendor Equation?” The event was hosted by law firm Phillips Nizer.
The two-hour discussion also included perspectives from Arthur Bargonetti, former president of operations at Tommy Hilfiger Corp.; Donald Kreindler, a partner at Phillips Nizer, who on Tuesday filed a lawsuit against Saks on the chargeback issue on behalf of his client, International Design Concepts, and Saul Berkowitz, an accountant and managing director at American Express Tax and Business Services. Kreindler said the firm decided to sponsor the panel discussion because the “hot topic of conversation among clients is the impact of the Saks probe and whether or not it will change the retail-vendor landscape.”
By the end of the event, several people gave business cards to the law firm’s representatives, suggesting that Phillips Nizer could be a conduit to forming the committee.
Ellinger told the audience that he had approached New York Attorney General Eliot Spitzer regarding chargebacks and that Spitzer’s focus was aimed at how the practice affects consumers. Ellinger said he tried to explain how vendors design “cost sheets” for each retailer and how prices for one retailer can differ for another retailer. He said he sought to explain how the end cost to the consumer varies among the retailers as they adjust their prices to reflect the costs associated with a particular vendor.
“Shortly after, I got a letter stating that [Spitzer’s office] didn’t think that the problem is large enough yet to impact the consumer,” Ellinger said. “So I urge all of you to call Eliot.”
Ellinger said he also spoke with the U.S. Attorney’s office in Manhattan, which is handling the Saks investigation.
This story first appeared in the May 20, 2005 issue of WWD. Subscribe Today.
“One of the examples I described involved concealed shortages. I was told that if it could be proven that there was a deliberate attempt to hold back money, then it would be considered criminal, and the U.S. Attorney would be interested,” Ellinger said.
There’s still a question over how deep the Saks probe could advance, and whether it might include other retailers. Vendors, naturally, insist that the investigation has to widen because the practice of chargebacks is so widespread.
One accountant attending the Phillips Nizer meeting wasn’t so sure. He believes it will remain a Saks-specific matter — at least for now. “The process involves a financial negotiation between the buyer and the seller. Unless there’s some allegation that another retailer accounted for it improperly, there’s no reason to start probing the other retailers,” the accountant said.
Bargonetti called the chargeback practice a “transfer of the Holy Grail of profit to the tin cup of negotiation.”
One of the problems vendors encounter is that each department store issues its own set of compliance standards. Bargonetti was emphatic in reminding attendees that “compliance is an obligation.” He said there are different ways a vendor can get hit with multiple charges in connection with the same shipment, and he explained that vendors need to have systems in place and records in order in case they need to contest the charge.
“Most of the time there is an assumption that you are in compliance, but you really need to verify it. The expense [to have the controls in place] is not minimal, but it is the first expense of doing business with retailers,” he concluded.
Berkowitz urged attendees to maintain sound documentation of all transactions, which also means ensuring everyone connected with the sales process is familiar with the procedures and that sales associates are routinely monitoring their accounts. One issue vendors need to focus on is whether they’re “more interested in the bottom line or more interested in getting product to the stores,” he said.