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Chargebacks – the Ugly Side of Retailer-Vendor Partnership

May 21st, 2010 by Devangshu Dutta

A lively discussion / debate took place on Retailwire.com about whether retailers were using chargebacks as justifiable penalties for poor performance by vendors or an unjustified means of generating income for the retailers.

The fact is that fees, discounts and chargebacks are becoming more common, and in private conversations – when no retail customer is within earshot – vendors will verify this. Retailers say that such chargebacks are only compensation for vendors not complying with processes that have been clearly laid down and agreed to, since non-compliance creates extra costs for the retailer, or loses the retailer margin.

But is vendor performance really becoming worse with each passing season? Or is it that difficult trading conditions or insufficient skills are making buyers take this easy road to margin?

It’s an open secret that merchandise quality and delays - the two most common causes for chargebacks - are easily overlooked when the market is hot and the product is in demand.

Chargebacks are a dangerous tool in the hands of a lazy, short-term thinking buyer who is incentivised on gross/realised margins from season to season; to him/her they are a quicker way to get to that bonus check for the season. Pragmatic vendors, for the most part, don’t want to antagonise the buyer because that risks not just business with the current retail customer, but any retailer that the buyer moves to in the future.

It’s ironic that vendors are mainly cited as “partners” when it comes to sharing the retailer’s pain. I don’t recall any retailer calling such vendor-partners up to a stage for distributing checks to share extra margin in particularly profitable years. Comments are welcome from anyone who can remember that happening; we’ll all have something inspiring to quote in industry meets, then. (And I’m really hoping some comments quoting such incidents will appear soon!)

The Retailwire discussion on this topic (with comments justifying both sides) is here - ”Clothing Vendors Take a Chargeback Hit” – and the original article in Crain’s New York Business is here - ”Retailer fee frenzy hits designers“.

Posted in Apparel, Food & Grocery, Footwear, Lifestyle & Fashion, Outsourcing, Product Development and Design, Retail, Soft Goods, Supply Chain, Textiles, Uncategorized | No Comments »

Smelling the Coffee

March 30th, 2010 by Devangshu Dutta

Last week, Starbucks unveiled its strategy for profitable global growth, having taken approximately US$ 600 million out of costs in since January 2008.

About 3 years ago in a leaked memo, chairman Howard Schultz had raised concern about how, in the race to scale and to become consistent, Starbucks was losing sight of all critical things that had made it successful in the first place. (“The Commoditization of the Starbucks Experience – Soul Searching by Howard Schultz“).

In January 2008, Schultz took on an active role as CEO in a bid to stem the rot (“Leadership Change at Starbucks – The Barista Returns“).

These two years have been eventful. Shortly after Schultz stepped in, Starbucks announced that it would close 600 under-performing stores in the US. That was well before the “financial tsunami”. In 2009, another 200 in the US and 100 globally were identified for closure, and the company also scaled back on its 2009 expansion plan for 200 new stores.

At its shareholders’ meeting last week, Starbucks presented a more confident face, and outlined a return to growth with plans to expand its presence and “accelerate profitable growth in both the U.S. retail business and in key international markets”. (This profitable growth mantra was also recited in last year’s shareholder meeting.)

However, while the business is looking better, it is far from fixed.

The environment is different. Globally, consumer wallets are leaner, competitors are meaner, and Starbucks may yet need to shrink further; the fat ain’t all in the latte.

Yet, there must be much good in the business if, for all its faults, it still gets imitated around the world.

According to Starbucks, it currently has less than 4 percent of the U.S. coffee market with its 6,800 own and 4,400 licensed stores, and less than 1 percent of the global coffee market even with 2,000+ company stores and 3,500 licensed stores. The company sees that as enough headroom to grow.

Schultz has promised to put the tough lessons learned in the last two years to good use. The company currently has approximately 200 fewer stores than it did at the beginning of 2009 even after new store openings during the year. (To put the current number of 16,700+ stores in perspective, the company had a total of “only” 2,600 stores in Q1-2000.)

But there’s something to think about. If the entrepreneur needs to step back in to fix things gone horribly corporate (bland) and wrong, maybe it’s time to acknowledge that there’s a logical limit to the size and scaling-up capability of personalized experience businesses.

Or, as a friend says, scale can be a logical outcome of excellence but excellence is never the logical outcome of scale.

It remains to be seen whether this round of growth will come from the company’s natural strengths or whether Starbucks will return to growth-by-steroids as Schultz eases on the controls.

