VENDOR IRE MOUNTS AS STORES HIKE CHARGEBACK PENALTIES
Byline: Rosemary Feitelberg
NEW YORK — Chargebacks, the longtime nemesis of the vendor, are escalating, according to a number of hosiery makers.
Describing these penalty charges as arbitrary and often unjustified, manufacturers have long railed against these fees levied on them by stores for damaged goods, incomplete orders and mislabeled merchandise. Over the past year, the vendors complain, retail consolidations, high turnover among retail employees and a generally tough environment are pushing the practice to new levels.
Some hosiery executives feel it’s especially unfair — or at least ironic — that they’re among the targets of mounting chargebacks, since legwear as a category has been doing well for the stores.
In addition to implementing hefty handling fees, a growing number of retailers are charging new penalties such as a 10-cent fee for units whose bar codes don’t scan on the first attempt.
Complaints are not universal, though. A few key resources said they licked the problem, by following retailers’ shipping guidelines to the tee, and at least one major retailer says it is attempting to better communicate what it wants from suppliers.
“Buyers,” said a spokeswoman for Sears, Roebuck, “have been working closely with vendors to insure they understand our shipping requirements.”
The aim is to “reduce our operating expenses as merchandise is moved from manufacturers to the sales floor,” she said.
Sears does not have a chargeback system that uses set fees; buyers assess and levy chargebacks as they see fit, the spokeswoman said. However, she added, the company is considering implementing specific guidelines for chargebacks, she said.
Many other retailers, though, were not as willing to discuss chargeback procedures. Executives from Nordstrom, Montgomery Ward, Federated Department Stores, Elder-Beerman, J.C. Penney, Mercantile, Bradlees, Lord & Taylor, Saks Fifth Avenue and Carson Pirie Scott and May Department Stores Co. all declined to comment on the issue.
Meanwhile, several manufacturers readily attacked the subject, although some wouldn’t let themselves be identified.
In 1994, a major hosiery manufacturer incurred $1 million in chargeback fees, according to a senior executive who requested anonymity. In the first two months of this year, fees for shipping violations have exceeded last year’s figures, he said.
“Sometimes chargebacks are more than the value of the merchandise,” he said. “It’s their word against ours. When we duke it out, I try to keep my salespeople out of it.” He does this to prevent ongoing tensions between his sales representatives and the buyers.
In the past five years, this hosiery manufacturer doubled the number of employees who handle chargebacks, he said.
May Co., Federated Department Stores, including Macy’s, and Nordstrom are some of the heaviest offenders, he added.
In 1994, DML Marketing, which distributes Leggale and its licensed Kenneth Cole legwear, registered $250,000 in chargebacks — a 20 percent increase compared to the previous year, according to Mark Hierbaum, president and chief executive officer.
DML generally disputes 50 percent of its chargebacks, of which half are dropped, he said.
“It’s tough but there are only so many people to sell to,” Hierbaum said. “We’re all buckled into it. It’s part of doing business today.”
The problem is more common among large department stores and specialty stores than mass marketers, he said.
In one instance, a major department store slapped DML with a $300 handling fee for a one-pair shortage and a year passed before the charge was dismissed.
Despite the hassle of chargebacks, some advancements have been made, he said. With today’s technology, most retailers notify vendors of chargebacks electronically, which itemize the penalties, Hierbaum said.
“It’s good that we now know what the charges are for,” he said. “But getting a human being on the phone to explain why it happened is a different story.”
Another executive from a major hosiery manufacturer said the problem is escalating. At any given time, the company has at least $250,000 worth of outstanding claims for chargebacks, he said.
“It’s become a free-for-all. A lot of stores are taking unauthorized deductions for zillions of things such as omitting a package slip in a carton,” he said. “The stores are able to use our money interest free. Transportation centers have become profit-making centers for a lot of stores.”
Crystal Creations Apparel, which produces and distributes Voila hosiery, disputes at least 50 percent of its chargebacks and the company wins most of them, according to Carla Kraayenbrink, national sales manager. In 1994, the company incurred $20,000 in chargeback fees, a 25 percent increase compared to the previous year, she said. In a recently adopted practice, some stores tag on minimum penalties of $50 for mislabeled merchandise. For example, if a pair of pantyhose has an upside-down label, the retailer will charge $55.50 — 50 cents for the error and $50 for the minimum penalty.
“Recently, it’s gotten really out of hand. With all the mergers, many stores are putting everything into one system,” Kraayenbrink said. “In the old days, they were a little more lenient. That old handshake deal is gone.”
In August, a junior retail chain handed Zephyrs Australia Ltd. a $6,000 charge for merchandise not received. Two months later “the stock was miraculously recovered,” after Zephyrs informed the retailer it could no longer afford to do business with them, according to Deborah Mackinnon, president. The retailer has yet to provide Zephyrs with its reimbursement, as promised, she added.
In the future, Zephyrs plans to use SGS, an inventory-checking service, to count large shipments once they pass customs, to make sure the quantities are right.
“It would appear that it’s done with intent to improve retailers’ margins as opposed to sloppy management,” Mackinnon said. “I don’t think it’s responsible behavior.”
Retailers are nitpicking like never before because this is one way for stores to make additional money, said another hosiery maker, who insisted on anonymity.
“It’s a very serious situation, and it’s only getting worse. Stores are handing out chargebacks in all areas — not just hosiery. Anyone who says the contrary is not being truthful,” he said. “If it continues at this rate a lot of vendors, especially smaller ones, won’t be able to afford to stay in business.”
Still, some say they have conquered the problem or it is no longer a serious worry. There is no longer the plethora of difficulties there was a few years ago, according to Debbie Hobbs, vice president of merchandising for Hanes Hosiery and its licensed Donna Karan hosiery.
With little turnover in Hanes’ credit and customer service departments, the company has developed good relationships with retailers, which help to prevent any miscommunication, she said.
“Anytime there are consolidations there are bound to be issues,” she said. “But when Macy’s and A&S merged, they sent us very thorough guidelines. They were very buttoned up about their business.”
Chargebacks are a result of not following retailers’ requests in a timely fashion, according to Joseph Weinstein, vice president and credit manager for Wayne, N.J.-based Mayer Berkshire Corp.
“It’s self-inflicted,” he said. “It’s a matter of not listening to what the customer wants.”
In 1994, Kayser-Roth Corp. incurred only $2,000 in chargebacks, according to Keith Mabe, vice president of marketing.
“It’s something we follow closely. We don’t want to make any mistakes.”