NEW YORK — Ping and Bin Yan own BPE Studio, a veteran manufacturer in the Garment District sought out by both high-end designers and emerging sportswear labels alike.
The Yans are best known for helping to realize designers’ dreams at BPE Studio, including the once highly successful Marc by Marc Jacobs line that launched in 2001 but is since discontinued. As a testament to the Yans’ close working relationship, Jacobs even attended the couple’s wedding in 1994 (a scrapbook in the back office displays the moment proudly). Ahead of New York Fashion Week, lines from Monse and emerging label We-Ar4 filled the racks, and the space hummed with the putter of sewing and specialty finishing machines.
But despite such dream partnerships, BPE Studio is still dealing with setbacks because of unpaid bills from shuttered brands and cash flow not matching up to workflow.
BPE Studio worked with New York-based Sies Marjan before the label closed its doors amid the strain of COVID-19. While the situation unfolded, Ping Yan described being left with production orders and no payment. She was able to negotiate for roughly 40 percent of the payment but had to find other means to do away with the ’70s-inspired finished goods, turning to luxury resale platform The RealReal to consign the Sies Marjan wares — including a suite of tailored wool pants.
Because the brand shuttered, BPE Studio had to take what it could get in terms of regenerating some cash in lieu of debt acknowledgement. The pants retailed for $890 and are selling for $112 on The RealReal, leaving Yan with $61.60 for each pair. The manufacturer confirmed selling some of the consigned goods as of April, but it’s hardly the deal originally agreed upon with the designer.
BPE Studio also worked with Prabal Gurung, Inc., which the manufacturer alleged delayed payment for two years.
Prabal Gurung Inc.’s last invoice for BPE Studio (obtained by WWD) was paid in full in May 2021 — two years after the invoice was issued in 2019. BPE Studio uses Net 10 payment terms, meaning payment is supposed to be due 10 days after the invoice date.
“I understand [difficulty] due to COVID-19, but that is 2019’s invoice,” Yan said. BPE Studio ended up turning to a debt collection agency to remedy the situation. Before the payment was ultimately made, Yan said she was worried she wouldn’t be able to keep up with employee wage payments.
Manufacturer One to 13 Studio, managed by Nay Huang, is another business marred by late payments, making basic utilities burdensome and attempts at collection frustrating but also filled with fear over jeopardizing much-needed business.
“As you may know, in New York, agreements or contracts are seldom made in writing between brands and manufacturers. This is especially true for productions of low quantity,” Huang said. “So some fashion brands do take advantage. When the small manufacturer does ask for a contract, or requires a late fee for past due debts, these same brands will find another factory for the job.”
Although payment is fully rectified now, as of February, Gurung owed One to 13 a total of $50,040 for various sample-making work, which invoices obtained by WWD dating back to September 2019 confirm. Payment terms from 2021 were Net 15, or due to be paid 15 days post invoice.
Prabal Gurung Inc. also allegedly owes another manufacturer, which requested anonymity, $50,000 that it says is several months overdue. Because of the payments owed, the manufacturer said it has ceased working with Gurung for the time being, as was the case with H.D. Fashion Inc., which has held production on goods from the label until open balances are cleared.
A former employer at Gurung, who asked not to be named said, “[One to 13] is not the only vendor who’s had the same problems,” believing the brand lacked a “sense of order and planning” at the time of their employment.
Shan Reddy, chief operating officer of Prabal Gurung, Inc., addressed the claims raised by the manufacturers and the former employee.
“While there have been unexpected cash flow delays due to the national supply chain issues, every business in the U.S. is currently facing due to the pandemic, there have been no cancellations or unpaid debts. We maintain consistent communication with all our partners and have been successful in surmounting the problems successive pandemic waves presented to businesses like ours here in the U.S. and throughout the world,” Reddy said.
He maintained that, “The factories and the brands are really crunched in the middle, and I would say the brands are most crunched because we’re just unable to retrieve funds expeditiously from stores. We’ve had a lot of defaults around the world, extended terms with stores, and then in the meantime, we have to be the first guys to be able to get a dollar over to anyone in the neighborhood.”
But he underlined his empathy for the retailers. “I’m here to defend everyone. I think we’re all in the same boat, but just on different sides of getting pinched,” he said. “To the defense of the stores…they were just completely unable to open. What do you do if you’re a retail store?…That’s almost more difficult to maneuver if it’s a state authorization thing.”
