Advice for Would-Be Vegan Designers, Part 4 July 17, 2009

This article in Wednesday’s New York Times reminded me that I’ve been meaning to issue a serious warning to aspiring designers.

Specifically, a warning about some retailers’ unpleasant habit of stiffing their suppliers.

As the article explains, Jake, a hot Chicago luxury fashion boutique, owes a LOT of money to a number of suppliers. They aren’t the first store that has failed to pay designers for goods received, and sadly, they will not be the last.

Some retailers stop paying the bills when money gets tight. However, some don’t pay the bills if they can possibly avoid it in the first place.

As usual, this is one of the things they warned us about in fashion school…some retailers don’t pay up even if they can. One instructor noted that smaller stores are more prone to cash-flow problems (and, therefore, past-due bills) than larger chains. There is a grain of truth to this (Tina Aldatz-Norris, founder of Foot Petals, ran into cash flow issues because a third of her customers were late on payments – and at that point most of her business came from small stores). However, the big guys can still be the bad guys.

Case in point: Barneys. Yes, you read that right. Back in the early ’90s, Barneys developed a bad habit of not paying designers (or contractors, artisans, etc.). In The Rise and Fall of the House of Barneys, author Joshua Levine explains the paradox this created for new designers:

“For young designers, the chance to showcase their talent in Barneys could propel an entire career…It was often a life-and-death gamble. Barneys always demanded an exclusive on the merchandise it carried, meaning the designer couldn’t sell to any other store…

In the case of a fledgling designer, Barneys could usually make its demands stick. So when the checks never came, many of these designers had no other source of income to see them through.

Stores know that new designers with limited income frequently don’t have the means to sue them for failing to pay, and that if they are silent for long enough, the designer may very well abandon hope.

Levine goes on to note that smaller designers often work with factors, which advance their payment for a fee and then collect the designers’ accounts receivable. This allows them to start production on the next shipment without having to wait for whoever buys the goods to pay (and it’s not unheard of for stores to pay 90 days after receiving the goods, so this can make a huge difference in the amount of product they can release!).

While there are factors that are happy to work with startups, it’s common for factors to require that a supplier be able to ship $75,000 to $100,000 per year. Some have lower volume requirements, but for working with a factor to be worthwhile, designers really must move a certain amount of product, and for very small businesses, doing so might not be worth the expense. (For more information on factors, read The Fashion Designer Survival Guide by Mary Gehlhar.)

As I’ve said in previous entries, we live in the age of lawsuits, and stiffed designers often can’t afford to risk going public with a list of who owes them money. Do so at your own risk.

It’s technically possible to insist upon payment in full before shipping the goods, but a lot of stores (accustomed to a 30-day, 60-day, or 90-day payment deadline) don’t like this, and may refuse to work with you.

As both a designer by training and a retailer, the practice of not paying suppliers on time annoys me, and the very idea of stiffing them completely makes me nauseous. (How do those people sleep at night?)

I’m square with my suppliers. On one occasion when the store was only a few months old, I had to ask a major supplier to delay shipment for a couple of weeks so we could come up with the funds to pay them. I didn’t like not having the newest product available immediately, sure, but I am just not comfortable with not paying promptly.

If only all retailers felt that way.