California Apparel News

The weak economy has shifted fashion’s balance of power toward retailers, according to Don Zuidema, a veteran partner in West Hollywood, Calif., boutique LASC. Increasingly, boutique owners are requiring their vendors do business on the sometimes-controversial terms of consignment.

“It’s a turn of events from typical business years ago,” Zuidema said. “The vendors would not have been open to the concept. We wouldn’t have asked for it. Since fall, we’ve had a number of sales reps say, ’What do we need to do to get in the store?’ We tell them it needs to be on wheels,” Zuidema said, using the industry lingo for consignment.

Organizations that are barometers of the retail industry, such as the National Retail Federation, have no data on retailers’ increased reliance on consignment, but many retailers said more businesses are doing it because it provides relief in cash-strapped times.

Consignment is an arrangement in which a vendor entrusts a retailer with merchandise and receives no pay for the goods until the retailer sells the merchandise. The vendor retains ownership of the merchandise while it is on sale at the retailers. If the goods are not sold, the vendor typically must take them back.

Zuidema did not give a percentage of merchandise of his store that is on consignment. But he did say it had increased—and mostly in the denim category. Consignment not only represents a much-needed break for cash-strapped retailers, he said. It also can benefit vendors because it gives them the chance to put merchandise on a sales floor instead of it collecting dust in a warehouse.

A consignment deal also could give a boutique owner leeway to take a risk, said Alisa Loftin, owner of Los Angeles fashion boutique Aero & Co. Instead of the retailer attempting to play it safe with buying choices, a consignment deal allows vendors the chance to place more-experimental or riskier pieces in a store, she said.

The arrangement has helped her take more risks. “I was losing too much money by risking it on young designers’ collections,” Loftin said. “Customers said they loved it, but they did not put their support in dollars.” As a result, Loftin would end up putting the merchandise on sale and losing money. Loftin estimated that today, 40 percent of her store’s apparel merchandise is on consignment.

Consignment has a long history in department stores, according to retail consultant Lynne Sperling, co-owner of San Marino, Calif.–based retail consultancy Sperling & Hileman Group LLC. For years, department stores sold swimwear and cosmetics on consignment, she said. In recent years, department stores have experimented more with the business of consignment. They have devoted more space to shops-in-shops, or mini-boutiques, in which a manufacturer basically rents space from the department store and maintains the displays and the sales staff of the mini-shop. (While many department stores devote mini-shops to high-profile designer brands, such as Louis Vuitton, the iconic designers almost never do business on consignment, according to many people interviewed for this story.)

Still, consignment remains a controversial subject for many in the industry. Consignment can be a disaster for vendors, said Mercedes Gonzalez, president of Global Purchasing Companies, a retail consultancy and buying office in New York. The vendors take all of the risk; they’re the ones paying to manufacture a line and potentially not making sales on it, according to Gonzalez. There are a lot of gray areas in the business of consignment, Gonzalez said. “Who pays for it if it is shoplifted or returned?” she asked. She also said she wonders if retailers will actively promote goods they do not directly own.

Loftin, the owner of Aero & Co., said if a consignment partnership is healthy, the retailer will actively promote a vendor’s line. However, the partnership is a two-way street. The vendor must make sure the consigned merchandise is fresh, Loftin said. The vendor also can help promote the store by looking for ways to drive retail traffic to the boutique, for example.

Lisa Elliot-Rosas, co-owner and director of sales and marketing of EM Productions in the Cooper Design Space, said she rarely recommends her designers sell on consignment.

“To me, consignment and chargeback mean the same thing,” she said. “It can put the designer at risk. I tell the [sales reps in the showroom], ’We can’t go in that direction because once you start, it won’t stop.’”

But Elliot-Rosas said there are exceptions. New York–based luxury store Henri Bendel asked for consignment orders for a special event, and Elliot-Rosas agreed because it was a one-time-only consignment order.

In another instance, Elliot-Rosas agreed to a consignment order from a specialty chain for a T-shirt line in part to help the brand move excess merchandise.

“We had extra stock, and it was a good price point,” she said. “This line was selling through at other stores. We said, ’Why don’t you work with us this time.’” The gamble paid off, Elliot-Rosas said, because the line sold well and the store placed orders for new merchandise.

“It’s only best if a designer has stock, wants to be in a store and wants to try it out for a season,” she said. “You pick one store that can take a lot of merchandise and will place a sizable order.”

While Elliot-Rosas and Gonzalez discourage labels from trying consignment, the practice has helped out some manufacturers. When her dress company was starting in 2004, designer Galina Sobolev agreed to send a test order of her Single dresses collection to Bloomingdale’s on consignment. The dresses sold out in two weeks, and the department store later made a $50,000 order for more Single dresses, the designer said.

The business of consignment will likely continue in the near future, Zuidema said. Yet he said he expects the balance of power in retail will eventually swing away from the retailer. And, he noted, fewer vendors will agree to do business on consignment.