The incidences at Sies Marjan and Prabal Gurung are not unique. While New York fashion features such global brands as Ralph Lauren, Tory Burch, Tommy Hilfiger and Michael Kors, it also is filled with scores of smaller — in some cases up-and-coming designers — that often struggle to make ends meet, squeezed between the retailers they sell to — and who often delay payment or take orders only on consignment — and the manufacturers they use, not to mention suppliers who demand payment of their own. A small designer often has little leverage with retailers, which often favor paying the largest brands first since these are usually the ones that generate the most business. The little guy can get short shrift.
Scores of global brands and retailers have come under pressure regarding their sourcing and treatment of suppliers as part of the increased scrutiny of their environmental, social and governmental practices. But this attention is generally focused on suppliers in countries such as Bangladesh, Cambodia or China, and often overlooks those closer to home.
Prabal Gurung Inc. was defaulted on by Barneys New York and Need Supply when they went bankrupt amid the store restructurings and closures that swept through retail in the immediate COVID-19 era. While Need Supply shuttered for good, the Barneys name was reborn last year. The retailer, whose intellectual property is now owned by Authentic Brands Group, opened store-within-store concepts in Saks Fifth Avenue at both its Madison Avenue flagship and Greenwich, Conn., locations.
A court paper showed Barneys had more than 5,000 creditors at the time of its bankruptcy in 2019. Given that holding companies like ABG only own the Barneys name, Brad Sandler, a lawyer at Pachulski Stang Ziehl & Jones LLP, who argued on behalf of creditors for the Barneys bankruptcy case, offered additional insight.
“Barneys, as you know, is basically done. The vendors for the most part got screwed. Bankruptcies are very often not good for trade vendors because they end up getting very little recovery at the end of the day,” said Sandler.
When Barneys filed for bankruptcy in 2019, it had priority creditors like Jenel Management (which it owed $6 million) and The Row (owed $3.7 million at the time). But smaller brands that produce in the Garment District — including Prabal Gurung, Inc. (which Barneys owed $56,422), R13 (owed $393,311), Greg Lauren (owed $251,700), J.Mendel (owed $114,764), Aimé Leon Dore (owed $88,576), and Rag & Bone (owed $82,099) — would have seen these, in some cases still-delayed, payments hit much closer to home.
“It’s not with the major brands…The big brands can absorb the hit and move on. They take an accounting write-off and move on. It was the mom-and-pops [that suffered the most],” Sandler reiterated.
Sandler believes the important thing now is for vendors to exercise some due diligence techniques. “If you are selling product, you want to sell the product. The last resort is to stop selling. Some of the things you can do is secure the interest in the goods. If you sell on consignment, there are certain things you can do to ensure that ownership doesn’t transfer until the goods are sold,” he said. Cash on delivery is one such action.
Power dynamics are still at play, however.
“In Payless [a 2017 bankruptcy case in St. Louis], they had not paid some of their vendors for months and months and months preceding the bankruptcy… And the reason why is they had so much leverage,” Sandler said. “What happened there was the debtors had put together a huge critical vendor program. What they were doing to get their vendors to continue to ship to them during the bankruptcy… forced them to spend some of that money.”
He compared the case with Barneys noting, “Barneys didn’t have much leverage except maybe over some of the smaller designers.”
The Underlying Factors
A number of fashion brands, retailers and factories were severely impacted by the pandemic as campaigns like Remake’s “Pay Up” bring to light. At the start of the pandemic, the social media campaign shamed major brands for canceling and delaying orders and helped recoup billions in wages owed to suppliers.
Fashion’s tightly woven relationships spawn countless and countless threads to examine the impacts of late payments. J.C. Penney, J.Crew, Brooks Brothers, Neiman Marcus Group and more filed for Chapter 11 bankruptcy protection in 2020 and have pivoted to more nimble ways of operating. (Fashion companies like Marc Jacobs, Coach, Oscar de la Renta and Veronica Beard were among the brands impacted by these bankruptcies). On top of that, recent supply chain ruptures — and skyrocketing freight costs — only piled on to existing cash flow issues.
Teddy Sadaka, owner and chief executive officer of manufacturer Apparel Production, Inc., spoke more to the factoring and cash flow situation amid the course of the pandemic.
