Chargebacks Reform: Vendors Hope Probes Level the Playing Field

With chargebacks on center stage in the Saks Fifth Avenue investigation, the question on people's minds is: Can the industry be rehabilitated?

"What could become different is that the retailers are feeling they have to be more careful and validate what they come up with," one industry executive said. "With markdowns, vendors are really questioning whether the numbers they are given by stores are legitimate. Since that data is given to you by the retailer, the legitimacy of that information has to be verifiable."

A U.S. executive of a high-end European label said, "It would be good to have a form of certification, an independent review of the chargebacks ... so there is a way for vendors to know that charges are 100 percent true and accurate."

Bud Konheim, ceo of Nicole Miller, pointed to retail overexpansion, especially in large shopping malls; a stagnant population, and just too much merchandise out there as factors fueling markdowns and chargebacks. "We're all part of the problem if we are looking to sell into those oversized spaces. People are not out there to buy it."

Konheim said the only way stores can distinguish themselves from their competitors is through product, something Neiman Marcus and Lord & Taylor have been doing. "Neiman Marcus is a perfect example. They have merchandise selectors and other stores have deal-makers. Look at Neiman's numbers. They are phenomenal."

Konheim said May Department Stores Co.'s increased buying power has hindered the retailer to some degree. "It's actually getting to be a really tight world in retail. Frankly, I think the May Co. was losing buying power because no one wanted to do business with them. They were the leader of chargebacks and markdown money, and they were pounding manufacturers to the ground. I didn't do business with them."

But even vendors admit there are limits to how sweeping the changes might be. Many agreed that, in such a contract between the vendor and retailer, guidelines have to be strictly set from the very beginning.

"There's always give and take," said an apparel resource. "If my goods are on the floor and they are not selling well, I understand that we are partners with the retailers, but it's gotten to the point of never being able to be good. I don't think it will change much, because they have to start being better buyers. They have to change their philosophy on how to be profitable, and I don't know if the stores are willing to do that."
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