FROM THE EXPERTS
From the Experts is a business column which taps into the experience and expertise of CFDA partners and affiliates. Monthly updates will showcase interviews, q&a and tips on topics ranging from finance to inventory management, to human resources and the internet, to sales and marketing. If you are interested in being a contributor or have suggestions for future topics please email c.bennett@cfda.com.
FASHIONABLY LEGAL: HOW TO AVOID HAVING YOUR UNPAID INTERNS COST YOU A FORTUNE
While having unpaid interns may seem like a great way to increase productivity without increasing costs—failure to comply with federal regulations can lead to hefty fines.
The key to having a lawful unpaid internship program is understanding the distinction (in the eyes of the law) between an “employee” (who must be paid minimum wage and overtime) and a “trainee” (an individual who is personally benefited by the aid or instruction of another and who doesn’t have to be paid).
Indeed, in the fast-paced and chaotic world of fashion, where interns provide an important source of human capital for start-ups as well as established brands—drawing the distinction between “trainee” and “employee” is particularly challenging. Fortunately, the Department of Labor has shed some light on this seemingly superficial distinction providing a list of factors characteristic of a “trainee.” According to the Department of Labor, an unpaid internship is legal ONLY if it meets all of the following criterion:
1. The experience is educational.
Not every project has to translate into a resume line, but the substantive/skills based work MUST outweigh the coffee/dry-cleaning fetching tasks.
2. The intern is the real beneficiary, not the employer.
Inevitably there will be some mutual benefit from a successful internship program, but the primary motivation for hiring the intern MUST be to help the intern develop his or her own skills and NOT to avoid hiring a full-time employee.
3. The intern is NOT there to replace existing staff, but to work with and learn from the existing staff.
For example, bringing an intern to a meeting is a great teaching moment—sending them in your place is not.
4. The employer derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded.
Having an intern may create more work for the employer not less.
5. The intern is not necessarily entitled to a job at the conclusion of the internship.
The internship should not be used as a mechanism for avoiding actually paying to train an employee or as a trial period.
6. Both the employer and the intern understand the unpaid nature of the position.
Communication is paramount and both parties should always be on the same page with respect to compensation and expectations.
If after reading the above, you think meeting these six requirements sounds like too much work or you have fallen fate to idea that “you’ll never get caught”—consider another list of six—the potential consequences of not complying:
1. Violation of discrimination laws
2. Violation of workers compensation regulations
3. Violation of state and federal tax laws
4. Violation of unemployment insurance coverage regulations
5. Imposition of hefty fines
6. Imposition of costly legal fees
So what should you do to ensure your internship program complies with the law?
Not surprisingly, in the diverse world of fashion there is no one-size-fits-all answer. Accordingly, consider each of the suggestions below (with legal counsel for the company if possible) to determine the right solution.
1. Consider paying your interns minimum wage.
2. Only hire unpaid interns who receive course credit for the internship.
3. Create a structured internship program with workshops and other educational components.
4. Formalize the internship with an agreement that spells out each of the Department of Labor’s six factors and how they will be met.
5. Circulate a memo to all employees who work with interns letting them know what is and is not appropriate.
Finally, don’t get fooled by the notion that “everyone is doing it, so it must be okay” because (a) not everyone is doing it and (b) just like the counterfeit Gucci on canal street—It’s really NOT okay!
Hand Baldachin & Amburgey LLP
8 West 40th Street
12th Floor
New York, NY 10018
Main: 212.956.9500
Fax: 212.376.6080
www.hballp.com
Hand Baldachin & Amburgey LLP is a member of the Business Services Network and Doug Hand is an advisor to the CFDA {FASHION INCUBATOR}
ECOM 101 FOR START-UP FASHION COMPANIES: 10 THINGS YOU NEED TO KNOW
By Aaron Duncan, Founder & CEO, wonderMode.com
As an entrepreneur and Founder of wonderMode.com, an online high-end sales and marketing platform/incubator for new and established brands, I meet many people in need of advice on the “how” to get started with ecommerce.
This article briefly covers some key points that you should consider when planning your brand’s foray into the world of e-commerce.
Setting up your own ecommerce business can be daunting; a lot of time, money and effort needs to be focused to make it viable.
One myth is “build it and they will come.” Small, young companies with limited brand recognition should remember that opening an online store is equivalent to opening a shop on a very quiet street, where no one goes to shop unless you market its product offerings/location – same for online!
However, online has greater long term potential as you can reach a much larger audience faster and generally with better economies of scale (still expensive, though!).
10 THINGS TO CONSIDER:
1. DON’T BE A “KNOCK OFF” – Be different and better! Research, research, research! “Branding is everything” — particularly for new companies still developing their image. Treat your website site like it’s your “flagship store” as it’s literally the window to the world! Ensure your site visually showcases your brand vision and story, while at the same time resonating with your customer base.
2. NEWNESS – Update your site often in order to entice your customers back and attract new ones. Treat your online-store like a brick-and-mortar store by introducing new products/promotions and re-merchandising your space often.
3. SIMPLICITY IS BEAUTY- make sure your site is easy and simple to get around, as “user experience” is very important – just as if you were walking into a store looking for a department. People are time strapped and want to find what they are looking for fast.
4. PRODUCT IS KING – products should be clearly shot with multiple angles, preferably on a model (or mannequin if budgets are tight). Remember, people want to easily visualize how the product will look and fit them.
5. SPARE NO ATTENTION TO DETAIL – detailed product description, sizing specs, competitive pricing, image details, etc…get that all right and returns will be limited.
6. GROW YOUR ASSETS – ensure you have an automated online-process to collect and store email addresses. The math doesn’t work in-terms of renting mailing lists for early stage firms. You will be surprised how fast your fan email list will grow from regularly emailing them with brand updates and employing a strategic social media plan (see #7).
7. BE A SOCIALITE- use vehicles such as Facebook, Twitter and blogging to connect and engage with your user and attract new ones. This is a lot of work and should be part of a bigger social media plan.
8. ADD VALUE — MERGE CONTENT AND COMMERCE – be a go-to resource for your customers; do their homework for them and give them a reason to come back (just changing the merchandising isn’t enough). Remember to integrate your blog content with relevant posts that complement your product etc.
9. USE THE FREE STUFF – Utilize Google Analytics and Facebook Insights to analyze your traffic – This is a whole separate discussion along with search engine optimization (SEO) for another post!
10. TEAM, TEAM, TEAM – Lastly, you can’t do the above without a passionate and motivated team, as there is too much to get accomplish to go it alone, so involve all your valuable resources to make it happen!
To conclude, be patient, once your site is operating it takes a lot of time and hard work to drive traffic and in turn sales, but your brand will surely reap the benefits.
My 30 second pitch: A unique site like wonderMode.com, a premier luxury platform “online department store – marketplace” that enables designers to promote, sell & build their brands online, provides an ecommerce solution for you if you don’t have the time, money or resources to build and manage your own ecommerce site. While we do not carry your inventory (you pick/pack and ship) we do facilitate the online sales/shipping logistics, brand-marketing and ecommerce processes; for a minimal charge we can even shoot your product. Thus, consider wonderMode as an option to help you grow your brand and online business.
For further information on wonderMode and its services please contact: Aaron Duncan, Founder of wonderMode.com at aarond@wonderMode.com.
CFDA: Celebrity Dressing “From the experts”
Celebrity is a powerful tool for sculpting a global image, but building long-term and meaningful alliances requires careful, strategic planning. New York and Los Angeles-based communications firm HL Group approaches each of its clients from a unique perspective, consistently developing customized programs that align with a brand’s DNA. Whether through major film studios, A-list actors or emerging talent, HL Group leverages its international relationships, editorial intelligence and fashion experience to create integrated programs that constantly adapt to the ever-changing, competitive celebrity landscape.
• As a PR agency, how have you seen celebrity relations change in recent years?
o Celebrity dressing used to be considered a “luxury” for a brand, but now celebrity affiliation is essential to brand positioning in the consumer market. In the past, only the established fashion houses focused on celebrity dressing, but, in the current marketplace, even small start-ups utilize celebrity endorsement to reach their key demographic—in many cases using celebrity to kick-start editorial, especially when the brand does not have an advertising budget.
• What is the most important consideration for a designer/brand looking to integrate celebrity dressing into its marketing efforts?
o First and foremost, establish a strategy that utilizes celebrities who are brand appropriate. The chosen celebrities should complement a brand’s image and culture. A designer should not be afraid to turn down requests if the person doesn’t reflect the brand vision – even if he/she is widely covered by the press.
• How do you know which celebrities to target?
o The typical desire is to dress the A-list “of-the-moment” talent. While it is certainly essential to build relationships with established celebrities, recognizing emerging talent is just as critical. In Hollywood, stars can be born overnight. Identifying those break-out style leaders and nurturing a loyal relationship prior to the pinnacle of their rise can give a brand a real edge against the competition.
• What are a few recent success stories in celebrity dressing?
o There are countless examples of designers whose careers have been established through a key link to an international celebrity. Perhaps one of the most high-profile recent case studies is Jason Wu and First Lady Michelle Obama. Wu’s connection to the First Lady catapulted him in the international fashion community and to the mass consumer. His increased media coverage and awareness was a strong statement for the power of celebrity.
o Another great example is Marchesa. Even in the brand’s infancy, Georgina and Keren recognized the need for celebrity alignment, and they were very strategic about slowly building cache and demand through select, on-target dressing. Now, Marchesa dresses A-list celebrities on every red carpet from Hollywood to Cannes.
• Is there an ROI to celebrity dressing?
o Celebrity dressing affects the consumer mindset which can, in turn, impact distribution and sales. Brands that have a large celebrity following are more likely to have demand from the consumer, and, therefore, retailers are more inclined to distribute the brand. Nothing speaks louder to a retailer than a consumer walking in with a page torn from a celebrity weekly.
• What is the key to success for a celebrity dressing campaign?
o Two things — relationship-building and consistency. A brand has to actively build relationships with celebrity stylists and “gatekeepers” (e.g. publicists, agents and managers). It’s also important to do the research — don’t push product on a stylist for a client that is the wrong fit or who is known to wear only specific brands. Showing an understanding of the stylist process will earn respect.
o Secondly, some brands focus only on the Awards Season (January-March), but celebrity outreach should be a year-round effort. Whether film premieres or press junkets, a consistent presence within the celebrity community will drive the best results and momentum.
