Fighting the Squeeze: Vendors Dig In Heels Against Chargebacks

As consolidation continues to sweep the retail landscape, vendors are becoming increasingly concerned about getting caught in a chargebacks squeeze. And...

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Speculating on what could be a concern for retailers, one consultant said, “It’s an issue of timing and when people record certain accounting transactions. The retailer is entitled to markdown money, the vendor disagrees, but [the retailer] books it as a credit and it flows down to the earnings to pump them up for the season.”

The retailer covers the difference by paying the vendor less on the next season’s shipment. New government rules of full disclosure require that markdown money has to be taken and charged to the vendor in the year the retailer bought the merchandise.

Without citing Saks, market sources said vendors historically have been subjected to an onslaught of chargebacks from retailers. Typically, retailers have stringent regulations on how merchandise should be received to speed the flow to the floor, but chargebacks have become profit centers at some retailers. Vendors have been penalized for purported shipping delays or packaging mistakes, charged full shipping costs instead of cheaper bulk rates and inflicted with administrative costs for producing ads, having the wrong hangers, mixing the pinks with the blues and sometimes just for shipping “inferior goods.” Retailers and vendors also sometimes fight over how merchandise is displayed. Markdowns are sometimes disputed, but electronic systems can reduce discrepancies.

Much of the bickering stems from financial pressures that trickle down from the senior ranks each season. “Buyers have a lot of pressure. They’re told, ‘Find more money, find more money,’” said one former luxury store executive. They often find it by obtaining markdown money from vendors. “Every season, there is a request for money. It’s referred to as a tin cup,” said one source.

While the Saks problems in the markdown area reportedly stem from the bridge market, retail sources said other areas, such as moderate and better-priced apparel, also have a lot of markdown money negotiations occurring after the season. Saks has agreed to pay back, or otherwise compensate, certain resources, including Onward Kashiyama USA, a total of $21.5 million due to the improper collection of markdown allowances. Vendor lawsuits are rare because they don’t want to jeopardize their business relationships with stores. Onward Kashiyama sued Saks for $9,275,643 for “substantial deductions and credits which were not allowed under the terms of the agreement,” according to legal papers. The vendor no longer supplies Saks.
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