How to Build Wholesale Relationships Without Getting Squeezed

LOS ANGELES, United States — Despite the growing focus on direct sales, many fashion labels remain dependent on department stores and major e-tailers for exposure to a customer base that is expensive to acquire. But the cost of doing business with these stores is increasing.

For years, brands have struggled with their wholesale partners, especially in the US, where deep discounting and mounting demands over everything from shipping dates to packaging standards left many labels owing money at the end of the season instead of making it.

In 2019, the closures of Barneys New York and Opening Ceremony foreshadowed a retail reckoning that would intensify with the pandemic, pushing many stores to cancel orders or simply refuse to pay brands for clothes they had already shipped. When Neiman Marcus filed for Chapter 11 bankruptcy protection in May 2020, many of the labels it carries realised they would never be paid for their spring deliveries. A loss like that can bury a brand.

Cut to October of 2020. Although retailers bought far fewer units this season, anticipating that sales would be slower, some are still cancelling orders, sometimes after the product has already shipped. Others are proposing unusual arrangements, including asking brands to sell on consignment. Meanwhile, retailers including Net-a-Porter and Neiman Marcus have already begun offering discounts, with in-season merchandise marked down 25 percent or more.

So, what is a brand to do?

Negotiate better terms

In most cases, multi-brand retailers still have the upper hand: there are thousands of brands and a decreasing number of retail outlets. If you can’t come to terms with which both parties are happy, a store can likely go out and find a similar product from a different vendor.

That said, stores need good brands more than ever as the major fashion and luxury labels continue to back away from multi-brand retail, focusing 70 to 90 percent — and sometimes all — of their efforts on direct retail. That means that if you believe that you, and your products, deserve better treatment, you need to demand it.

For instance, many established department stores expect a small upfront discount on orders as a “thank you” from the brand. Stop doing that. And if a retailer cancels an order after the product has already been manufactured or shipped, you can refuse their cancellation: just be prepared that it may affect the relationship in the long term.

It’s also worth trying to negotiate better terms upfront than what you’ve been offered in the past. Most global retailers don’t pay an upfront deposit for goods: instead, many brands take out bridge loans to produce the garments; often they’re not paid until 30 or 60 days after the clothes hit the floor. It doesn’t hurt to ask for a 20 or 30 percent down payment, which some stores are willing to provide if they are confident enough in the product.

Consider new ways of selling, if the price is right

Traditionally, there were two ways to sell clothes to consumers: via wholesale — where a multi-brand retailer acts as the middleman, buying and then reselling the product to the end consumer — or via direct channels, where the brand sells the product directly to the consumer without third-party involvement. Direct retail can be more profitable because you don't have to give up the store's cut — usually about half of the product's retail price — but it's also harder to pull off because you have to spend more money marketing the product yourself.

Today, there are alternatives, including the marketplace model, where retailers showcase brands on consignment, taking a lower cut (typically 20 to 30 percent) than traditional retailers when products are sold. The problem, of course, is that small brands often don't have the leverage to take on the risk that comes with selling on consignment.

Online marketplaces are easier to join because a brand can often simply use the same lot of inventory that they have for their own direct channels. But if they are selling on consignment to a physical retailer, that often means making product specially for that store.

Generally, experts advise against ready-to-wear brands cutting consignment deals. (They are much more common in fine jewellery, where designers tend to make the product upfront anyway.) “It’s a slippery slope,” said Erin Mullaney, a London-based brand consultant. “It might take another year or two to onboard you, but a store will do it if they want you enough.”

Shira Sue Carmi, a longtime advisor to emerging labels and current chief executive of Altuzarra, generally agrees, although she also points out that everything you send to a store is "de facto" on consignment. "You're going to get back [leftover inventory at the end of the season] one way or another," she said, whether that means the retailer sends the physical inventory back to you or simply demands a discount on the next season's order. "You are responsible for the product until it reaches the final consumer — and that consumer doesn't return it."

There are unique ways to approach consignment, like having a one-day trunk show or month-long pop-up in a retailer that you admire. It’s a way to generate interest, and also test and see if a longer-term partnership makes sense.

If you have the funds to produce products upfront and are confident in the retailer you’d be consigning to, it may be a risk you want to take if the terms are favourable. “Consignment at a wholesale split doesn’t make sense,” Carmi said.

Stay close to the consumer

Make frequent visits to stores — or even scheduling a Zoom call with an associate — to ensure your product is being presented in a way that you feel reflects your ethos. "The more time you spend at your retailers, the better off you are," Carmi said. You should constantly be checking on which products are selling, which products aren't and working with the retailer to ensure you are getting the highest sell-through possible.

“At the end of the day, everyone has a common goal: to maximise full-price sell-through,” she added. That’s why it’s also important to glean as much data about your sales and your customers as you can from stores. Many online marketplaces advertise exceptional access to data analytics as a way to entice brands to join. You can use these as leverage with department stores when you are negotiating terms. It’s also a way to get closer to the customer, even if you don’t own the relationship outright.

“Whether it’s a store or a customer, it’s important to nurture these relationships,” said Kwesi Blair, strategy director at New York-based SYPartners, an advisory firm. “That is fruitful for all parties.”

When things go wrong, pick up the phone

If a retailer sends you an email cancelling an order, don’t email back: call your buyer and have them explain to you exactly why this is happening, and try to come up with a solution that works for both parties.

“The bedrock of this industry is relationships,” Blair said. “You have to diagnose and understand exactly what the challenge or problem is in the moment. It breaks down the transactional nature of the conversation.”

For instance, if certain styles aren’t working at a retailer and they want to return them, there may be an opportunity to swap them out for another product that is performing well. Or maybe the collection is performing at certain locations but not others. Maybe it’s possible to cut down on the order instead of cancelling it altogether.

Blair has advised clients to volunteer to support in marketing the store via their own social media channels. This is often especially attractive to local, independent retailers that want to expand their online presence during a time when in-person shopping is not as common.

“The more granular you get, the more creative you can be in coming up with a solution,” Carmi said. “It should be the beginning of the conversation.”

“It’s important to recognise that you do have the power to say if you feel as though the other side or other party is not doing right by you,” Blair said. “It’s so important in these moments to really hone in on what the problem is. While it takes time, it humanises the experience.”

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