CFDA + JOOR SHOWCASE THE BEST PRACTIVES IN DIGITAL
CFDA members packed the SoHo House last Tuesday morning in hopes of learning something new about digital as it applies to wholesale fashion. And they were not disappointed.
The Council of Fashion Designers of America and JOOR, the first private fashion marketplace connecting brands and boutiques, kicked off the first in a series of digital-centric seminars for the fashion business called Fashion Interactive.
The event hosted six digital industry leaders in topics ranging from mobile marketing to supply chain optimization to CRM programs.
Tony King, the Creative Director of King + Partners, detailed how shopping is social, even online. He urged sites to mimic natural social shopping behaviors with functionality to support comments, feedback, ratings and customer interaction with a brand.
Shenen Reed, the Co-Founder and Managing Director of Morpheus Media urged fashion marketers to view any comment or tweet can be an opportunity to open a dialogue. She added that dialogue should be honest, helpful and to remember good listeners are never defensive.
Bernardine Wu, the Founder of Fit For explained how romancing the product makes it easier for customers to buy the products. Combine lots of product detail with opportunity for people to dive deep into each item.
Dr. Sharon Novak, a supply chain specialist from MIT, offered that brands don’t have to offer everything online, especially items with high look and feel requirements or fit issues. Items sold online should rotate and enhance a brand, not compete with items in its stores.
Mickey Alam Khan, Editor-in-Chief of Mobile Marketer, urged marketers think of the experience when designing a mobile-friendly website. Make the pictures bigger, the text shorter and the steps fewer.
Jyoti Singhvi, former CRM Manager of Cartier, encouraged sellers to offer the VIP treatment.
Thank you notes, welcome emails, remembering birthdays and loyalty programs go a long way to driving word-of-mouth with clients.
For more best practices and video from the event go to vimeo.com/joor.
RETAIL SPACE PARTNERS HOSTS PANEL DISCUSSION FOR CFDA MEMBERS
On January 26, the CFDA and BSN partner Retail Space Partners, hosted a panel discussion titled “LOCATION, LOCATION, LOC@$#%?”. The panel consisted of a diverse group of experts including, Asi Cymbal, President of Cymbal Development; John Mulliken, Vice President of Store Planning for Louis Vuitton North America; Brad Muro, Partner of DANZIGER, DANZIGER & MURO LLP; Christine Park, Chief Operating Officer for ROGAN/LOOMSTATE and Dave Rayne, Vice President of Real Estate at ULTA,INC. The panelists discussed the current state of the retail market and the various elements involved in launching and operating a retail location. The discussion focused on how to negotiate a lease, create a brand image and identity within a store and the value of customer experience. Included in the material distributed at the panel was the attached Deal Outline which raises some issues to consider when negotiating a lease for a retail store. Please click here to download a copy…..For more information please contact Robin Zendell at: robin@retailspaceny.com.
CHINA: CHALLENGES AND OPPORTUNITIES FOR US DESIGNER COMPANIES
By the JLJ Group
www.jljgroup.com/us
China is today the second largest consumer of fashion and luxury goods in the world, with an estimated value of US$ 9.4 billion – or over a quarter of worldwide sales. China’s luxury goods market is projected to overtake Japan and become the world’s largest market by 2014. This impressive trend is fueled by a burgeoning middle class, which is expected to expand from 250 million to over 700 million people within the next 10 years, most of whom will be in the 25-35 year old, fashion-conscious, age bracket.
Doing well in China, like any major project, requires time, patience, knowledge and resources. US designer brands entering China now face significant competition from earlier market entrants, particularly from Europe, and no longer have a first-mover advantage. Thus, success in China ultimately depends on three factors: (1) Understanding the complex challenges of doing business in the country; (2) Selecting the right entry strategy from a wide variety of options; and (3) Having the right advisory and operating partners. We discuss these factors below.
The Challenges
US designer companies must address a number of related issues when approaching the China market: consumer education, regional differences, counterfeit products, trademark registration, and more. Some of these challenges, if well managed, can actually turned into advantages if parts of a broad, overall sound entry and growth strategy.
From a cultural standpoint, for instance, most Chinese do not yet fully understand or appreciate the lifestyle associated with luxury goods, and have a low level of brand awareness beyond only the most popular and mainstream brand names such as Louis Vuitton and Dolce & Gabbana. Additionally, many purchase luxury goods merely as a symbol of wealth, and not as something indicative of fashion and style. As such, the China market will require that companies take part in fashion shows, special events, and public relations efforts aimed at educating Chinese consumers about a sustainable luxury lifestyle and culture.
China’s wide ranging geographical landscape means that the market is very diverse, with consumer preferences often differing significantly across regions. For example, Shanghai tends to have a preference for luxury goods of European origin, while Beijing tends to have a preference for U.S. goods. All this can pose a challenge to effective management of inventory and distribution channels to ensure that suitable products are brought to market. Retailers who overlook the importance of finding the right location to enter the market may find themselves following in the footsteps of fast-fashion retailer Forever 21, who had to withdraw from the China market after shutting down its business operations in Changzhou, a city two hours from Shanghai.
A common concern for luxury brands is the issue of counterfeit goods in China. An estimated 20% of all high end consumer goods may be counterfeit. At the same time, foreign trademarks are not recognized within China; companies must register their trademark upon entering the country. It is however important to emphasize that the overall protection of intellectual property rights (IPR) is getting better over time, and companies have ways to plan their IPR as part of their entry strategy in China.
Market Entry Options and Selecting the Right Partner
Foreign companies can enter the Chinese market through a variety of venues: distributors, licenses, joint ventures, wholly owned subsidiaries, and even combinations of these different approaches. Each venue must be properly understood and evaluated.
A distributor manages the promotion and sales of a brand’s products through department stores and other retailers. This approach has the advantages of ease, minimal investment of time and resources, and reliance on a local partner who is experienced and knowledgeable. The disadvantage is a possible conflict of interest between the brand’s long term objectives of building a business in the right stores promoted in the right way and a distributor’s goal of immediate financial returns. The greatest challenge therefore is to identify the right distributor.
A second venue is to adopt a licensing model – a common approach among fashion firms, such as Esprit and Vero Moda. The benefits of licensing include the possibility of rapid expansion of retail outlets across cities, and efficiency in local markets through leveraging licensees’ local relationships and familiarity with local regulations. However, adopting the licensing model comes with its own set of challenges. Finding a suitable licensee who can maintain service quality standards and respect for the brand has been a particular concern for the fashion and luxury retail industry. Some firms such as Dunhill, who entered China in 1994 by opening regional licenses, have bought back the majority of their licenses due to the issue of quality control. Luxury firms in particular need to be vigilant in approaching licensing in view of these risks to brand image and positioning.
As companies mature, they may want more direct control over their China operations, and can opt to form a joint venture with a local partner to enter the market or drive growth and expand existing distribution networks, as has been the case with German fashion house Hugo Boss. Hugo Boss, which already operates in China through a licensing model, has been looking to enter into a joint venture with their local licensing partner for aggressive expansion within China, aiming to open 20 new stores over the next 5 years. Though clearly operating already with a good understanding of the Chinese market, Hugo Boss chose to form a joint-venture to leverage the partners’ understanding of the target secondary markets beyond the coastal retail hubs of Beijing, Shanghai, and Guangzhou.
A joint venture allows foreign firms to work with a local firm with local expertise and to participate in the brand’s potential financial upside. Careful planning is needed to avoid common pitfalls such as cultural, linguistic, and business practice differences that could ultimately lead to a failure of the business.
Lastly, companies can also take advantage of China’s economic policy that allows foreign investors to establish their own wholly foreign-owned enterprises (WFOEs) and assume direct control of all operational aspects, as American apparel company Gap is currently doing in China. It is not only large multinational firms who can consider this option; mid sized firms can, with the right advisor, also pursue a WFOE. Luxury companies often choose a WFOE to control all aspects of their brand.
The benefits of setting up a WFOE and operating under the direct ownership model are the ability to closely monitor and maintain quality standards, tightly control the distribution channels, as well as gather information on Chinese consumer preferences. However, this option also entails greater investment costs and associated risks for the company as it must deal with all the local challenges as well as with hiring and managing Chinese employees.
Another possible approach is to adopt hybrid approaches to the Chinese market, such as entering into a JV, and then later buying back the business from the local partner to operate and manage directly after the brand is established. Or, in order to set the standards for your firm, to use a WFOE to build a few stores in China and then find licensees by region for its rollout. Coach has taken the hybrid approach of buying back its licensed 43 stores and believes it will generate $ 250 million in sales in China by 2012. Guess has a mixed strategy of owned and licensed stores with the ultimate goal of 30% owned and 70% licensed.
In Sum
China represents an exceptional opportunity for US designer companies. However, in order to succeed, they must partner with the right companies to assist them in dealing with the market challenges, choose the right entry strategy, and select the best local companies.
The JLJ Group, an international consulting service provider with offices in the US and China, has conducted over 400 market entry and growth assignments in the past five years for US and European companies. JLJ has worked extensively with numerous luxury firms – Chanel, Bulgari, Dior, and Coach among others. JLJ is a one stop firm that offers services including market studies, market entry strategies, finding local partners, hiring senior management and staff level, and growth strategies for firms already in China. For further information, please contact: Andrew Traub, President of Andrew Traub Consulting. Call 203-595-0212 or email: atraubconsulting@gmail.com.
FASHION RETAIL: GUIDELINES TO GOOD BUSINESS PRACTICES
Prepared in partnership with Gary A. Wassner, Hilldun Corporation
INTRODUCTION
Managing the relationships with your retailers can be one of the most difficult processes you’ll have to deal with in the evolution of your business. It would seem as if it should be relatively simple. You make a product, a store engages in a contract with you to purchase it, you ship it, the store pays for it. But oddly enough, the dynamic is a particularly unusual one and doesn’t always follow that simple pattern.
As a fashion design firm, your responsibility is to design, manufacture and deliver a product.
When you are new in business, you’re thrilled, elated almost, when a store places an order for what you’ve put your heart and your soul into. It validates all that you’ve strived for. You’re an artist, your medium is cloth, metal or leather, and you’ve created something that an independent third party, engaged in the business of evaluating just such a creation, has determined that they like enough to order and pay for.
