Retailer, Factories and Suppliers

April 20, 2009

We got a strong response to our broadcast of the article “U.S. apparel makers to ask retailers for concessions”. They range from one executive literally writing, “it’s about f.....g time” to several much more detailed replies, which follow:

SUPPLIER: I am wondering if an analysis has ever been done by retailers and how their decisions to move or cancel programs affects their supplier. We recently had a cancellation by a major retailer of a major brand supplied program. This represented significant volumes for our (product). It may have an effect on the health of our company. This is linked to the fact that we also supply the (product) for the another major brand program for the same product, which was in fact not cancelled but increased in projections. Did anyone in this major retailer think that by cancelling one program, it may imperil another existing program?

Another example is this: A major brand recently decided to move a good portion of one of their business divisions away from this hemisphere. We were the main supplier for the majority of the (product) going into these programs. With the volume drop, this affects our ability to supply (product) to another division of this brand due to lowered efficiencies on our side. In fact, there are projected sourcing increases in this other division, but we are less competitive due to the loss of business from the withdrawal of the first division.

The bottom line is this: By cancelling or moving programs, it seems that no thought is given as to how this will disrupt the supply chain. Already in China, we are seeing massive closures. It’s also become incredibly difficult to source any apparel related goods out of the United States now. By searching for the new lower cost, sourcing professionals are weakening the supply chain and making their own jobs more challenging.

FACTORY: Most apparel manufacturers and producers have “agreements” – many of these are unwritten – that the producer will “guarantee” a gross margin for the retailer, payable each quarter – but definitely before the close of the retail year at the end of January.

The problem, of course, is that it presumes normal business with somewhat predictable markdown cadences. Once the retailer starts adding coupons and additional discounts, we can only watch helplessly. These “agreements” have falsely lead buyers to assume that there is a sum of cash held in reserve for this by the manufacturer, so that even when business is good and margins are achieved without assistance, they expect cash “assistance” at the end of the season (because they think it is rightfully THEIR money). It is a dirty secret in the apparel business with which I think 60 minutes would have a field day.

A final note – some retailers just take the markdown money they think they deserve without discussion by deducting directly it from invoices with no discussion or forewarning. This allows them to show an acceptable margin to the bank and forces manufacturers to fight tooth and nail to get payment for goods for which they have long since paid for the fabric, trim, labor, hangers, tags, cartons and shipping expense - this can take months during which the retailer will refuse to write any new orders or confirm any existing ones.

So, any comments from you out there?

Mike

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