Posted in Branding, Entrepreneurship, Food & Grocery, Leadership, Marketing, Retail, Strategy | No Comments »

Pack it yourself – refill when you buy

February 16th, 2010 by Devangshu Dutta

According to The Daily Telegraph, Asda has devised a system for customers to “buy fabric conditioner from a vending machine which pumps the liquid from a large vat in the stockroom directly into a pouch”. The project aims to cut packaging costs and help reduce prices for consumers. The scheme is partially funded by the UK government’s anti-landfill agency Wrap.

A lot of debate was generated on retailwire.com (“Do it yourself all over again”). A number of people who were underwhelmed by the whole concept and questioned the value, including labelling the initiative “anecdotal” and “one-off” with “limited appeal”.

I feel somewhat differently. A journey of a thousand miles begins with a step. A plastic-free landscape begins with a refill. I understand the cynicism expressed, but don’t want to give in to it.

Yes, changing habits is difficult. But, hard as it is to believe, there was a time when families didn’t have kilos of daily garbage. Consumer goods companies, retailers, marketers changed that. And they achieved the change through sustained and dedicated effort over a several decades, until waste became the “cheapest” and easiest choice.

I think it’s time to reverse the thrust on that flywheel.

(Click here to read the Telegraph article.)

Posted in Corporate Social Responsibility, Food & Grocery, Retail, Strategy, Supply Chain, Uncategorized | No Comments »

Can Eco-Fashion be Mainstream

January 27th, 2010 by Devangshu Dutta

An article in the San Francisco Chronicle sparked off a debate on whether ecologically friendly can be mainstream, whether customers will switch from traditional to eco-friendly fashions and if so, when. There is the view that eco-friendly products are necessarily niche and cannot match up in fashionability and affordability to ‘mainstream’ products.

I don’t think it is an either/or choice between styling and eco-friendly. To sell, eco-friendly merchandise absolutely MUST be comparable to or better than eco-unfriendly merchandise, both in style and quality.

Pricing is another story. The article also quotes Joslin Van Arsdale (founder of Eco Citizen, a San Francisco boutique devoted to Earth-friendly clothing) as saying, “When it comes to buying green or price, the general public will more likely choose the cheaper item on anything, whether it’s fashion or tomatoes.”

While most consumers will not willingly pay higher prices for eco-friendly merchandise, that may change as the cost of being eco-unfriendly goes up through awareness and legislation. There was a time when safety belts in cars were optional at an extra cost. No one would argue against paying the extra price for safety today.

Perhaps many of us would rather trash the planet cheaply because we may not feel the heat within our lifetimes. That is no reason that others, who feel more responsible, will allow that to happen indefinitely.

One way or the other, eco-friendly merchandise will compare in price, too.

Some of the parity will come from reducing the cost of eco-friendly stuff, but the bulk will probably happen because the cost of being eco-unfriendly will go up.

The original article is here – “Green fashion has new cachet“.

Posted in Apparel, Corporate Social Responsibility, Footwear, Lifestyle & Fashion, Marketing, Product Development and Design, Retail, Soft Goods, Strategy, Supply Chain, Textiles, Uncategorized | No Comments »

Independent Retailers Thriving in Manhattan

January 4th, 2010 by Devangshu Dutta

Prompted by an article in the New York Times, Bernice Hurst, Contributing Editor of RetailWire, brought up an interesting subject to discuss – the tradition of small, independent retailers on Manhattan’s Lower east side, their survival despite the recession, and their determination to thrive. 

One of the retailers interviewed for the article said that the business was “so much fun”. In referring to the kind of products she was developing said, “there are no boundaries to these things”.

Imagination may have no boundaries, but markets always do. When you’re small fry the pond seems limitless. And if all is in harmony (no tuna to gobble you, all fry remaining small, enough algae to feed off, forever), then the market is a good and boundless place. If only.

Personally, I hope there will always be some ponds with room in them to let such small fry bubble up their innovations: they keep the fashion business alive.

They also serve to remind us that there are reasons for running business that are not based on the race-to-scale.

The New York Times article is here - Yes, We’re Open – and the Retailwire discussion is here – Manhattan Still Home to Independent Retailers.

Posted in Apparel, Branding, Entrepreneurship, Footwear, Lifestyle & Fashion, Marketing, Product Development and Design, Retail, Soft Goods, Strategy, Textiles, Uncategorized | No Comments »

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