Fraser Live: Vale Charlie Smouha

One of the best known characters of the Australian textile scene, Charlie Smouha, passed away on October 13 after a battle with prostate cancer. Charlie could hardly complain about a cancellation of his years, since he got through 83 of them.

He came to Australia in 1946 to establish a textile wholesaling business and didn’t divert from that until 1997, when he handed it over to son Philip to run while he became a full-time investor.

At its peak, Smouha Fabrics was one of the biggest womenswear textile wholesalers in Australia, supporting the start-up of some of today’s leading labels. As textile wholesaling went into decline through imports, the company diversified into garment sourcing and some other ventures which did not, ahem, reach expectations.

It’s all about people

Staff are important. The court case I mentioned a couple of issues ago has now been decided, and once again it shows that a garment supply company with no brand has no goodwill to sell unless the company’s key personnel transfer to the new owner.

Shareholders of Park Lane Fashions went into battle when its majority shareholder and managing director, Mervyn Levin, decided to wind up the business after the death of his minority shareholder brother, Allan. Park Lane was a prominent, multi-million dollar supplier of mid-market women’s garments to major store groups.

Allan had been the popular sales face of Park Lane and, when he died in 2004, Mervyn had no will to continue. Some other staff members, anticipating a closure, also left.

To an outsider, or a naïve lawyer, the business looked to be well placed and profitable and therefore worth something more than its tangible assets. In reality, it was a machine whose components fitted nicely and operated efficiently. But remove one or more of those major components and the machine could not work.

Allan’s widow was advised that the company had saleable goodwill based on past profits, and was persuaded that she should take Mervyn to court to get her share. What followed was four years of legal wrangling that cost the family hundreds of thousands of dollars and personal alienation.

Then, five weeks ago, a judge in the Supreme Court of NSW expressed incredulity that the case had come this far and speedily found in favour of Mervyn Levin, with the award of some costs to him along with a letter of apology.

Supporting the theoretical viewpoint that Park Lane had no goodwill value, the company had been offered for sale but found no buyers. Supply companies of that sort, of which there are several operating in the shadows of the garment industry in Australia, are all about, and only about, people.

The few successful sales of such companies over the last decade have been based upon the people machine remaining intact for the new owner. And that can be tricky, because you can’t, with any certainty, sell people.

Taking it back

Americans, it seems, have a name for everything, including the practice of buying garments, wearing them while preserving swing tickets and labels, and then returning them for an exchange or a refund. They call it  ‘wardrobing’.

In his riveting book, Predictably Irrational, Dan Ariely quotes annual losses from wardrobing in the US at $16 billion – or about the same amount as the estimated annual loss from home burglaries and automobile theft combined.

I daresay Australia would have similar numbers, scaled down for our smaller population. My questions are: what are we doing about it and where do the returned garments go?

Our big retailers accept such returns without question and promptly send them back to the supplier for a credit. Even designer concessions like Zampatti or Simona, which have their own staff in department stores, have to play by the store rules in accepting returns.

Only in small boutiques might you find some resistance and that usually means an exchange rather than a refund. In either case, the supplier cops the return and is forced to issue a credit.

Personal stylist Kandy Russo, who ferries her clients around stores while advising them on what to buy, says wardrobing is just plain fraud. She can quote several of her contacts on department store floors who could fill books with wardrobing stories, including giving awards for the most outrageous reasons for returning garments.

“The end result,” Kandy says, “is that this practice puts prices up because, indirectly, the consumer pays the cost of returns.”

My belief is that retailers should accept returns on only two conditions. One, that the garment should be in pristine condition (that means unworn) and only be exchangeable for another garment or a credit against a future purchase. Two, that the garment has a quality or manufacturing fault – in which case the customer has the choice of another garment, a credit or a refund.