The immediate inclination is to accept the purchase order with gratitude and never look back. But unfortunately, that inclination has to be tempered by careful analysis of many aspects of the order that has been placed.
THE PURCHASE ORDER
What may at first seem a simple document, the purchase order is a contract and can be written in many and varied ways.
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A purchase order is a contract – a legally binding agreement |
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You should never allow yourself to be a victim of the “Ship and Hope mind-set” If you’re worried that a store won’t pay you, then you shouldn’t be shipping to them at all. |
CREDIT WORTHINESS
Even after you have your purchase orders in hand and you’re satisfied with the contract and the terms, you still must determine whether or not the store is credit worthy.
Determining If a Store is Credit Worthy
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DO
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DON’T
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Don’t ask anyone in your sales department to evaluate credit. If you do, you’re essentially asking someone who has a vested interest in the sale itself to give you counter-intuitive advice. There are reasons why editorial departments and advertising departments are kept separate by publishers. Those same reasons should apply to sales departments and credit departments. Decisions are made for the wrong reasons if the lines between the two get blurry. Don’t judge the credit worthiness of a store by its physical appearance or location. Don’t judge the creditworthiness of a store by the press it gets. And finally, don’t judge the creditworthiness of a store by the other designers it carries. All of those criteria are useful and important only after you’ve done your due diligence on the credit side.
Ask for credit references from the store….and check them! Call the other vendor’s accounts receivable manager, not sales manager, and inquire regarding their history and their current outstanding balances with the store in question. Ask them what terms they extend to the store. Ask them the high credit – the largest amount they’ve allowed the store to owe them at one time. And finally, ask them if they pay according to terms, and if they are current with them now.
FACTORS
Call at least two Factors and ask if they are approving the store and for how much. Factors have more of a stake in evaluating credit properly than the credit reporting agencies have, simply because they are responsible for the payment to the vendor if they approve a store’s credit and the store fails to pay due to financial inability.
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Factors have more of a stake in evaluating credit properly than the credit reporting agencies. |
Credit reporting agencies simply report on payment history and trends, and they gather financial information for those purposes. The information they can provide is important and useful, but not singularly exhaustive. You need to dig deeper in order to secure yourself as much as possible.
If a factor is declining the store for credit, inquire as to why. A factor will decline a store for many and varied reasons, some of which are immediate red flags and you should subsequently decline the store yourself.
If a store has been placed for collection, if it is past due with the factor, if it is being declined for credit losses, unbalanced financial condition or unsatisfactory recent experience then you should NOT be selling to this store on terms.
REASONS NOT TO SELL TO A RETAILER
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The store is being declined for unbalanced financial condition. |
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The store is being declined for unsatisfactory recent experience. |
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The store is being declined for credit losses. |
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The store is past due with the factor. |
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The store has been placed for collection. |
If a store is being declined for not providing current financial information or for providing unsatisfactory information, or if they are being declined because their credit lines are full, you should do more research before making your decision.
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‘Limit full’ means the store is getting credit in the market. It is not necessarily a reason for you not to ship. It is just a reason to be cautious. |
Limit full means the store is getting credit in the market. It also means that the credit it’s receiving from vendors and factors in not unlimited, and that it has currently utilized all the lines being provided. If the store makes payments against those open lines, more credit will free up for it. So that’s not necessarily a reason for you not to ship. It’s just a reason to be cautious.
If the store has refused financials, there’s usually a reason. More than likely, those financials would not be good, so the store refused to provide them to the trade. In many cases, factors and major vendors sign confidentiality agreements with retailers so that they can properly evaluate the creditworthiness of private retailers who do not wish to make their financial condition public. In those cases, the only way for you to evaluate credit is to gather the opinions of those who have entered into said agreements, if they’re able to divulge them without breaching the agreements.
EVALUATING WHEN TO SHIP
When you decide to decline to ship an order from a store on terms, you can still do business with that store. Don’t be shy though. If you’ve done your homework and evaluated the risk properly, then you are not the only vendor declining this store. It should not be a surprise to any retailer when terms are not being provided to them. As the manufacturer, your costs are all up-front, before you ship. If you are going to properly manage your own cash flow, then you’ll need to establish pre-pay and credit card terms in advance of putting in your cutting tickets or production orders. A store that wants your merchandise and is being declined for terms should be willing to pre-pay you 30 to 40 percent of your wholesale price before you go into production. If they simply give you a credit card number and ask you to charge the card when you are ready to ship, be aware that, the card may be declined by ship date and you’ll be left with unsold inventory. Take a deposit from those stores which you are declining to sell for the reasons listed above. If they are unwilling to pre-pay your cost of goods, do NOT produce product for them.
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If you are going to properly manage your own cash flow, then you’ll need to establish pre-pay and credit card terms in advance of putting in your cutting tickets or production orders. |
CHARGE-BACKS AND MARKDOWNS
One would think that after doing all the work it takes to design, sell, evaluate credit and finally ship the finished product, you’ve protected yourself from all contingencies. Unfortunately, that’s not always the case. For some reason stores sometimes believe that although you never get paid more if your product sells at retail extraordinarily well, you are expected to share in the downside of the retail experience. Charge-backs for failure to ship according to the retailer’s instructions are annoying and costly, but understandable. Markdowns and/or allowances for merchandise that hasn’t sold well are another story.
If you have been careful not to guarantee any sell-through percentage in your purchase order, then you are not contractually responsible if the merchandise your customer bought has not performed as they hoped. But, as stated earlier, managing your relationship with your stores can be extremely difficult.
If your buyer bought well and if your sales staff directed them properly and did not oversell your line, then you have every reason to expect full payment for what you shipped, providing you shipped it according to the order dates and specifications.
But what should you do when one of your important stores contacts you for a discount after the fact? That’s a tough question that doesn’t have a simple answer.
MANAGING DISCOUNTS
You are not obligated to provide discounts. Simply say no….nicely. You are not responsible for all of the many and varied reasons why your merchandise didn’t perform at retail. Economic conditions, floor placement, poor buyer choices, lack of promotion etc. can all contribute to a weak sell-through. You didn’t force the store to purchase your line. They chose to, and you’ve done your part to provide them with the best opportunity to retail it profitably. But as we all know, that doesn’t always matter.
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You are not responsible for all of the reasons why your merchandise did not perform at retail. Economic conditions, floor placement, poor buyer choices, lack of promotion, etc. can all contribute to a weak sell-through. |
But if you feel that there is an implicit threat that this store will not continue buying your collection unless you offer something, then you need to evaluate what that will mean to your subsequent season. You also need to keep in mind that patterns of payment by retailers tend to repeat themselves. You may find that dealing with this particular store will be unprofitable for you in the long run because each season you will be faced with the same decision: Give them what they want and sacrifice any profit for the season, or lose them as a customer.
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Providing a discount against the next seasons order, rather than a credit against the previous seasons solves a number of problems immediately. |
Clearly, you’re in business to make money, not to lose it. So if you suspect that each season will be unprofitable with this particular store, then you need to cut the umbilical cord and move on. But if you determine that you want to try again with this retailer, the next best way that you can handle this with regard to your business and preserving your margins while satisfying your cash flow issues, is to suggest that you provide a discount against next season’s order, rather than a credit against the previous season. This will solve a number of problems for you immediately.
You get compensated for what you already have produced, paid for and shipped. You also then have the opportunity to trim your costs on your next season’s order from this retailer, to minimize the effects of the discount you’ve agreed to will create for your bottom line. Frequently though, a buyer will agree to deduct credits against the next season only after you ship, but they will advise their accounts payable department of the credits immediately. Those credits will appear on your account at once, and in many cases they will be deducted from the first checks processed for your account. Make sure, if your buyer agrees to this option, that they do not post the credits to your account until later on so that they are actually deducted from the future shipments, as agreed.
If this option is unacceptable to this retailer, and the buyer is still insisting that you must do something to compensate them for a weak sell through, try to wait until you have a confirmed PO in hand for the next season before you agree to anything. Otherwise you may find you’ve agreed to lose money this season and you’ve gained nothing going forward. Without a future order, you have little or no reason to agree to charge-backs or markdowns on the current season.
CONCLUSION
It’s not enough to design beautiful clothing and accessories. To be successful in this industry, you need to be smart, savvy, inquisitive and mature, in addition to being creative. Far too many young designers rise quickly and fall just as quickly, because they failed to take the business side of fashion seriously. And pride goeth before the fall as soon as the bills pile up and credit for piece goods and manufacturing runs dry.
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Far too many young designers rise quickly and fall just as quickly, because they failed to take the business side of fashion seriously. |
Industry accolades and press recognition can be incredibly seductive but they can also be thoroughly misleading. The press needs to report. That’s their job, and magazines and newspapers need to fill their pages every day and every month.
Being in the window of Bergdorf Goodman or Barneys New York is certainly a tremendous thrill, but if the item(s) featured in the window end up as an RTV on your doorstep a month later, the thrill is gone.
Shows are wonderful and exciting, and they can draw attention to you in many ways, but they are expensive and they take their toll both economically, physically and emotionally on young companies.
We need to question and evaluate everything, and we need to listen to those who have walked the same path before. Each and every designer has a window of opportunity that does not stay open forever. You can prop it up with all kinds of things for quite some time, but the only secure way of keeping it open long enough to be able to climb through it to a career in this industry, is to design a great product that you ship on time, that you make impeccably well and that you ultimately get paid for by the stores you sell it to.
DOS AND DONT’S: A FASHION COMPANY’S GUIDE TO MANAGING A LAWFUL INTERNSHIP PROGRAM
The fashion industry runs on intern power, or sometimes it seems that way. The U.S. Department of Labor, however, is concerned that unpaid internships are replacing entry-level jobs and is looking much more carefully at what interns are really being asked to do.
Yes, internships are often precious steppingstones for students, providing opportunities to enhance résumés and slip well-shod feet into otherwise tightly closed doors. No, the benefit of résumé lines is not always enough to replace cold cash, at least in the eyes of the Department of Labor, especially when an intern is doing the work of a full-time employee or performing menial tasks. Hazing one’s interns a lá “The Devil Wears Prada” might win you a Golden Globe in Hollywood, but in real life the only thing it will earn you is a hefty fine and orders to distribute back pay.
