Prior to launching designer womenswear brand Bento over the autumn/winter 2011 season, Melbourne-based Samantha Hardman was a banking executive with a firm understanding of dollars and cents. Last month, Hardman blew the whistle on debts within the fashion industry in a blog series on www.ragtrader.com.au, reinforcing recent coverage from Ragtrader on creditor struggles in the post-GFC environment. Below is an edited transcript of what readers in the industry had to say on the current rate and nature of outstanding invoices.
Samantha Hardman: When Bento started in April 2010, the first dollars were shelled out on minimal things such as business registration, patternmaking and so forth. Then they got more serious as we moved to sampling, photography, fixing the patterns that weren’t right, models, lookbooks, trade shows and other similar investments. Within six months, we’d outlaid tens of thousands of dollars and production had commenced on the first collection. By the end of the year, we’d also sampled our second collection and photographed that too (goodbye another five-figure sum). In February 2011 our first collection was delivered to stores. Some of our stockists chose to make this collection available for preorder and with our support presold more than 50 units at full price, before the items were even available in store. We have two types of stockists. The vast majority are full-paying (that is, they choose their stock and pay for it and decide how to sell it) and consignment (they only pay for goods retrospectively once the stock sells). In the first season our full-paying stockists were supposed to pay their first instalment on delivery of the collection in February 2011. Several have not, even those that presold all those pieces. The consignment stockist pays us at the beginning of each month for the goods sold the previous month. Right now, we are producing stock for our second collection (spring/summer 2011/2012), sampling for our third collection (autumn/winter 2012) and chasing payments on our first collection (autumn/winter 2011). The biggest issue with this model is that we have to pay for production and sampling well in advance ( nine – 12 months in most cases) of getting paid ourselves. Financially, this is obviously quite a burden for a new business.
Footwear Industry: It’s the same in the footwear industry. Retailers in Australia don’t know how good they have it with payment terms. In Europe, they pay within 14 days from invoice or no other stock is delivered. Here 30 days turns into 90 days or 120 days and when and if that customer goes broke you’re not entitled to anything, while the banks get something.
STEPHANIE PATERSON: As an agent we are also left out of pocket from these rogue traders. We spend a lot of time and energy helping them to hopefully make the right choices, only for them not to pay their accounts. Which also means no income for me!
Retailer: What you people need to put into perspective is that you as wholesalers - well most of you who work purely on an indent basis - don’t take ANY risk. You go to retailers and say, “here are my products, please place an order”. Once the stock is delivered, the majority of wholesalers don’t care if the stock has sold. They just want their money. I completely agree that if you have the means to pay an invoice then it should no doubt be paid on time. There is no excuse for this behavior. But what if the stock has not sold? How can you expect the retailer to pay for it when it’s still sitting in the store? This is where the fashion industry really separates itself from the rest of the business world. Supermarkets, IT stores even car yards don’t take nearly as much risk as us fashion retailers do. In a normal wholesale situation, the retailer would order the bare minimum of a product to see if it sells, then reorder if required. If it doesn’t sell then the stock is returned to the wholesaler and replaced with a new stock, which will hopefully sell better. Under this model the risk is shared. I deal with over 50 Australian designers and imported brands through my multibrand store. I would say five per cent of my wholesalers work WITH me.
Phoebe Garland: One key element is not being addressed here and that is retailers are doing it tough, even the majors are suffering. The best way for manufacturers is to be as flexible as possible with retailers (the good paying ones) for payment plans. The bad retailers, avoid like the plague. But if you have a good retailer that is a little slow, work with them, and remember a manufacturer needs them as much as they need you. This is why our company only works with very established big manufacturers that can cope with debt; for smaller companies I strongly suggest getting a distributor or going vertical by retailing it yourself.
Dominic Beirne: To the retailer: I run a professional services firm and can manage my cash flow relatively well but we have over $100,000 in receivables, one client in receivership and personal bankruptcy and legal actions against another four to recover overdue funds. All I have is my time. I pay wages, rent, superannuation, tax, electricity and so on. So do my clients, your suppliers, and the wholesalers who “don’t take any risk”. To make an attempt to justify that comment is ludicrous. Every wholesaler has taken a huge risk. They have spent thousands of dollars making patterns, sourcing fabrics and trims, liaising with manufacturers - both here and abroad. Let’s add in the sampling cost, traditionally twice to four times the cost of production of a garment. They may have incurred some design registration costs with IP Australia and then have moved on to the selling stage of the range. This will involve models, photographers, printers and binders for look books and catalogues - all before you have seen the range. Cost so far for a business turning over $500,000 per annum, about $125,000 per annum if running a very tight financial ship. Now the range is ready for sale. Are there any guarantees of orders? No. Have the service providers and suppliers been paid - most probably because the wholesaler can’t move to the next stage unless they have the product they need - generally not released unless payment is made first. A wholesaler or designer expecting a retail customer to pay in full and on time is reasonable. They have had to in order for the retailer to receive the goods on time. Where do you take responsibility for what you order? You know much better than a wholesaler who walks through your door and buys at your counter. Retailers MUST do their buying with their customer in mind.
CJ: Retailer, I have worked in, and run, businesses in a number of different industries over the years and every industry I have been involved with expects payment when due except for the fashion industry. It appears that many retailers in this industry are notorious for late payments. From what I have seen with fashion retailing here, it justifies a vertical business model. Wholesalers are certainly carrying plenty of risk. If I had to take back stock from a retailer it would be because I was worried about receiving payment and I would be looking for a different stockist, one that knows their business.
