Charged Up on Chargebacks


Retailers and vendors come face to face at Vendor Compliance Expo to improve dealer- vendor relations and share ideas.

Suppliers that improve communications within their organizations and with retail customers, and develop flexible information technology systems, stand the best chance of reducing dealer chargebacks.

What's leading to chargebacks, and what suppliers can do about them, were focal points of the Vendor Compliance Federation's (VCF) 2003 Conference & Expo, held May 14-16 in Newark, NJ. Its more than 250 attendees included officials from apparel vendors such as Champion, Levi Strauss, Haddad Apparel and Perry Ellis. Officials from 11 retail companies - including Federated, Kmart, Kohl's and Dillard's - represented the largest contingent of dealers to attend this conference in its three-year history.

VCF fashions its conference as an open forum for attendees to share ideas and stay current on technical and legislative matters. But some saw the value of this conference in more basic terms. "This meeting is neutral ground in the ongoing battle between retailers and sellers," observed Art Pratt, senior credit manager for Oxford Industries, the Atlanta-based custom clothing supplier.

Like many attendees, Pratt saw "out of control" chargebacks as the flash point for dealer-vendor tensions, an opinion that the conference's panelists did little to dispel. Gregory Kearns, senior vice president with Steve Madden, recounted how his company only recently got Lord & Taylor to stop using "extrapolation" to calculate chargebacks. (Extrapolation is a policy whereby the company assumes that an error in one shipment or ASN is reoccurring in other, similar shipments of a particular line or SKU, and calculates chargebacks based on this assumption.)

Michael Camgeni, president of Etienne Aigner, noted that his company's "chargeback dilution" resulted primarily from the markdown adjustments his salespeople let dealers take, especially during soft selling periods. His company now demands that dealers stick to their markdown agreements. "You have to be willing to walk away from that business if they don't," he said.

Endgames are rare, though, as most vendors assume a defensive posture to resolve chargeback and deduction disagreements with major retailers, which have the leverage to determine when their procedures aren't being followed. "What are we supposed to do," asked one frustrated vendor, "sue our biggest customer?"

On a brighter note, speakers and audience members reported that their compliance performance improved markedly after they met personally with dealers and toured their distribution facilities. Alan Dabbiere, chairman of supply-chain solutions provider Manhattan Associates, said dealers and vendors needed to develop a "hierarchy of collaboration" that encourages the sharing of critical data throughout their respective organizations, with the goal of creating a platform for error-resistant "auto execution."

Attendees and speakers also agreed that a more refined application of information technology enhances vendor compliance. Dabbiere promoted Radio Frequency Identification (RFID) tagging technology as the future for "global tracking." VCF is testing an Internet-based Compliance Monitoring Service that it plans to make available by year's end. And two executives from JCPenney - whose chargeback practices are giving vendors headaches - updated the audience on the company's Web sites for vendors that include a detail-rich compliance "scorecard" of Penney's suppliers, and provide vendors with the means to initiate the deductions dispute process.

As global distribution becomes more common, many vendors turn to third-party fulfillment providers for assistance to meet dealers' routing and compliance demands. Speakers from companies that offer those services - Paula Giovannetti of Arrow Products and John Fitzgerald of UPS Supply Chain Solutions - demonstrated how third-party fulfillment relieves vendors of certain compliance burdens and boosts their profitability. Fitzgerald pointed to one company whose use of UPS enabled it to close nine of 15 distribution centers and reduce its inventory by 60 percent. UPS also helped a footwear dealer lower by 12 days its shipping time from Hong Kong to its 73 stores in the United States.

But technology and outsourcing can achieve only so much. Jay Harris, COO of women's sleepwear supplier Charles Komar & Sons, still thinks most vendors' organizations cry out for "behavior modification" in terms of getting all employees to use data efficiently and to know their roles in the compliance process.

JOHN CAULFIELD is a free-lance writer and editor with a specialty in retailing.


Vendor Compliance Federation

646-452-8240 .


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