That said, so long as you play by the rules, hiring unpaid interns can be profitable and rewarding for both companies and students. Follow these simple suggestions and you will be well on your way to avoiding a Fair Labor faux pas:
DO help your interns learn skills they can use at other jobs, whether its patternmaking or memo writing.
DON’T assign interns filing, photocopying, errands, or other mundane tasks (i.e. picking up dry cleaning, fetching lunch and coffee, acting as a courier, etc.).
DO provide close supervision for interns, including the opportunity to shadow a senior employee; a day in the life of the creative director, public relations manager, or graphic designer is a the kind of learning experience that the Department of Labor wants to encourage.
DON’T have more interns than full-time employees working in a single department. If the workload allocated to an intern is that of a full-time employee (or two), then you’re breaking the law.
DO make sure that interns understand that there is no guarantee of a job at the end of the internship.
DON’T rely on the fact that interns receive some benefit in the form of improved work habits while performing repetitive required tasks like clerical work (unless the intern is training to be a clerical worker). In other words, be sure to give more than you get.
Happy and successful interns create a good reputation for the company, and some interns may ultimately be retained as productive and valuable (paid) employees. To show interns that you appreciate their time and energy it’s a great idea to provide stipends to cover expenses whenever possible. An intern shouldn’t have to pay to work. What’s more, working with institutions to provide academic credit to unpaid interns is one way to ensure interns benefit from the internship.
When in doubt, refer to the Department of Labor’s six factors, listed below, to determine whether a worker is a trainee (intern) or an employee for the purposes of the Fair Labor Standards Act. In order to legally employ an unpaid intern and comply with labor laws, an internship program must be in full compliance with ALL six factors:
- Training should mirror that of a vocational program;
- Training must be for the benefit of interns;
- Interns should learn from current employees, supplementing their work but never serving as their replacements;
- The company must not immediately benefit from the work of interns; instead, the employer’s operations may actually be impeded on occasion;
- The interns are not automatically entitled to a job at the end of the program; and
- Both the employer and the interns recognize that the interns are not entitled to any wage earnings during their time in the internship program.
In practice, the range of unpaid internships that meet these guidelines is fairly narrow, and walking the fine line between lawful and unlawful can be as difficult as walking the runway in a pair of twelve-inch platforms. Worse yet, a stumble here will cost you more than a bad picture and a bruised ego; the legal costs and public relations fallout from a failed internship program could be disastrous. Rather than fret about it, follow the official guidelines.
Remember, your interns are the creative directors, executives, and general counsels of tomorrow’s fashion industry, so treat them that way. Go ahead and deliberately distress a leather bag or cut a dress down to size, but never do either to an intern.
Prepared on behalf of the Fashion Law Institute at Fordham Law School by Amanda B. Agati, J.D. ’10 and Dean’s Fellow for the Fashion Law Institute; Barbara Kolsun, Executive Vice President and General Counsel, Stuart Weitzman; and Professor Susan Scafidi, Academic Director of the Fashion Law Institute.
WHAT’S IN A NAME? – SOME THOUGHTS ON THE JOSEPH ABBOUD CASE
Douglas Hand with contributions from Xiyin Tang
Can Designers Contract Away The Right to Use Their Name Commercially?
For many designers, the idea of contracting away—and thus giving up—the right to use their name commercially is inconceivable. And yet that is exactly the dilemma of fashion designer Joseph Abboud. After Abboud’s two-year-long battle to win back the right to use his own name after he supposedly contracted it away to JA Apparel, the District Court for the Southern District of New York placed certain restrictions on the rights of Abboud to use his name in advertising and other marketing materials, while nonetheless allowing him limited rights under the Lanham Act’s Fair Use defense.
The Background of JA Apparel Corp. v. Joseph Abboud
Designer Joseph Abboud registered his personal name, “Joseph Abboud,” as a trademark with the US Patent and Trademark Office in the late ‘80s. In 1988, Abboud’s wholly-owned corporation, Houndstooth, entered into a joint venture with another company (GFT International B.V.) creating JA Apparel. Abboud then licensed his “Joseph Abboud” trademarks to JA Apparel, who began using the trademarks in the marketing, manufacture, and sale of its products. In 1996, GFT bought out Abboud’s interest in the joint venture, and JA Apparel became a wholly-owned subsidiary of GFT.
On June 16, 2000, JA Apparel entered into a Purchase and Sale Agreement with Abboud. In exchange for a payment of $65.5 million, Abboud sold all of his rights, title, and interest in “[t]he names, trademarks, trade names, service marks, logos, insignias and designations…and all trademark registrations and applications therefor…and all other Intellectual Property.”
In 2005, Abboud’s relationship with JA Apparel soured, and he left the company shortly after. In early 2007, Abboud began developing a new clothing line, which he called “jaz”. In marketing and press materials for the new line, “jaz” was identified as “a new composition by designer Joseph Abboud.” JA Apparel then brought suit, claiming breach of contract, trademark infringement, and unfair competition.
The Lawsuit
The district court was initially in favor of plaintiff JA Apparel, deciding that the word “names” in the Purchase and Sale Agreement unambiguously granted JA Apparel the commercial right not just to the Joseph Abboud trademark, but also to Abboud’s personal name. On appeal, however, the Second Circuit vacated the district court’s decision, stating that the Purchase and Sale Agreement was not clear on whether “names” refers to both the Joseph Abboud trademark and Abboud’s personal name. The district court, on remand, decided that, based on extrinsic evidence, the Agreement was only intended to convey rights to the Abboud trademarks and related intellectual property. Thus, Abboud still retained some rights to use his personal name commercially.
Next, the court addressed whether Abboud’s proposed uses of his name in connection with the new “jaz” line constituted trademark infringement. The court used the “fair use” defense of the Lanham Act, which allows for the use of a term even if it causes some customer confusion as long as Abboud is only using his name (1) descriptively, (2) other than as a trademark, and (3) in good faith. Accordingly, the court ultimately determined that Abboud was permitted to use the term “Joseph Abboud” in promotional and advertising materials only in the context of a complete sentence or descriptive phrase, and could be no larger or more distinct than the surrounding words in that sentence or phrase. Furthermore, Abboud was required to include a disclaimer of any affiliation with JA Apparel and products sold under the Joseph Abboud trademarks. However, Abboud is permanently enjoined from using his name as a trademark, service mark, trade name or brand name, including on clothing labels, hang-tags, or product packaging.
What This Means For…
Designers
“A good name, like good will, is got by many actions and lost by one.” –Lord Jeffrey
Obviously, designers should understand just what asset of theirs they are giving up when signing any agreement. As the Abboud case shows, a designer can be enjoined from using his or her own name as a trademark or brand, in addition to any attempt to trade off the good will the name carries with it. After a company has purchased a personal name trademark and the goodwill associated with that mark, courts will view any attempt by the designer to recapture some of the benefits of his or her name (including, for example, its association with talent, skill, or artistic ability) unfavorably.
While the fair use defense allows Abboud to continue to engage in limited use of his name, Abboud is nonetheless severely limited by its 3 factors. Above all, designers must not act in what is perceived to be “bad faith”—that is, he must refrain from any act that intentionally trades on the good will of the contracted-away trademark by creating confusion as to source or sponsorship. In effect, fair use by no means allows the designer to continue to capitalize on the established reputation of his or her name.
Acquirers
What’s in a name? In many ways, the Abboud case centered on the perils of sloppy drafting—namely, on the word “names.” Courts are reluctant to interpret contractual terms that are clear, but when, as in Abboud, the writing is determined to be ambiguous, extrinsic evidence is admitted.
Companies looking to purchase a designer’s most valuable asset—his or her “name” and the goodwill associated with such name—should engage in careful drafting to ensure that the language adequately reflects those intentions. The contract must clearly specify which—the trademark name, the personal name, or both—asset of the designer’s the company is acquiring.
Remember, even if a company acquires the rights to a designer’s trademark, the designer can still use his or her name as a descriptive term in a competing venture. On the other hand, Abboud suggests that if a company were to acquire rights to both the trademark and the personal name, fair use will not be an adequate defense on the designer’s end (see JA Apparel Corp. v. Abboud, 591 F. Supp. 2d 306, 327 (S.D.N.Y. 2008)).
If you have any further questions or are seeking legal advice, contact Hand Baldachin & Amburgey LLP at 212.956.9500 or via email at info@hballp.com.
WHAT’S UP WITH ALL OF THESE BED BUGS?
Provided by Natalie Raben for CFDA “From the Experts”
Are bed bugs really just restricted to living in just beds? What do their bites look like? And why do they seem to be wreaking havoc on certain NYC retailers?
Until recently, thoughts of bed bugs probably only came to mind when paired with sweet dreams. But since these pests started making multiple headlines with their recent closure of the Soho Epic Hollister – during the 4th of July holiday weekend no less – and subsequently Abercrombie & Fitch, Victoria’s Secret and Buy Buy Baby, people have begun to take their presence more seriously. The problem is not necessarily the actual bed bugs themselves, but it’s all of the baggage that they inevitably come with. Who is financially responsible to pay for an extermination? How does someone get rid of bed bugs? And how did they actually get here in the first place?
Tim Wong, technical director at NYC pest control firm M&M Environmental, has years of experience working with a broad range of clients, including many in retail, and has this advice to offer:
http://www.mandmpestcontrol.com/How_Do_I_Prevent_Bed_Bugs_singles.pdf
Are bed bugs new for the retail industry?
No, this is a trend we’ve actually been noticing over the past three years. We’ve always worked with commercial and residential clients, but it was three years ago that we began to identify this as a problem. Most of the retail clients that we’ve worked with in the past however, happen to be stores of much smaller size where the infestations were easier to contain and remediate quickly.
How did bed bugs actually get inside the stores?
There are a few different ways for bed bugs to gain entry inside stores. First, they could be entering on employees who may have them in their homes. Since not everyone reacts to bed bug bites, it’s quite possible for people to have them in their homes without even realizing it. Bed bugs also travel easily on the electrical piping and wiring inside of walls and in between floors of a building. Therefore, if an apartment above a store has an infestation, it’s quite likely that they could be traveling through the walls. Next, it’s possible for customers that are returning merchandise to be living with bed bugs in their homes. Since the articles of clothing have already been exposed, they may be acting as carriers for bed bugs. Lastly, the trucks that are being used to transport inventory must be checked constantly for bed bugs. In the case that there is an infestation in one of these trucks, it would clearly have the largest affect on multiple retailers’ inventories.
