When the majority of U.S department stores closed their doors to stop the spread of coronavirus, they subsequently stopped accepting shipments of products they had ordered from the brands they sell. That was regardless of whether the pieces were ordered to be sold at stores or through e-commerce.
For brands, the move not only added insult to injury, as many had already closed all of their own sales channels, but it also highlighted the imbalance of control that still exists between wholesale partners and brands.
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“Retail ‘partner’ is maybe exaggerated, because in a partnership, you don’t force liability onto either party, but you share in the risk together,” said a fashion brand CEO, who asked to remain anonymous. “I had one instance where I said, ‘I know what I’m doing for you, but tell me what you’re doing for us.’ And the response was just, ‘Our P.O. tells us we can cancel your goods.’ That, to me, represented the most opportunistic and sad mentality of a [retail partner] I’ve encountered during this time; it’s just vindictive.”
Sure, department stores have loosened their parameters around product drop dates and brand-driven marketing — for buzzy DTC brands, anyway. But, even as they permanently close stores and lose business to online retailers, they hold the cards. Brands still need them, if only for awareness.
James Miller, CEO and chief creative officer of The Collected Group, owner of fashion brands Equipment, Joie and Current/Elliott, said brand leaders who are immersed in the supply chain, particularly those with production in China, had seen the writing on the wall early on. To prepare, The Collected Group established a task force, of sorts, dedicated to figuring out what the company could do to best emerge from the throes of the coronavirus crisis.
Part of that included going to retail partners and explaining their options in regard to future orders and deliveries with the brand, rather than waiting for retailers to define their own terms.
“When the world came crashing to a halt, there were those who had a sense that it could come to this, and there are those that did not see it coming at all,” he said. “Department stores were blindsided.”
Miller said getting in front of the situation helped safeguard both parties.
“You can take advantage of a situation by putting someone else out of business, or you could do right by your partners,” said Miller. “For us, from our supply chain to our wholesale sales teams, we’re now working through inventory requests from our retail partners for the back half of the year, looking at what we can do and what they need. We’re committed to giving them ammunition they need to build that business back up for themselves and for us.”
But, other brands don’t have the power and influence of a Collected Group, reportedly a $300 million company.
Cleobella, a 10-year-old, L.A.-based clothing brand that does 80% of its sales through wholesale channels, was in growth mode at the start of the year: It was looking to add to its 16-person team and projecting a 25-30% sales increase in 2020, plus it had recently added Saks Fifth Avenue and Nordstrom to its partner list.
But Cleobella’s March product shipment, which would typically go to 150 retail partners, only went to 15 due to order cancellations. Of those, some retailers planned to mark product 40% off from the get-go, while others canceled two-thirds of their original order. Co-owner and creative director Angela O’Brien said the company is currently sitting on “millions of dollars” in spring product and summer fabric, plus it’s had to lay off employees.
She and co-founder Jim O’Brien are currently figuring out a payment plan for the artisans in Bali and India, who make the company’s product — a brand story that the company’s retail partners love to tell, said Angela O’Brien.
“I still want to sell to these partners, but are they partners?” she said. “The big retailers have gobbled us up and spit us out, with no accountability. They’re boasting about how they’re turning their businesses around by cancelling orders and not taking in product, but that comes at a really high cost.”
Moving forward, Angela O’Brien said it would make sense for brand leaders to form a type of union, mandating that signed P.O.s from retailers hold more weight or that deposits are made on goods ordered, “which is standard in industries outside of fashion.” Until recently, retailers have had the freedom to pay brands 60 to 90 days after product ships (payment terms have been extended to 120 days, in many cases), and simply send back what doesn’t sell. They get their money back in credit, for future orders with the brand.
“To market something, retailers charge $20,000 for an Instagram post. So a product just lives on their site, and if it doesn’t move, they just give it right back to you, and you put it on sale,” said Angela O’Brien. “But they do have a lot more eyes [on their site] than we have, so it’s a catch-22.”
A common choice among small brands has been to play by retailers’ rules, rather than go it alone by relying on direct sales channels.
“The department store has become a scary place,” said Hillary France, founder and CEO of fashion business platform Brand Assembly. “But for small brands, the marketing spend they would need to grow and sustain a direct-to-consumer business is astronomical. These young designers don’t necessarily understand what digital marketing means, how much digital marketing costs to actually make an impact and the cost of customer acquisition. The direct-to-consumer marketplace is maybe even more diluted now than the wholesale marketplace.”
But as the retail landscape has been shaken to its core, and companies across the board are going back to the drawing board in the name of survival, there’s potential for a more balanced brand-retailer partnership.
“It’s an opportunity for brands to renegotiate their partnerships with wholesalers, looking at things like minimum advertised pricing (MAP) agreements and keyword bidding, where otherwise a big retailer like Bloomingdale’s is going to win every time,” said Jess Brondo Davidoff, managing partner at crisis management company Sprezzatura. “Brands can say, ‘You’re hurting, we’re hurting. What we can do to help you is cancel the order. And this is what you can do to help us, so that when this crisis blows over and you want to carry our goods again, we can feel like we weren’t stepped on.’”
“What brands need to understand is that this is not an acute, short-term crisis,” said brand and marketing strategist Ana Andjelic, who works with Sprezzatura among other retail-focused companies. “This is a time for pivot and for rethinking how you do your business, from operations to finance — everything.”
For fashion brands, that may include braving a direct-to-consumer model or simply being more selective about retail partners.
“If most brands haven’t already placed the utmost importance of their future success on online sales, this worldwide scare should convince the rest of them,” said Yul Kwon, CEO of fashion retail marketplace Oonana. “Online sales are growing and more risk-averse. In the long term, brands will offer better products and prices to online retailers due to the risk factor, which is going to be even more bad news for physical retail.”
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