Have suppliers crossed the line by selling current season branded stock to discount websites, or are they just doing what’s necessary to clear overstocks and survive?
Independent retailers are venting their fury at the level of current season branded stock being fed by suppliers to discount websites.
Indies debating the issue on Drapers’ Independent Retailers Forum on business networking website LinkedIn say the fine line between brands converting a potential loss into cash and honouring their existing stockist base has been crossed. Indies argue that the process damages a brand’s credentials and further endangers the troubled independent sector that provides a unique shopping experience.
One indie complains: “Have we been offered the same deal as the online discounters on this stock? Or maybe lots of stock equals the low margin?”
Another adds: “We cannot afford to buy in huge amounts like some multiple retailers but they get all of the deals, whereas we are charged high delivery costs and suffer as it takes a lot out of our budgets.”
In the midst of a deep recession, both brands and retailers are being forced to seek out new revenue streams in order to increase their chances of survival.
For many brands, sitting on overstock orders that were destined for retailers that have been unable to pay is becoming the norm. The withdrawal of credit insurance, administrations, the tough trading climate and the weather are all factors that are contributing to the volatile nature of trading.
For some brands, the overstock they are left with is current season and the decision has to be made whether to turn to the discount etail market to convert that stock into cash; a decision that for some smaller labels could be the difference between survival or closure.
However, for indies the move by brands to sell current season stock at knock-down prices through discount etailers is a mistake, devaluing the brand and forcing indies to trade on price rather than on brand integrity and service.
One disgruntled young fashion indie tells Drapers that over the past month, six of her brands opted to clear current season stock online with discount etailers. “I think the process rubbishes the brand. Why not just sit on the stock for six months rather than take the risk of upsetting your wholesale business? Indies are selling a concept to the customers and when you see it online at a massive discount it brings down the profile of the brand in the shop.
In it together
“Everyone is in the same boat but not all brands are going down that route - they haven’t over-ordered and have tight control. By selling to discount websites brands aren’t accepting responsibility for a mistake that they have made.”
However, women’s young fashion brand Darling says its decision to clear overstock in a new way with discount etailer Brand Alley this season was not an easy one. 15% of Darling’s autumn 09 forward orders were left unpaid for by struggling retailers.
“We had cancelled orders from shops that were no longer in business and also from some people who just couldn’t pay,” says Darling brand manager Natalie Mullins. “The orders were substantial and obviously for a wholesale business in its first year of trading [it was an issue]. We emailed all of our existing stockists to see if they wanted to pick up the stock before it went to Brand Alley. We did what we felt was right. Some retailers have let us down; if some retailers can’t afford to pay us, what are we going to do? Everybody has to survive.”
One head of sales at a womenswear brand agrees: “We’ve been left with no other option. Of course it’s not ideal but it’s an option available that we have to take.”
However, one menswear brand’s head of sales says he would never sell current season stock online. “We don’t do it as a rule,” he says. “We like the private sale model for past-season stock as it’s a discreet way of doing things, but to sell current season stock isn’t for us. We have to protect first-line channels of distribution.”
The mild start to autumn is expected to have exacerbated overstock issues for brands as they sit on high volumes of coats and knitwear. This means that levels of current season stock being fed through websites like Brand Alley are set to continue to increase rather than fall back as the season continues.
Brand Alley has had current season stock selling through the business for the past 12 months, and the volume is increasing. It has doubled over the past year to make up half of the offer available online. The etailer’s UK chief executive Rob Feldmann says: “Business dictates what happens and we’re finding a lot of the brands we are talking to have current season stock and we can shift it for them in an elegant and discreet way. Brands and consumers do well out of it, all of this is true, and certainly indies are going to suffer, but if the brands weren’t selling through us the brands would be suffering.
“I don’t think there is a way around it; brands have seen there is an efficient way of converting stock and once it’s here it’s not going to go away. Some brands are really suffering and sitting on cancelled orders. Some will say it will hurt brands’ long-term business, but it’s happening all over the world, not just in Europe.”
However, some players trading in the overstock market over the internet believe that selling current season overstock throws the relationship, which has kept the full-price retailers and the discounted, off-price industry trading alongside each other in harmony, off balance.
Steve Robinson, chief executive of discount etailer M and M Direct, which sells overstock from brands such as Bench, Diesel and Timberland, says he prides himself on selling with the full-priced retailer in mind. “As a principle we don’t sell current season stock and we pride ourselves on the fact that we work with suppliers so we don’t impact upon indies and high street brands.
“The whole off-price industry has been built up to offer brands a solution to overstock problems but it doesn’t make any sense for current season stock to be sold online at a discount. There has to be a difference between the in-season stock being sold in an indie and overstock.
“Everyone is trying to do their best.Whether it’s a time of contraction, expansion or neutrality, there will always be overstock and we pride ourselves on the fact we sell sensitively. If I was an indie, I’d be frustrated. I don’t think the full-price industry will tolerate it.”
Mike Dodsworth, owner of contemporary womenswear indie Aura in Jesmond, Newcastle upon Tyne, which sells brands including Karen Cole, says he is one indie that will not tolerate the situation. “There is a state of over-supply in the market at the moment and that is always going to create a problem. Suppliers have control over the stock quantity but somewhere in the chain someone is doing something wrong and the vast majority of indies place forward orders - so we aren’t the culprit in this scenario.
“The suppliers know their market and how much it has shrunk and whether they have reduced production to an appropriate level. Somebody is not doing their sums. There is always the basic principle of supply and demand, but it’s out of kilter at the moment. The industry is in free fall.”