NEW YORK, United States — On Friday, many of America’s most promising designers were sent yet another discouraging email. This one from Nordstrom, a department store still considered to be a genuine partner to fashion labels hurt time and again by multi-brand retailers that set unfavourable payment terms, discount product earlier and earlier in the sales cycle, force labels to buy back unsold goods at the end of the season and don’t pay by the 30-day due date.
Now, the Seattle-based store, which announced layoffs, furloughs and pay cuts in March, had decided to extend its payment terms to 45 to 60 days from 30. That means brands, many of which are relying on being paid the remainder of what they are owed for orders that, in some cases, were shipped months ago, will lose yet another immediate cash source in the midst of the Covid-19 crisis.
Retailers like Nordstrom may have no choice but to delay payment. They have seen sales practically stop, except for e-commerce, which is no saving grace, making up only a small percentage of total sales volume. Some surveys, including a recent poll published April 1 by market research firm Coresight, suggest shoppers are cutting spending on clothing and footwear more than any other category, and that the number of shoppers cutting back on apparel has increased week-over-week.
But policies like Nordstrom’s new payment terms will hit small, independent brands the hardest. Small businesses — defined as 0 to 500 employees by the US government — make up a significant slice of the American fashion industry. And yet while these companies are small on their own — many generate under $1 million a year in sales — together they are mighty.
Gary Wassner, the chief executive of Hilldun, a company that lends money to fashion brands to finance production before they receive full payment from stores, said that his firm and five or so main competitors in the US back brands that, together, generate an estimated $450 billion in retail revenue globally each year. Most qualify as small businesses.
It is likely that many of those businesses (plenty of which were already in debt) will be wiped out by the crisis. While there have been some efforts among fashion's leaders to support the less well-equipped, nothing is substantial enough to change that. For instance, Saks Fifth Avenue, which told brands last week that it would extend payment terms to 90 days, also announced a tax-deductible $1 million donation to the Council of Fashion Designers of America and American Vogue’s “A Common Thread” campaign. The money, which is replacing this year’s CFDA/Vogue Fashion Fund, will be distributed to brands chosen by a committee in a couple of months. But many labels need a lifeline right now.
Why is the American fashion industry in such bad shape?
A lot of it has to do with the underlying structure of the country's fashion system, which has made it very hard for brands to grow and thrive without the support of department stores.
You already know this vicious cycle: A label debuts. A department store (or an online multi-brand retailer) shows interest, asking for a multi-season exclusive. The brand complies with this mandate, and is then restricted from developing relationships with other stores. Once the brand is able to widen its distribution, it is often forced to accept unfavourable terms that require it to buy back product that didn’t sell for any number of reasons. Perhaps a hanger was wrong, or the store bought too many units of a particular style.
Plus, the department store controls the delivery schedule and the discount schedule, which are both less-than-ideal. Summer clothes are delivered when it’s still cold, winter clothes are delivered when it’s hot. These products are often marked down by the time consumers actually need them.
Today, however, multi-brand retailers must rely on independent brands more than ever as major labels take more of their business direct. Neiman Marcus, which is considering filing for bankruptcy protection as its heavy debt load comes due, lists more than 1,000 brands on its website. If it is able to restructure and come out of this crisis still in existence, it will need independent brands to populate its clothing racks. This is important, and can be used by small companies as a bargaining tool.
For example, designers could work as a group to negotiate better basic terms with stores. With the right leverage, this could result in a reduction of discounting, a shift delivery schedules and labels being paid in full, on time.
Unlike many other creative industries, fashion doesn’t have a union; it doesn’t have a guild. Designers have little leverage, because they are constantly duking it out between each other, to be in the best stores, to have the best floor space. That competition is healthy in some ways. But labels may also need to stand united on some matters. If baseline standards were set, retailers would have no choice but to comply.
This doesn’t mean that everyone would get exactly the same deal, but a united front would give everyone a better chance at success. Consider the way the entertainment industry works, with different guilds representing writers, directors and actors.
However, this will require something fashion isn’t so good at: collaboration. It’s such a guarded industry, with so many trade secrets. What American fashion needs now is for a few influential designers — with businesses both big and small — to step up and volunteer to lead the charge.