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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Saks Inc. has said a majority of the improper collections occurred during the company’s 2000, 2001 and 2002 fiscal years and a lesser amount occurred during the 1999 and 2003 fiscal years. None occurred in 2004.

Victor Wahba, director of the apparel group and partner in charge of the New York office of accounting firm Weiser LLP, believes the disclosure by Saks regarding its chargebacks problem could bring some positive changes to the retail sector.

“I think you’ll see that the definition of chargebacks will be much clearer, and hopefully, retailers will become more transparent about their policies….While I think retailers will be forced to look at their systems and how they process their deduction information, I do not believe it will put them in a gun-shy mood, where they will become more inclined not to ask for the deductions,” Wahba predicted.

Andrew Jassin, a principal at The Jassin-O’Rourke Group, disclosed that there have been rumblings in the marketplace about possible class-action lawsuits over the issue of chargebacks against any number of retailers. His firm has been hired as an expert consultant on the issue by a group exploring its options on how to deal with the problem, and his firm is in the “process of looking for individuals and companies that have been put into jeopardy because of retailer chargebacks.”

Jeffrey Knopman, president of Profit Solutions Group Inc., a chargebacks recovery firm, said, “Retailers have not stepped up and acted like responsible citizens in the true sense of the word. Retailers proclaim that the vendors are trading partners, but that partnership seems to be unilateral in the favor of the retailer, not bilateral.”

Knopman noted the financial pressures on firms are significant. “When a firm projects X amount and then only nets Y amount after the chargeback, the vendor’s bank sees a shortfall and then decides it can’t lend the full amount that the vendor was expecting. Maybe the vendor now gets only 75 cents on the dollar instead of 95 cents. That’s a huge financial burden. Where does the vendor come up with the money to make up the difference?” Knopman said.

Jane Hali, senior vice president of Ampersand Consulting, a division of Here & There Fashion Services, was a buyer in the Seventies and Eighties. She pointed out, “Retail is a co-effort on the part of vendor and retailer….The problem is really one of forecasting the rest of the season. Buyers have to forecast what the margin will be, and they have to do it before the end of the season to make sure the season ends on a certain percentage. It sometimes gets messy because you are forecasting the [end result] while the [selling period] is still ongoing.”
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