Patricia: There are a couple of issues for retailers making sales difficult in recent years, one of which is the sizing and fit of garments. It is so unpredictable, even with one label. Our current aim is to buy right and buy light. Especially when labels are discounting indented stock only one month into the season. Some labels are moving to four to six smaller drops per year. This allows stockists to see what is happening in the market and adjust accordingly. Our store has been in business over 40 years and myself as owner for five years. Obviously labels and suppliers are now feeling the pinch, a flow-on from the retail fall in sales which seem to be Australia-wide. Online shopping will continue to be a challenge but I urge retailers to stay strong and don’t move into the discount mode too early each season.
Linstel D’mello: We are a childrenswear brand and have often thought that an industry based website where designers can nominate stockists who fail to pay would be useful. I think it would need to be once a store is nominated more than once to save vindictive behaviour from labels. We use a debt collection agency which has worked, but not always. We also have a substantial legal document drawn up by our lawyer but the problem is not every one signs it. Then you need to decide if you either take the risk or cancel the sale and not all agencies push the contract either. I do find it frustrating that you are chasing debt and you see the stockist pick up new labels in the meantime, putting you lower down the payment list.
Orri Henrisson: We are a menswear label and relatively new to the market. We have worked with stockists who have been on the ball with payments (within two weeks of invoicing) and stockists who we are still chasing for money from three seasons ago. Some of the invoices were for items which have already sold. The manufacturer we work with doesn’t even allow us to pick up our goods anymore if payment has not been made at all. If we don’t pay them, we have nothing to give to the stockists, which in turn tarnishes our reputation as a business that is inconsistent and not trustworthy. If there was a ‘name and shame’ database of non-paying buyers, would a small label say no to a bigger stockist? Having a bigger stockist adds credential to you as a brand, especially if you’re trying to break into the market. What does that leave us with? It’s quite a common practice for international labels to collect a 50 per cent deposit upon orders before manufacturing commences. I am not sure why this is not a common practice or why there isn’t a law like that that protects labels or manufacturers.
DAVID GREY: I would also love a name and shame database, unfortunately there are some legal issues surrounding this.
DESIGNER: This problem has been getting worse over the last 10 years I have been in the industry. It would almost be worth having a national register of serial non-paying retailers. The ones that do not pay at all for goods supplied. The stores that have left many a young designer completely out of pocket and have made no effort to pay at all. These stores continue to operate knowing the young designers have no money to pursue them legally. What’s worse is they then just pick up another designer the next season.
Leith H: We are a China CMT-based manufacturer. Our terms are now always 100 per cent before shipping. This stance can actually lose us business but at least we are assured of our hard-earned monies. I must comment that the biggest slice of the pie of all garments sold are going to the landlords. Ask retailers about their rents.....this is more to the point!
MARK: Well done Samantha. You have taken the lid off the dilemma which faces the fashion industry. I have been in the industry for 28 years and have operated in both the wholesale and retail arenas. The reason that problems exist in the industry are exemplified in the reply sent by “The Retailer”. Risks are taken at both wholesale and retail. A wholesaler’s business is only as good as the performance of their current range. If it sells, their label will be continued by the various retailers. I am sure that good wholesalers do work with their better customers. I wonder why the above retailer only has five per cent that work with them? It is not the responsibility of the wholesaler to guarantee how an item will sell, nor the margin. The wholesaler may elect, on occasion, to substitute stock, but the retailer is ultimately responsible for what is ordered for their store. A good retailer generally knows their business and their clientele. If they don’t, they should call Ferrier Hodgson and get out now! Also, there needs to be more open discussion within the industry about who is credible and who is not. There is also a need for a body to provide business education/mentoring as there are a number of businesses that could benefit by having some structures put in place to administer their performance. As a responsible wholesaler, I recall giving one of my customers a lesson on store breakeven analysis as well as advising another customer not to to order. I could go on. We need to eliminate the shonky operators at both the wholesale and retail level.
Nadine: Have some terms and conditions in place from the beginning if payments are an issue. For example, tell them to pay a 30 per cent deposit on the order. Get press! Help the stock move so that everyone makes money: both the designer and the retailer. The stockist takes on some risk too because they don’t know if it’s going to sell or not. It may not sell at all, whereas the designer makes to order and gets paid 100 per cent of the price of the garment. Deliver in drops rather than all in one go - the store will make payment faster and they will be happy with fresh stock coming in every couple of weeks too. Give your stockists about seven days to pay their invoice. If there is a problem, keep the 30 per cent deposit they paid in the beginning, then sell the excess stock to some other retailers straight away! Send out an inventory in Excel spreadsheet. This way you don’t lose out. Help promote your stockists so that they keep ordering from you season after season, all the orders over time add up! Refer customers to them. If other stores see your label moving quickly from that store, they will want to sell your label too.
Lauren: I have also found that rather than telling the retailer the moment it arrives, it’s here now, pay now, keep the retailer in the loop regarding the delivery of the collection. If there are any problems with meeting the delivery time stated in the showing let the retailer know. Or if you know that something is coming out of production in one or two weeks, then let them know that they will be expecting it in one to two weeks time, so they can prepare for this delivery. If you decide to cancel some styles, also let them know straight away and don’t wait to tell them just before the delivery... .
RETAILER: At the end of the day, if wholesalers don’t support retailers in tough times, then there will not be any retail stores left to sell your brands. It’s not as simple as committing to a payment date - if the stock does not sell as predicted then the money is not there to pay for it, it’s simple. Rather than jumping up and down, why not try and work with the retailer to get rid of it. Every other industry works this way...it seems that designers are the most stubborn, maybe because they are essentially artists rather than business people.
