Managing Risk: Today’s Unprecedented Retail Climate

How do you know which stores to ship when there are so many unknown factors in this economic climate?


I’ve heard so many answers to this question over the years. Some of the best are ‘the store is beautiful’ or ‘they’ve just opened another amazing looking store. It must have cost a fortune. They have to have plenty of money’. Needless to say, those are exactly not reasons to ship a store. The more money spent on furniture and fixtures and on leases, the less money they have to pay you. There’s a middle ground, of course, but I’ve heard this too many times not to mention it.


So how do you know which stores to ship?


Everyone today should at least have a credit agency checking their orders. However, one thing to keep in mind with a credit agency is that they take no risk. They offer opinions only. A factor or credit insurer does not approve an account for shipment without assuming the risk. So they have much more at stake in the decision making process.


The fact that a store paid you well last season may not be a reason to ship them this season if they are being declined by your factor or given negative ratings by your credit agency. Financial conditions are changing rapidly.


Though I hate to say this, don’t listen to your sales department when it comes to evaluating a stores credit. The two departments do not and should not mix. It’s like combining an advertising sales department with an editor’s news room. There is an inherent conflict between sales people and credit people, and you need to recognize and respect that. Sales people have one agenda and credit people have another. Both are invaluable, but both are thoroughly different.


If a store is cooperative, willing to provide financial information, willing to work with you on your terms, then they are worth considering. If they stone wall you on information, they usually have something to hide. If they are being declined for credit in the market and they refuse to discuss credit card payments or COD terms, then you should simply ask them point blank, “Why should I take the credit risk and ship you?” Likely, they won’t have a good answer.


Be very careful with COD terms. COD checks dated 30 days hence, are no different than net 30 day terms. Don’t fool yourself. If a store is declined for credit for negative reasons, ship certified COD or credit card. Negative declines refer to stores who have previously been placed for collection, whose financials are weak, who are showing significant losses on their statements, who are past due in the market. Often stores are declined for lack of current information. Request it from them. You must have a basis for determining whether they are credit worthy or not, and as I said in the beginning, what a store looks like is not one of them.


I’m not getting paid. What are my options?


Well, if you’re not factored and the invoice is at your risk, your options are unfortunately few. We all know that the court system takes time. Your best bet is to get the owner on the phone and work something out, regardless of how frustrating that might seem. Start a dialogue. Take back what you can, offer a discount if you must, but get the invoice settled. Don’t ship new merchandise as a lure to get the old invoices paid. You’re not making any headway at all. The old adage, throwing good money after bad, rings true more often than not. If you’re factored and your factor has other vendors owed money by the same store, the factor has leverage that you don’t have. Regardless, the longer it sits unpaid, the less valuable the merchandise becomes to both you and the store. If you can’t speak with anyone, if the voicemail box is full, if no one answers the phone during business hours, it may be too late. Then a collection agency is the best and last recourse and should be assigned the claim asap.


If a designer doesn’t work with a factor, how would one be helpful?


Factors today are almost a necessity. No one individual has the ability to evaluate credit in these tumultuous markets. You need a team, a trained credit department to assist you. Also, you need the guarantees, the approvals, which insure your invoices. Even the largest of stores today are subject to credit restrictions and limitations, as we all well know. Factors that cater to small companies are available to assist with these decisions daily. Even if they decline the account, they will still be able to provide you with invaluable information regarding how they are paying other clients, what terms they’re accepting, how much merchandise they are returning unauthorized, how they are responding to collection calls, and so much more. They also have daily and direct experience dealing with the stores you want to ship. If they are paying one designer well and five others poorly, and you happen to speak to the one who is being paid well, you’re not getting a clear picture of their credit worthiness or ability to pay you. Stores tend to pay the lines that are performing best and that they need the most, when their cash poor and unable to pay everyone on time. So you need a balanced opinion. Factors collect the funds and correspond daily with the stores. It’s much easier for them to advise on credit and assist with collections. If you were a store who depended upon one factor’s credit lines for 20 of your best vendors, whom would you pay first? That factor or an independent designer who isn’t factored by them? If they pay the factor late, they risk not getting shipped new merchandise by 20 vendors, not just one.


What insight or advice can you share about navigating this economy?


Every day is a challenge in this market. Talk to others in the business. More importantly, listen to what they have to say! If they tell you a store is unreasonable or demanding markdowns or chargeback’s that are unauthorized, take those comments seriously. Don’t sign purchase order agreements that require a guaranty of sales percentages. Don’t agree to markdowns that are unauthorized. Turn the next order down if the current invoices are not being paid in a way that allows you to make money on the work you’ve already done. Be persuasive. Be honest. If your product sells out, do you ask the store to pay you more for it? Of course not. But if it doesn’t sell well, whose fault is it? Not yours, if you delivered according to order and sample. So why should you share the blame? Don’t allow any one store to become more than 20% of your season’s business. No matter how strong the store may seem today, it may not be tomorrow. And besides the credit risk, if you are so dependent upon one store, you become a potential victim of your buyer. If one store returns one invoice that represents 3% of your total sales, you can absorb that return. If one store returns 20% of your season, you may not be able to absorb that loss. Spread the risks today or at least sell larger amounts to approved accounts that you’ve had past experience with and in whose stores your product has a history of performing. Do not force product on your stores. Tell your sales people or sales reps to sell your strongest products, the styles you know are the least risky today.


Gary Wassner / President / Hildun Corporate /