What are some of the signs that a store might have bed bugs?
The first clear sign of bed bugs would be identifying bites on employees’ bodies. The appearance of bed bug bites can vary drastically from one person to another, but typically speaking, they tend to surface in clusters of red, itchy welts on the appendages. If this becomes a noticeable trend amongst employees, it could be from bed bugs. Also, if you begin to see slight imperfections on clothing, like tiny red or rust colored dots, this could be because of bed bugs. And of course if you identify any peculiar non-flying insects crawling around the store – most likely in the darker, cooler spots – then these could be bed bugs.
How would a store confirm that it has bed bugs?
Looking for bed bugs can be an arduous process because they are very small and are active mainly at night. Therefore, using certified canines to detect for the scent of live bed bugs is the most efficient and effective way to find them. These canines are trained to seek out only the scent of live bed bugs and viable eggs. Canines are also helpful in determining the precise location of an actual problem, and will be able to indicate how widespread or isolated the problem actually is.
If people do not sleep in the stores, why would bed bugs be found there?
Contrary to their common name, bed bugs are not restricted to living in beds. They can live in almost any habitat – especially places that are dark and near a food source. Bed bugs can enter stores on people who do not realize that they are carrying them. They are extremely resilient and can survive for a long period of time without having a meal. If they are not near an immediate food source, they will continue to seek out food – either by hitchhiking on people or by crawling through cracks and crevices inside the walls of buildings.
How do you get rid of bed bugs?
There are a number of different treatment methods used to get rid of bed bugs, and each situation will call for a unique approach. For retailers, the most difficult part to treat is the actual clothing. This can be completed by washing and then drying the clothing on a high heat for 10 minutes – not ideal for un-purchased items – or by taking the items offsite to be fumigated in an airtight chamber with gas. Since bed bugs can live inside the walls or on furniture, treating the actual store is an entirely separate process, something that people do not often realize. Methods for treating the store can include using an EPA-approved pesticide, Cryonite instant freeze, heat treatments or steaming.
What do shoppers need to be more aware of now that bed bugs are such a hot topic?
Shoppers need to know that bed bugs can realistically exist anywhere. When taking home purchased items, the smartest thing to do first is to put items into a dryer on high heat for 20 minutes. The attention that bed bugs are now receiving should lead to both shoppers and retailers shaping their decisions in appropriately preventative ways, with more and more retailers instituting prevention programs in their stores.
What measures can stores take to ensure that their customers and employees will be able to continue to shop safely?
Stores should begin to incorporate regular monitoring for bed bugs as part of their routine pest control programs. Stores that offer locker rooms or separate personal areas for their employees should also consider implementing a set of rules or guidelines for bed bug prevention to be followed by employees.
For more information please visit www.mandmpestcontrol.com or contact Natalie Raben at n.raben@mmenviro.net, (212) 219-8218.
FASHION BUSINESS PLAN 101
Provided by Martin Dolfi for CFDA “From the Experts”
Creating a well thought-out detailed business plan can seem like a daunting task, but once started it will likely be enjoyable and may even evoke a deeper sense of motivation.
A business plan should be a strategic blueprint detailing the Company’s future growth, and is one of the most important, if not the most important, document a company will create. The plan should focus on developing and supporting a solid business strategy and then show the steps it will take to execute this strategy. The plan should be aggressive yet must paint a realistic picture. Too many plans sound great on paper but don’t stand up in the real-world marketplace. Also, keep in mind who the target audience is. It is a good idea to create a few slight iterations of the plan tweaked for presentation to particular audiences. Always think competitively and highlight the Company’s competitive advantages throughout the plan. Visually, the plan should reflect the same sensibilities the brand aims to evoke in its customers. Pictures are worth 1,000 words, be sure to include images of the founders, product assortment, company events, special projects, collaborations, runway shows, editorial press, and celebrities in the product among others.
Lastly, before sharing the business plan with anyone, protect the Company and make sure to require a confidentially agreement with all potential recipients. After all, the plan is filled with proprietary “know how”, ideas and strategy.
The following outline can be used as a great starting point in putting together your Company’s business plan.
• Cover Page – logo, title, date, keep clean
• Table of Contents – break into main sections
• Investment Highlights – 5 to 7 key themes that resonate throughout
• Current Business – summary overview (30,000-foot view)
• Founder Profile – biography, quote, promotional activities/pictures
• Face of the Brand – power of personally representing the brand
• The Product – range, price points, collections, pictures
• Brand Recognition – quotes
• Timeline – milestones from inception to present
• Fact Page – list key facts about the business
• Brand Recognition – list/images of celebrities in the products
• Brand Recognition – several pages of editorial content, covers, publication, date and piece
• Competitive Positioning – matrix of where the Company is positioned relative to its peers
• Overview of Key Growth Plans – timeline/launch of key growth segments
• Vision for Growth – current product offering, future product offering
• Key Expansion Areas – talk about why they are crucial to success
• Licensing – current agreements/highlights, future licensed categories/anticipated fees
• Own Retail – current stores, future locations, openings, store characteristics
• E-Commerce – Company’s website; other e-commerce fashion sites
• Collaborations – inception to present; highlights/pictures
• In-House Product Expansion – new products produced in-house (not through licensing)
• Geographic Focus – particular markets the brand has and/or will flourish
• Your Customer – who buys your products, customer characteristics
• Franchising – future target markets and likely partners
• Historic Sales – sales mix by category and historic distribution
• Future Sales – sales mix by category and future distribution, which segments will grow quicker than others
• Wholesale Sales Per Account – talk about current of buys/amount and how they can be increased
• Management Team – current and future, bios, structural diagram
• Production & Manufacturing – current/future, onshore/offshore, contracted/partner
• Sales Process – in-house/outsourced, showrooms, fashion weeks, incentive programs, etc
• Public Relations & Marketing – PR firm, media impressions, runway shows, key marketing efforts
• Events – company sponsored events/pictures
• Special Projects – design for hire projects, promotional films
• Television & Web Video – select coverage/highlights
• Historical Financials – to the extent available/relevant
• Financial Projections – general approach taken, assumptions
• Financial Projections – consolidated, wholesale, retail, e-commerce and licensing Income Statements
• Financial Projections – Cash flow statement
• Financial Projections – Balance Sheet
• Sources and Uses – use of proceeds schedule (categories)
• Appendix – images of each collection/looks
• Appendix – case study of a similar brand and its evolution
By Martin Dolfi / President / DOLFI Consulting / martin@dolfinc.com / www.dolfinc.com
If you have any further questions, please feel free to contact Martin via email.
Is Factoring Going Out of Fashion II?
(an updated version of the previous article based on recent events)
Provided by Doug Hand for CFDA “From the Experts”
What is a Factoring Agreement?
Many designers enter into factoring agreements with financial institutions (which we will refer to in this Q and A as “factors”). In simple terms, a typical factoring agreement allows a designer to sell its accounts receivable to a factor that collects such receivables and remits them (minus a discount that the factor keeps) to the designer. Factors that regularly serve the fashion industry are usually quite able to make these collections, as such factors have an experienced network set up to deal with collecting from retailers both on your behalf and on behalf of other designers.
A factor also assumes the credit risk with respect to receivables that have been granted prior credit approval. Factors are able to do this because they have the ability to perform the sophisticated financial analysis necessary to determine the creditworthiness of the retailers you sell to.
Factors may also provide an advance on factored receivables. Such an advance provides many designers with the working capital necessary to pay for the manufacture of goods well in advance of the payment by its customers for such goods.
So far, so good. Is there any downside?
Unfortunately, yes.
First, everything comes at a price. The assumption of credit risk and the advance of receivables both take a bite out of the amount invoiced to your retailers in the form of a percentage fee.
Second, payments to you by the factor for collected receivables or as an advance on outstanding receivables are subject to the factor’s ability to make good on such obligations. The risk of the creditworthiness of a factor has historically been viewed as quite remote, but recent events involving CIT Group have certainly heightened the awareness of such risk.
What is happening with CIT?
CIT is the preeminent factor within the fashion industry. In mid-July, CIT received $3 billion of funding from certain of its bondholders allowing it to barely avert a bankruptcy filing. In early August, CIT invested $1 billion of such funding in its factoring business the “Factoring Business”). Currently, CIT is soliciting the approval by debt holders for a Prepackaged Plan of Reorganization (the “Plan”) under Chapter 11 of the U.S. Bankruptcy Code (the “Code”).
What might a bankruptcy mean to designers for whom CIT factors receivables?
The Plan does not include the Factoring Business in CIT’s bankruptcy proceedings. If the Plan is not approved, CIT has stated that it will liquidate its assets, including the Factoring Business, under Chapter 7 of the Code. In either event, analysts are predicting that the Factoring Business will remain intact, but may not have access to sufficient capital to meet its then-current funding obligations or to enter into new factoring arrangements.
Are other factors subject to risk?
Today it is CIT, but it is certainly possible that the future may find other factors – particularly those affiliated with troubled financial institutions – faced with potential bankruptcy. In addition, certain factors (if so permitted by the factoring agreement with the designer), “re-factor” through CIT. So you may find that your factoring arrangement still exposes you to CIT risk, even though CIT is not a direct party to it.
What does the future hold and what should we do?
The fashion industry will likely continue to need factors as much as it needs sewing machines. They provide an essential service, especially for small and midsized designers. If the Factoring Business, under the stewardship of a post-Plan CIT or a purchaser in liquidation, were to fail and not honor its obligations under its factoring agreements, the fallout could be devastating. But we would not expect such a failure to mean the end of the availability of factors, as factoring is often a valuable and profitable business. In fact, the Factoring Business has been quite profitable – in the estimation of financial analysts, it is CIT’s other businesses and the lack of available credit that is forcing CIT into bankruptcy.
In the end, the best case scenario for the industry is for CIT to (i) keep the Factoring Business outside of the Plan and continue to dedicate sufficient resources to it or (ii) sell the Factoring Business in liquidation to a more financially healthy institution. However, as this might not be what the future has in store for the Factoring Business, designers factoring their receivables with CIT must not only monitor their exposure to CIT, but must also seriously evaluate available means to mitigate the risk of exposure to CIT.
