Posted on: Saturday, April 23, 2005
Shoppers may find fewer apparel sales
By Anne D'Innocenzio
Associated Press
NEW YORK — When a rack of dresses goes unsold in a department store, forcing the merchant to mark them down, someone's profit evaporates.
Associated Press library photo • Dec. 26, 2004 Right now, shoppers are the beneficiaries of generous discounting. But if, as the manufacturers want, stores start taking more responsibility for unsold merchandise, that could mean smaller markdowns and less of a selection on the selling floor, analysts said. And if stores win this fight, shoppers might see lower-quality garments as suppliers look to cut costs.
The highly contentious issue has caught the eye of the Securities and Exchange Commission, which has begun an inquiry into Saks Inc.'s collections from its vendors. Analysts think other major department stores could face similar scrutiny.
"This has successfully opened a can of worms," said Allan Ellinger, senior managing director of MMG, a boutique investment banking company that specializes in the apparel industry. "There is this hope that some government agency will possibly put an end to this, and create some policing. No one is saying that they don't want to be responsible for what they do, but (manufacturers) don't want to have their pockets picked."
"Stores have to be smarter," Ellinger said. "They should not be overbuying."
Many suppliers declined to talk about the issue for fear of harming their relationship with stores, but there are clear signs they're tired of reimbursing retailers.
Jeff Knopman, president of Profit Solutions Group Inc., which works with apparel and accessories manufacturers to reclaim money charged by department stores, saw his business increase 25 percent last year.
"Clients are now standing up for themselves and questioning" each charge, Knopman said.
When department stores started asking for what the trade calls markdown money in the late 1980s, suppliers agreed to compensate them for lost profits given that business was healthy. But amid weak sales and price deflation over the last few years, stores have shifted more of a financial burden to vendors.
Stores have demanded money for reasons or amounts that suppliers never agreed to, which is illegal, Ellinger argued. Manufacturers initially complied, fearing they'd lose future business if they didn't. But retailers' financial demands have increased, prompting vendors to put up more of a fight.
The SEC's investigation was prompted in part by one of the retailer's former suppliers, Onward Kashiyama USA, which filed a suit against the company a year ago. The lawsuit claimed Saks took certain charges not allowed under the terms of their sales agreement, and never offered an explanation.
Julia Bentley, a spokeswoman at Saks Inc., declined to comment.
For more than a decade, the manufacturers who supplied the merchandises have been the ones to compensate for lost profits. Now these suppliers are fighting back against department stores' demands in a battle that could ultimately mean higher prices for consumers.
Sale signs often adorn windows in Manhattan and elsewhere. Such sales may get less common, if apparel makers succeed in their fight to get retailers to take more responsibility for slow-selling goods.
