Fraser Live: Orders ain’t orders, Sol

A recent court decision in favour of a supplier plaintiff has again raised the question of the validity of an order placed by a retailer for goods to be made specifically for that order. Did I say validity? Actually it has little to do with the law and all to do with bluff.

The case in point was brought on by a run-in between a country retailer and a relatively small, new supplier. The retailer got into a funk and cancelled garments she’d had on order for a couple of months, meaning the items were well into production.

The supplier, being naive enough to believe in the lawful enforcement of a properly worded and signed order, did not accept the cancellation but took the matter to court and won. Garment force-feeding followed. The real essence of this decision was that the retailer in question could be dropped without much pain to the supplier’s future prosperity.

Cancelling is not nearly so straightforward in the world of tall timber. Last year, the economic downturn sent quite a few major buyers scurrying back to their computers where they recast down-sloping sales projections to see what they could cancel. They found plenty.

These were not legally enforceable cancellations but the law was never brought into it. It turned into a game of bluff. Make us take the goods and you’ll be sorry – later. Er, okay, but be sure to remember how we supported you, and when things get back to normal we expect preferential treatment.

In nearly all of the cases that I’ve heard about, the suppliers had a tantrum, gnashing their teeth, falling down and frothing at the mouth, declaring they wished they were dead. They still accepted the cancellations.

A leading agent of my acquaintance points out the vulnerable position of suppliers who accept an order with tearful gratitude, agree to a number of profit margin mutilations like advertising and markdown allowances, put up the funding for purchasing fabric, sewing, quality control and transport, only to risk the goods being whimsically cancelled. Often such goods are labelled, ticketed and sometimes branded for the specific retailer.

Another importer I know was faced with cancellation unless he reduced the price of goods already on the water. Reason? There had been a currency fluctuation and the retailer wanted a share – but had never offered to pay more when the fluctuation went against the importer.

This deal was further complicated by the fact that the goods not only came packaged and ticketed for the retailer but had the retailer’s brand worked into the design. An impasse followed in which the importer said he would rather burn the goods than reduce the price and the retailer withdrew the demand.

Is there a solution to this age-old dilemma? Yes, there is, if suppliers have the balls. It is called a deposit. Now before you laugh me off the page, take note of a change that is taking place right now in China. Several importers have told me that the better Chinese suppliers have dropped freight on board (FOB) terms and now want payment before production commences. The bluff game is on again.

Chinese suppliers who are reliable, honest and competitive will be able to bring off the change with smaller Australian importers. But when the titans get going at each other, both buyers and sellers will be considering compromise.

There mere fact that this perceived shift of power towards the supplier exists in China may also signal a change nearer the surface of the trade between retailers and their suppliers. I’m sure that if I went to Target with a line of well-made underpants wholesaling at 50 cents with a recommended retail of $4.99, a deposit would be forthcoming.

As I said, it’s all a game of bluff. In my living memory the retailer has always had the upper hand, but now maybe the game is taking on some new rules.

The September issue

I’m not usually given to film reviews, but the documentary The September Issue is a must-see for those in the world of fashion. It shows the huge waste generated by American Vogue’s creative people as their egos clash over which fashion shots capture just the right nuance for the mystical intentions of the editors.

What they throw away would make another 10 versions of the magazine, each of which would do the same job for those buying it.

The September 2008 issue of Vogue was the biggest ever at an unimaginable 844 pages. Its size, of course, was dictated by the amount of advertising, which ran into millions of dollars. But what few people realise is that sales of the magazine are a poisoned chalice for the publishers. The cover price cannot pay for even a fraction of the production cost, so that that every copy sold means a loss to the publishers.

This delicate financial balancing act is not dealt with in the documentary, but it’s still worth a look.