As the factoring agreement governing a designer’s receivables, as well as the myriad of ancillary facts and circumstances surrounding that relationship, are different in each case, it is important for designers to consult with an attorney in order to evaluate all applicable risk mitigation strategies. Alternative arrangements to be considered include moving to a deferred purchase agreement with your existing factor or exploring the possibility or obtaining an insurance product for your receivables.
If you have any further questions or are seeking legal advice, contact Hand Baldachin & Amburgey LLP at 212.956.9500 or via email at info@hballp.com.
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This memorandum has been prepared by Hand Baldachin & Amburgey LLP (“HBA”) for general informational purposes only. It does not constitute legal advice, and is presented without any representation or warranty as to its accuracy, completeness or timeliness. Transmission or receipt of this information does not create an attorney-client relationship with HBA. Electronic mail or other communications with HBA cannot be guaranteed to be confidential and will not (without HBA agreement) create an attorney-client relationship with HBA. Parties seeking advice should consult with legal counsel familiar with their particular circumstances. The contents of these materials may constitute attorney advertising under the regulations of various jurisdictions.
CIT BANKRUPTCY FILINGProvided by Gary Wassner for CFDA “From the Experts” In light of CIT’s recent bankruptcy filing, there are two critical questions that we all need to ask. The first is: has CIT succeeded in reducing its debt to equity ratios enough to be able to borrow competitively when it emerges from Chapter XI? The second is: what assets has CIT pledged to its bondholders and lenders in order to secure the agreements and DIP funding that it has arranged? Before I clarify the importance of each of these questions, I’d like to state a few things that I’ve yet to see mentioned in any articles on the subject of CIT’s struggle. Hasn’t CIT done exactly what the Obama administration and Shelia Bair requested of it and other companies in similar situations whom the government has denied additional funds to? Hasn’t CIT looked to the private equity market and/or internally to raise equity? All the efforts the Board of Directors made to preserve the company should be commended. The Board attempted to strengthen its balance sheet, under very difficult circumstances, by inducing its debt holders to convert their debt to equity. CIT failed out of court and finally reverted to a pre-packaged Chapter XI bankruptcy to achieve what was asked, and in fact, required of them to survive. They were previously denied further federal funds. What choices remained? So, rather than being bailed out once again, they did what they had to do. This was how the free market functioned prior to TARP and the financial meltdown. Unfortunately, CIT is still at a significant disadvantage going forward since the cost of money that will be funding the Chapter XI in many cases is higher than what CIT earns on the loans it currently has on the books to its customers. That’s the irony of CIT having accomplished this in the manner in which they did, while other companies, considered to be more ‘systemic’ have been able to avail themselves of cheaper federal funds on an ongoing basis, allowing them to be more competitive and giving them an advantage that CIT does not currently have. So, now if I go back to my original questions, I’ve basically answered the first one. The Bank of America is providing a DIP financing line at 2.5 over prime. That’s a better rate than what Goldman provided during the months since July 2009 until the filing this past weekend, but it is higher than the rate it lends much of its money to its clients. That we can all easily see is a model doomed to failure. If CIT has strengthened its balance sheet enough through the wiping out of stockholder equity and TARP obligations, will the Fed open its lending window to it now? Will it be able to come out of bankruptcy and borrow competitively going forward? Without that ability, how can it reasonably return to profitability? The second question is just as critical. If you are a client of CIT’s Trade Finance division, have your accounts receivable been pledged as assets of the bankruptcy to the bondholders and/or DIP lenders as collateral? This is a question that should be easy for them to answer since the filings are now public. If they have securitized these assets and in the worst case, the bankruptcy turns into a liquidation, what will that mean to your company? I am one of the first who has spoken out in support of CIT and who believes that a healthy CIT Trade Finance is crucial to the apparel industry. It is the consummate professional in this industry. It has provided funding to small and mid-size companies that has been flexible and fair, and it has supported the infrastructure of this industry for 100 years. CIT Trade Finance did not dig the hole that it has been dragged into. I hope and believe that CIT will continue to be a force in factoring and finance, regardless of what happens to the other divisions of the Corporation. But it also needs to understand the anxiety that all of this turmoil has caused us in the industry. The management of CIT Trade Finance needs to work with all of us who have critical stakes in their future, as the partners they have always been in the past. Information and transparency is so important when markets are unstable and the road ahead is unclear. CIT should realize the value of the endorsement it has from its clients and attempt to comfort them during this time of crisis as best as it can. The value of CIT Trade Finance lies in its customer base. It shouldn’t look at its clients as adversaries but as vital pieces of the puzzle which will eventually constitute its future. CIT needs to help us all to understand what we gain and what we risk in this regretful and tumultuous situation. Support us all and we will support CIT. Be creative with its clients. Be honest and proactive. Ease our anxieties. Our industry needs this company, but CIT also needs our industry. When we emerge from this crisis, we hope to emerge as partners once again. By Gary Wassner / President / Hilldun Corporation / gary@hilldun.com / www.hilldun.com If you have any further questions, please feel free to contact Gary via email. |
THE DANGER OF PREFERENCE, AND I’M NOT TALKING ABOUT TASTEProvided by Gary Wassner for CFDA “From the Experts” In the midst of today’s turbulent retail environment, the last thing in the world any manufacturer would want to have happen is to find out, after you’ve been paid by a store for merchandise you shipped according to their order, on time and without any dispute after shipping, that the payment is being recalled from you by a bankruptcy trustee. You’d have no choice but to return the funds you received if the trustee is claiming Preference, even if you were paid 90 days before the store filed for bankruptcy. In the midst of today’s turbulent retail environment, the last thing in the world any manufacturer would want to have happen is to find out, after you’ve been paid by a store for merchandise you shipped according to their order, on time and without any dispute after shipping, that the payment is being recalled from you by a bankruptcy trustee. You’d have no choice but to return the funds you received if the trustee is claiming Preference, even if you were paid 90 days before the store filed for bankruptcy. Preference recoveries are frustrating and dangerous, and seem terribly unfair, but they are designed to protect all the general creditors when a company files for bankruptcy. They are not designed to hurt the creditor who was paid early for the merchandise they shipped, even though it may often seem so. So, what is preference and why should you, as a manufacturer/designer be concerned about it? Moreover, what can you do to protect yourself from being the victim of a preference claim? I’m not a lawyer, so I’m going to try to translate the Bankruptcy code into laymen’s terms, and thanks to an article written by Bruce Nathan, Esq, a partner at Lowenstein Sandler PC and an associate and friend, this task will be much easier. Section 547B of the Bankruptcy code allows a trustee in charge of the assets of the bankrupt to recover previous payments under the following circumstances: a) The debtor transferred its property, such as making payment, to or for the benefit of a creditor; b) The transfer was made on account of the antecedent or existing indebtedness that the debtor owed the creditor; c) The transfer was made when the debtor was insolvent. A balance sheet definition of insolvency, liabilities exceeding assets, is used. The statute also makes it easier for a trustee to prove a preference by creating a presumption of the debtor’s insolvency within the 90-day preference period; d) The transfer was made within 90 days of the debtor’s bankruptcy filing, in the case of transfers to non-insider creditors, and within one year of the bankruptcy for transfers to insiders of the debtor, such as the debtor’s officers, directors, controlling shareholders and affiliated companies; and e) The transfer enabled the creditor to receive more than the creditor would have recovered in a Chapter 7 liquidation of the debtor. This requirement is always satisfied unless the debtor’s unsecured creditors receive full payment of their claims. What does this all mean? It means that if you ship a store on time, a store you’ve done business with before and may even have open invoices with at the time you ship them again, and then subsequent to delivering the merchandise, you fear that they are in financial trouble and you therefore request that they pay you earlier than the terms of the invoice, whatever they pay you will be subject to a recovery by the trustee if the store does file for bankruptcy within 90 days of that payment and meets the rest of the criteria above. You may think you’ve saved yourself from a loss, when in fact you have not at all. Once the store files, the trustee will examine all the payments made within the previous 90 days. If your payment is one of those, it may be recalled and you’ll have no choice but to return it to the trustee. How can you protect yourself from this? If you’re factored and the invoice was approved by your factor, the preference claim would be levied against your factor and not you. The factor would suffer the loss and be required to present the defense. If you were paid according to the terms of the invoice and those terms are your usual and customary terms with the store, you’ll have an opportunity to demonstrate that to the court and you will ultimately recover those funds. But it will be incumbent upon you to demonstrate that this payment was made as an ‘Ordinary Course of Business’ transaction. The best way to protect yourself from what seems like a slap in the face to the least responsible party is not to ship any stores that have poor payment histories, that are not approved by your factor for poor payment histories (if you’re factored), who don’t cooperate with the credit community in general, or who are poorly rated by a credit service such as D & B. Don’t think because you are friends with the buyer or the owner or the fashion director, that they can help you get paid early in the event the store runs into financial difficulty. Even if they can, those payments will most likely have to be returned long after you thought the entire episode was over and you escaped a credit loss. Another way of protecting yourself from a credit loss if you are concerned about the financial health of a store is to demand a pre-payment if that store wants your merchandise so badly. Pre-payments are not subject to recall by a trustee, since preference only applies to antecedent debt and pre-payments presume there is no antecedent debt. I can’t tell you how many times I’ve heard clients tell me that they know the owners of certain stores so well, and they know that those people would never hurt them. Even if they have no intention of hurting you, they have no choice when it comes to bankruptcy and preference. So don’t fool yourself. You cannot elude the recall of payments made to you if they were paid earlier than another creditor was paid who shipped under the same terms of sale, or if they were not paid according to the usual and customary terms under which you shipped this same store and were paid by them previously. Don’t be naive. Don’t be led astray by promises. If you understand the Bankruptcy code relating to preference, you can avoid this totally unforseen nightmare from happening to you. By Gary Wassner / President / Hildun Corporation / gary@hilldun.com / www.hilldun.com If you have any further questions, please feel free to contact Gary via email. |