“Payment terms have been changed, of course, because of the pandemic,” said Sadaka, in an annual FIT-organized event called “City Source” held virtually March 1 to 3. “Payment terms are now 50 percent down and 50 percent when the garments are finished [meaning brands are putting down half at the start and paying the rest when goods are finished]. If you can get factored — we’re factored by Hildun — what happens is the factor guarantees your work. The factor will extend 30-day credit.” But Sadaka emphasized getting factored as a start-up is “almost impossible.”
A lot of brands “slowed down” amid the pandemic when formal work attire was out of the question, Sadaka said, especially in the case of client Veronica Beard, which has a strong jacket business. “People weren’t going to work…Our business fell down 75 percent. But things are starting back up again,” he said.
The company also produces for Theory and Rag & Bone.
Veronica Beard president Stephanie Unwin commented on the years invested in relationships with domestic suppliers without addressing the downturn Sadaka mentioned. “During the pandemic, we allocated more of our manufacturing to New York and have seen an increase in local production over COVID[-19],” she said.
Supply, however, has still been a problem for many.
“The logistics part of it is definitely a concern — we have clients predominantly in apparel and accessories — there’s been significant supply issues both in terms of delivery and costs of containers,” Anthony Verrilli, executive vice president, national credit manager at Rosenthal & Rosenthal, Inc., one of the largest apparel factoring firms, told WWD. Factoring firms keep cash flowing so designers and brands can fulfill production. And with the way costs have risen, many more need the help.
Containers that used to cost a couple thousand dollars now cost anywhere from $16,000 to $30,000. Brands are stretched between fulfilling current retail orders and whipping up next season’s designs while any lag trickles down to manufacturers.
“In most cases, [apparel brands] are not able to pass the [higher shipping] costs to the retailers. Some clients have carried more stock, others don’t want to take that risk — telling retailers ‘you’re not going to get it when you want it,’” Verrilli said, adding, however, “We’re not overly concerned. It’s not going to be a year like the end of 2021.”
Factoring firms like Rosenthal & Rosenthal, Inc., Hildun or Sterling take calculated risks in backing firms but less so with financing start-ups unless there’s an industry “legacy,” in Verrilli’s words, or proven track record.
Made in New York’s Future
Are there signs of a new era coming for ethical fashion, or is some sleight of hand always expected when it comes to payments?
Michelle Feinberg, founder and owner of New York Embroidery Studio, says cash liquidity is an “ongoing issue” in the industry. As profits and volume are squeezed, she is intent on playing a role in New York’s widening fashion manufacturing scene. Despite payment bottlenecks, Feinberg remains relatively hopeful that innovation and mayoral investment (NYES’s new facility, alone, is estimated to provide $73 million in economic output for New York City), will usher in needed changes.
“Fashion is in my heart and my blood,” said Feinberg. “I’m so proud to be working in the Garment Center with amazing, talented craftspeople for the last 30 years. I look forward to working with this community to rebuild American manufacturing for the next generation of designers and craftspeople.”
As manufacturers and coalitions like The Industry We Want attest, payments and fair purchasing practices remain a perpetual point of contention. In the coalition’s February report that surveyed 500 global suppliers, 57 percent of behaviors were considered those of a “true partner,” or one doing the most to advance fair business and abiding by fair payment terms. Twenty-eight percent were of a “collaborator” or closely aligned partner, and 17 percent of behaviors were classified as those of a “detractor,” or those inhibiting progress.
Through TIWW scorecards — the latest published April 12 — member organizations like the Fair Wear Foundation, Ethical Trading Initiative and Sustainable Apparel Coalition promote disclosure and transparency on purchasing practices.
“For many years, industry profit has relied on the silent suffering of manufacturers, expected to accept any terms and any cost,” said Olivia Windham Stewart, a business and human rights consultant aiding TIWW’s work. “This has allowed brands to place increasing pressure on suppliers: pressure that ultimately degrades social and environmental outcomes.”
Stewart emphasized the correlation between purchasing practices and sustainability, saying healthier commercial environments create space for workers to voice concerns, claim their rights, improve working and living conditions, and ultimately, provide for employees and families. “Such things simply aren’t possible if the commercial conditions are not there to support it.”