What Retailers Do Not Want

There’s a new crisis emerging in the relationship between retailers, their vendors/suppliers/distributors/ manufacturers, and the commercial financing concerns which are most likely involved in the equation. This predicament now requires a major realignment in the thinking and mindset of all parties in the retailing process so that each of them can successfully transact business. Business deals are best when every participant in the progression makes a fair return. This demonstrates respect among the parties and good ethics in the transaction.

Unfortunately, many retailers, especially the larger ones, have become brutal in their conduct and engagements of many transactions. It is understandable why the retailer in this present economic climate may be under such severe pressure and feels compelled to act this way. This distress forces them to avoid risk at all costs which has the potential to expose their operations to significant expenses.

The main issue is how a number of retailers have become arrogant and unyielding when it comes to returns on merchandise and products. No one is advocating consumer fraud or rip-offs on nonfunctioning products, where there is a valid problem or discrepancy. However, it is widely acknowledged how many customers become gamers of the return and refund system. Sometimes, they try to take advantage of the retailer by buying the product, using it, and then making a return for a credit or refund (sometimes weeks, months, even years later). In an era when many retailers have liberal return-refund policies in response to our ultra-consumerism culture—this area translates into a loss which cannot be overlooked, and where retailers feel they are placed in a disadvantageous position.

Again, clearly I understand all of the other challenges which retailers are facing at this point in our economy. These issues include: intense competition with online selling, the weaknesses of real estate infrastructure, accelerating
utility rates, rising taxes, and increased workplace disputes among employees in labor unrest.

But it seems that the manufacturers/ distributors/vendors/suppliers are suffering the brunt of a retailer’s adversity. If these managerial attitudes prevail, it will destroy many decent small business owners and entrepreneurs who now source these retailers. Commercial finance clients want to know why costs, fees, and rates are rising. A major cause is the increasing inability of a lender or financier to properly evaluate risk in a deal. This cannot be open-ended or a crap-game shoot.

Many retailers which have adopted these policies are depleting their reliability and trust. As lenders and financiers, we would like to think that retailers as credible organizations have missions and fair business practices which stand for something. Or are these retailers disintegrating into mere consignment houses?

A lot of harm is being done to the respect and relationships which all parties in these transactions once believed they had established.

Return rates appear to be running at an all-time high and growing worse. Margin calls appear to be increasing. Furthermore, holding a 30% margin for a lender or financier isn’t adequate anymore. There is often a need for margins of 40%, even 50%!
Retailers are being harsh with no flexibility on terms and negotiations. They do not want to be held responsible for anything. The products being sold in their stores have to stand strictly on their own. The retailers divorce themselves from any consumer relationship to the product.

The commercial finance sector is already starting to see how its clients, who do not have enough of their own money, become precluded from doing business with these retailers.

What can be done to restore some balance to this playing field, so that everyone in the process gains opportunity?
Retailers need to return to their core values and standards. When they take on a product and sell it, they need to provide a level of backing, support and guarantee. If they try to isolate or distance their organization from having any connection or customer service support to the merchandise, they actually diminish their reputation with their customer while again, damaging the rapport and future trust they have with their vendor.

If the retailers continue to bury their heads in the sand this way, and are reluctant to address this looming crisis, the retailers will create a backlash among the wholesale sector. A prognosticator now buzzing around is how we are heading into a playing field where there will be the six giant retailers and the six giant wholesalers, where everyone else is gone from the game. At first glance, this may make life simple for the retailers. Actually, it will put them in a disadvantageous and compromised position. The lack of competition and innovation that once came from an entrepreneurial variety of wholesalers, distributors, and manufacturers, will mean that the monopolistic club of wholesalers left standing will be able to dictate price, terms, merchandise and more. Retailers do not want this.

Richard Eitelberg is founder and president of Hartsko Financial Services, LLC, www.hartsko.com, an international, nine-year-old firm which handles over $200 million in annual purchase order financing transactions.