IS FACTORING GOING OUT OF FASHION?Provided for CFDA “From the Experts” What is a Factoring Agreement? Many designers enter into factoring agreements with financial institutions (which we will refer to in this Q and A as “factors”). In simple terms, a typical factoring agreement allows a designer to sell its accounts receivable to a factor that collects such receivables and remits them (minus a discount that the factor keeps) to the designer. Factors that regularly serve the fashion industry are usually quite able to make these collections, as such factors have an experienced network set up to deal with collecting from retailers both on your behalf and on behalf of other designers. A factor also assumes the credit risk with respect to receivables that have been granted prior credit approval. Factors are able to do this because they have the ability to perform the sophisticated financial analysis necessary to determine the creditworthiness of the retailers you sell to. Factors may also provide an advance on factored receivables. Such an advance provides many designers with the working capital necessary to pay for the manufacture of goods well in advance of the payment by its customers for such goods. So far, so good. Is there any downside? Unfortunately, yes. First, everything comes at a price. The assumption of credit risk and the advance of receivables both take a bite out of the amount invoiced to your retailers in the form of a percentage fee. Second, payments to you by the factor for collected receivables or as an advance on outstanding receivables are subject to the factor’s ability to make good on such obligations. The risk of the creditworthiness of a factor has historically been viewed as quite remote, but recent events involving CIT Group have certainly heightened the awareness of such risk. What is happening with CIT? CIT is the preeminent factor within the fashion industry. CIT received $3 billion of funding from certain of its bondholders allowing it to barely avert a bankruptcy filing in mid-July. Many analysts covering CIT believe that this financing will only serve to postpone a bankruptcy for weeks or a few months. In early August, CIT invested $1 billion of such funding in its factoring business. This would seem to indicate that CIT either expects such business to survive a restructuring intact or to be sold intact in event of liquidation. What happens in bankruptcy? In bankruptcy, a trustee is appointed to liquidate (in a typical Chapter 7 filing) or maintain and restructure the assets (in a typical Chapter 11 filing) of the bankrupt company for the benefit of that company’s creditors, both secured and unsecured. Once the company files for bankruptcy, it is protected under federal law from the claims of its creditors (this period of protection is known as the “automatic stay”). What might a bankruptcy mean to designers for whom CIT factors receivables? First, advances against future receivables might become unavailable as CIT determines its ability and willingness to advance cash. Since the automatic stay would be in effect, the designer would likely not be able to enforce their contractual rights to receive this advance. Second, as designers are typically – under the terms of most factoring agreements –unsecured creditors of CIT, and secured creditors likely have a security interest in the cash accounts of CIT into which collected receivables are deposited, it is possible that such collected receivables will never be paid to the designer on behalf of which such receivables were factored. Third, and perhaps worst of all, until the designer is entitled to terminate its factoring agreement with CIT (which termination is often only permitted during a short window that appears once a year), CIT will likely own all receivables generated by invoices issued even after it enters bankruptcy. Are other factors subject to risk? Recently it has been CIT, but it is certainly possible that the future may find other factors – particularly those affiliated with troubled financial institutions – faced with potential bankruptcy. In addition, certain factors (if so permitted by the factoring agreement with the designer), “re-factor” through CIT. So you may find that your factoring arrangement still exposes you to CIT risk, even though CIT is not a direct party to it. What does the future hold and what should we do? The fashion industry will likely continue to need factors as much as it needs sewing machines. They provide an essential service, especially for small and midsized designers. If CIT were to fail and not honor its obligations under its factoring agreements, the fallout could be devastating. But we would not expect such a failure to mean the end of the availability of factors, as factoring is often a valuable and profitable business. In the end, the best case scenario for the industry is for CIT to pull out of their financial situation unscathed by avoiding bankruptcy and restructuring their business outside of court or for CIT to successfully sell their entire factoring business to a more financially healthy institution. However, as this might not be what the future has in store for CIT and the industry, designers factoring their receivables with CIT must not only monitor their exposure to CIT, but must also seriously evaluate available means to mitigate the risk of exposure to CIT. As the factoring agreement governing a designer’s receivables, as well as the myriad of ancillary facts and circumstances surrounding that relationship, are different in each case, it is important for designers to consult with an attorney in order to evaluate all applicable risk mitigation strategies. Alternative arrangements to be considered include moving to a deferred purchase agreement with your existing factor or exploring the possibility or obtaining an insurance product for your receivables. If you have any further questions, contact Hand Baldachin & Amburgey LLP at 212.956.9500 or via email at info@hballp.com. * * * This memorandum has been prepared by Hand Baldachin & Amburgey LLP (“HBA”) for general informational purposes only. It does not constitute legal advice, and is presented without any representation or warranty as to its accuracy, completeness or timeliness. Transmission or receipt of this information does not create an attorney-client relationship with HBA. Electronic mail or other communications with HBA cannot be guaranteed to be confidential and will not (without HBA agreement) create an attorney-client relationship with HBA. Parties seeking advice should consult with legal counsel familiar with their particular circumstances. The contents of these materials may constitute attorney advertising under the regulations of various jurisdictions. |
IT’S NOT EASY BEING GREENEnvironmentally friendly fashion has captured the imagination of many of the most glamorous designers. But what most people know about the issue starts and stops with organic cotton. Sourcing organic cotton is an excellent first step in “going green”; cotton is an incredibly pesticide-intensive crop, using twenty five percent of all the pesticides used in the U.S., more than twice the amount per acre as corn and four times that of soybeans! However, there is much more to know about the impact of the fashion industry and more you can do to reduce your environmental footprint. The three heaviest impact areas of the fashion industry are: fiber growth, dyeing and printing chemicals, and consumer care of the items once they are brought home. Focus your attention in these three areas for the biggest bang for your time and effort. It is also important to know your sourcing mills, particularly those in the developing world; they are often poorly operated and have a heavy impact, even where environmentally preferred materials are used to make the goods. FIBER SELECTION Cotton: 1) Organic Exchange is the place for help in sourcing organic cotton. They work with brands and retailers to transition some or all of their cotton use to organic and provide a reliable tracing and verification system that ensures that the cotton you pay for is really organic. http://www.organicexchange.org/index.htm 2) If you want to move to organic cotton, start with a few items and gain experience about sourcing, production, quality, pricing, and marketing. Factor in at least a year in-advance of lead time to order the quantities you need from a reliable source. 3) Keep an eye open for future important developments in sustainable cotton; “BASIC” cotton in California and the Better Cotton Initiative abroad are promoting valuable improvements in conventional cotton farming that promise lower prices than organic but still substantially reduce the negative impacts of growing this crop. Sustainable cotton deserves your business once it is ready to roll. Rayon: Rayon is a popular natural fiber made from wood pulp. Although it starts from trees, however, conventional rayon is very heavily processed chemically, rendered into a pulp with dangerous chemical solvents and then spun into a fiber much like synthetic polyester. Thus, it is hardly “natural” and has a very heavy footprint. Tencel (Lyocell) uses an environmentally preferable manufacturing process with non-toxic solvents that are captured and recycled; it is also less energy-intensive than conventional rayon. Thus Tencil is a much better “green” choice for rayon (viscose) fiber. Bamboo: Bamboo took off several years ago an eco-fiber, emerging as a super natural fiber for both clothing and bedding. It grows pesticide-free and self-regenerates when cut down, a vast improvement over cotton. However, the manufacturing process for bamboo fiber is similar to that for conventional rayon and is incredibly chemical intensive. Avoid, if you’re looking to go greener. Dyeing and Finishing : There is nothing crazier than spending lots of money to source organic cotton and then processing the fabric without regard to deadly toxic dyes and finishes likely to be used to color it. Yet, this is often what happens, because there is so little understanding of the choices available at the design table for this aspect of textile manufacturing. The solution to the dye problem is not to use “natural” dyes from organic sources such as plants. These natural products are actually not a good deal for the environment; they require large acres of land, often use extensive pesticides, and deliver low color yield per acre of agriculture. In addition, replication from batch to batch with natural dyes is a problem, which often leads to re-runs at the dye houses. Instead, environmentally preferable dyes are those that have low environmentally toxicity, no toxic metals, degrade easily in the environment, and do not substantially reduce oxygen concentrations in the receiving water body. Thus, ironically, the environmentally preferable dye choices are synthetic chemicals. The worst: The chemicals most important to avoid are found on various Restricted Substances Lists (RSLs) developed by several associations here in the U.S. and abroad. See for example, the list by the American Apparel and Footwear Association list http://www.apparelandfootwear.org/Resources/RestrictedSubstances.asp for a list. Better: Each major dye manufacturers offers lines of environmentally preferable dyes and treatment chemicals. Huntsman (formerly Ciba), for example, has its “Novacron FN” dyes and “Smart Prep” pretreatment chemicals such as “Gentle Power Bleach” that promise much reduced environmental impact. Dystar has its “Remazol Ultra RGB” dyes for cotton and other environmentally preferred lines as well. Specify that the mills dyeing your fabrics use specified dyes and avoid cheaper local substitutes that have not been scrutinized for environmental impact. Best: Best in class for environmentally benign dyes can be found through Cradle-to-Cradle, which evaluates and certifies environmentally preferred dyes using very stringent criteria. http://www.c2ccertified.com/ . Similarly, a European firm named Blue Sign has developed a data base based on rigorous dye and chemical selection criteria that direct you to the most environmentally friendly chemicals for your fabric order. http://www.bluesign.com/ CONSUMER CARE Growing fibers and dyeing/finishing fabric uses a lot of energy and natural resources, but it doesn’t stop there. Consumer care of clothing also takes its toll on the environment; in fact, machine washing, drying, and ironing have been found to account for more than half of a cotton T-shirt’s lifetime energy use! Traditional dry cleaning services also have a big bad environmental impact, using a highly toxic and persistent chlorinated solvent called perchloroethylene. Note that most of the so-called “green” drycleaners are not really green; only liquid CO2 is a relatively safe alternative, but the technology is extremely costly and not practical for the average locally owned dry cleaner. Designers can lower the footprint of the industry by opting for fabrics and clothing designs that can be washed in cold water, reducing the use of dryers and irons where possible, and by minimizing reliance on fabrics that need to be dry cleaned. A hang-tag on the fabric that urges customers to “think climate, wash in cold water” (a label currently used by Marks and Spencer) can help with consumer awareness of the issue. SOURCING MILLS NRDC is currently working with leading apparel retailers and brands in an initiative to identify best practices for textile mills operating abroad. Stay tuned for practical advice for reducing the footprint of your mills in the near future. In the meantime, take the first necessary steps: find the time to identify the factories that dye and finish your fabric, and ask them to report their water and energy use per square meter of fabric. This will allow you to benchmark performance and identify best and worst in class for future business orders. Linda E Greer, Ph.D. / Natural Resources Defense Council / lgreer@nrdc.org / www.nrdc.org |
PROTECTING YOUR TRADEMARK: QUESTIONS & ANSWERS REGARDING YOUR MOST VALUABLE ASSETA fashion design company’s brand – and therefore its trademark – is undoubtedly one of its most valuable assets. The trademark represents the identity of the company to its current and potential customers and distinguishes it from others. The trademark provides customers with clear indication of the products the company has designed and approved to be sold. The following is important information that you should know to protect your company’s trademark from unauthorized use: What can be a trademark? Any symbol, word or graphic that you use to identify your brand or company can be a trademark. This includes the name of your business, logo, slogan, symbol, sound, or even color schemes. However, your trademark may qualify for a United States or foreign registration only if it is not confusingly similar to a prior trademark use or registration, generic or merely descriptive of your good or service. The more unique the mark, the easier it will be to protect. Why register a trademark? Registering a trademark appropriately will permit your business to take advantage of U.S. federal and foreign trademark law to protect it from others attempting to tarnish or freeload on the goodwill and brand equity that you have worked to create. The owner of a registered mark has the exclusive right to use and protect it. When a mark is a U.S. federal registered mark, it becomes possible to rely on the United States Customs Service to restrict infringing items from being imported. In addition, registration of a trademark may provide you with a viable asset that can be used for financing purposes. Beginning the trademark registration process can alert you if there is anyone who has been using or has registered a trademark which is the same as or similar to your mark. If there is such a senior user, they may have grounds for protesting your use of your trademark. It is important to be informed of any senior use of a trademark you want to use prior to investing time and money in using the mark for your business. Consult with an attorney to determine whether your trademark can be used or registered. Where do trademarks need to be registered? In the United States, the trademark is registered with the United States Patent and Trademark Office (USPTO). Generally speaking, a USPTO registration only provides protection within the United States. If your company is selling abroad (even a website selling to customers outside of the United States), a trademark registration in each country where you sell or manufacture may be advisable to protect yourself. It can be expensive to register your trademark everywhere and while the U.S. and other countries have harmonized their trademark laws, you should consult an attorney to determine the most appropriate steps to obtain international trademark protection. What is involved in the registration process? Trademark registration begins with a thorough search for relevant concurrent uses of the trademark you wish to use and marks that may be confusingly similar that may either prevent registration of your trademark or give rise to a later challenge of your trademark. Once you have been advised that your selected trademark is available, an application to register the trademark is filed. Once an examiner at the USPTO determines that the mark is sufficiently distinct in your particular category of good or service, the USPTO will publish the mark for opposition. If the published mark is not opposed during the thirty day opposition period, it will receive a “notice of allowance.” At that point, you must file proof of actual use in order for the registration to issue. Typically, the entire process takes about six to nine months. How can strong trademark protection best be maintained? Frequent and proper use of your trademark builds an association of your business with that brand in the public’s mind. By contrast, failure to use a trademark properly may jeopardize it. For example, using the mark generically in your marketing materials can result in a loss of trademark rights. Apply the TM, SM and ® symbols at the end of the mark so others know that you are claiming a right to the trademark. The registered trademark symbol, ®, may only be used once the mark receives a registration. The goods or services that contain the mark should maintain consistent quality. A strong trademark can be a powerful tool in establishing your brand and preventing others from profiting at your expense. How long does the trademark protection last? Ownership of a registered trademark may last forever so long as it is timely renewed after the first five years after the date of registration, and subsequently every tenth year. The mark must be continually in commercial use. What are the possible courses of action to confront an infringer of a trademark? If you believe that someone is importing or selling goods with unauthorized use of your mark or has a mark that is similar to yours, consult with an attorney. The attorney will evaluate your situation and determine the appropriate legal action. I have something that I would like to trademark, how do I begin the process? Good preparation prior to filing an application or investing in a trademark’s use is the best practice. It is recommended to begin the process by consulting with an attorney. Trademark matters can be complex and having an attorney as a guide will go a long way toward obtaining a strong, registered trademark for your brand in a cost-effective way. If you have any further questions or are seeking legal advice, contact CFDA BSN Member Douglas Hand / Attorney / Hand Baldachin & Amburgey LLP / dhand@hballp.com / www.hballp.com |
PRESERVE YOUR ARCHIVESProper preservation of past collections and archives require proper storage and handling. Here are some tips that can help guide you from BSN Partner, Garde Robe. 1) Location, location, location The most important decision you’ll need to make is choosing an appropriate, safe and convenient locale to keep your collections. In the past, many designers chose to keep their entire archive on-site for accessibility purposes. Unfortunately, square footage costs on Seventh Avenue and around the city are making this option less viable. Plus, most office spaces and ateliers in Manhattan simply don’t provide adequate conditions for proper long-term maintenance of the garments. Therefore, off-site storage has become commonplace in recent years. Below please find a checklist of things to keep in mind when selecting a location for your archives. 2) Climate conditions Avoid fluctuations in temperature and humidity at all costs. Variations in temperature and humidity can wreak havoc on fabrics and cause quick deterioration. Heat causes fibers to expand and cold temperatures forces contraction. This back and forth damages the fibers. Same deal with humidity; too much humidity causes mold and low humidity removes the fiber’s natural moisture. New York is terribly humid and hot in the summer and freezing in the winter. Do you know if your office’s air conditioning runs all night and on weekends? If it doesn’t, your archive is essentially being tortured. And in general, stuffy office closets and/or basement lockers are not suitable for long-term garment storage. Closets often have poor air circulation, and all fabrics need to breathe. Basements tend to have moisture/humidity, which can lead to mold and damage that is often irreversible. Similarly, if you decide to keep garments in an off-site storage center, be sure to choose one that provides temperature and humidity control. Also, avoid keeping garments in storage rooms with “chicken wire” as a ceiling, because you never know what is being stored in the room next door. If your storage “neighbor” has perishables or bacteria-stained articles in their room, you are very likely to have a material-damaging insect infestation before long. Garde Robe has heard too many clothes moth nightmare stories to recount. Choose your location wisely! Keep the temperature and humidity consistent; we recommend 70-75 degrees Fahrenheit, 45-55 degree humidity. If you choose to store on-site, invest in professional grade de-humidifiers and air purification systems, and maintain a temperature-controlled environment. Proper lighting is also essential. Some bulbs can cause fading, and sunlight is an absolute no-no. Protective UV filters can be purchased, but your best bet is to limit exposure to light by turning off the lights and purchasing “blackout” shades. Also, please remember to designate enough space so that items are not squashed together which restricts ventilation and can cause permanent wrinkles. 3) Cleanliness is next to Godliness Always make sure garments are properly cleaned prior to storing them for an extended period of time. Even if the garment looks clean, if it has been tried on or worn it may have invisible bacteria and or body oils that will damage and stain the fabric if left untreated for several months. I am not advocating dry cleaning garments just for the heck of it, but preparing garments for long-term storage absolutely requires a thorough cleaning. However, if you have a vintage or very delicate piece that may not be able to withstand cleaning, there are alternatives to dry cleaning. In essence, there is no “golden rule” when it comes to storing garments; each piece needs to be treated and handled accordingly. A preservation expert is your best resource for advice. Additionally, you must always remove the dry cleaner’s clear plastic bags immediately as these bags emit gasses that can cause discoloration, attract dust and don’t allow the garment to breathe properly. 4) Cover Up The plastic garment bags most boutiques use are not intended for storage; they trap moisture and don’t allow the garment to breath. For a day or week, those bags may suffice. But for long-term usage, you should purchase and use the proper storage supplies, preferably made from archival-safe materials. Muslin and canvas garment bags are great for hanging items because they allow the garments to “breathe” and provide protection from the elements. Inert archival boxes are your best bet for folded items. Almost all garments need to be wrapped in or stuffed with acid-free tissue. Again, there is no formula; you will need to consider the best way to care for each piece individually. 5) Folding vs. Hanging Another important decision to make is whether a garment should be stored on a hanger and placed in a breathable garment bag or folded with tissue and placed in an acid-free archival box. In general, knits, stretchable, delicate, sheer and heavily beaded items need to be folded. Always use acid-free tissue in the creases to avoid permanent creasing and damage to the garment’s fibers. Don’t forget that choosing the proper hanger is critical. There are literally hundreds of shapes and sizes to choose from. It is unlikely you will be able to utilize only one type of hanger for your entire collection, so always keep a wide variety of hangers on hand including traditional, padded, extra-wide, suit hangers, etc. Take advantage of a garment’s support straps or loops to avoid stretching. You should never use wire hangers. 6) Damage control Garde Robe recommends using cedar and lavender sachets as a deterrent to material damaging insects. However, always be extra careful that these products do not come in direct contact with the garments as they contain oils that can cause permanent stain. Moth traps are also effective as they attract and kill the adult moths, which prevent them from laying the larvae that actually chomp the clothes. In conclusion, choose a clean, dry and well-ventilated location, always use the proper supplies and take necessary precautions. Following these simple steps will significantly extend the “life” of your collections. Douglas Greenberg / Vice President / Garde Robe Online, LLC./ doug@garderobeonline.com/ www.garderobeonline.com |
LICENSING 101You have a brand. You have a profitable brand. You have a profitable brand with a substantial following. You want to extend your brand into other product categories. How do you go about this? Well if you have endless amounts of capital, then you can start a new division of your company and begin development, manufacturing, marketing, and sales of the new product category. Alas, many companies do not have the resources or the know-how to break ground in this exciting new territory. Do you know how to create a mold for sunglasses? Or an innovative last for footwear? Licensing has become an important, powerful, and effective marketing vehicle for an increasing number of companies. How? Through licensing, companies are able to extend beyond their core competency into new product categories, generating additional revenue streams, expanding consumer awareness (vis a vis the new products), and reinforcing brand image. On the flip side, manufacturers are investing in licensing well known marks because using an established brand name on a new category of goods creates an instantly desirable product. If the manufacturer were to launch a generic, in house brand it would take lots of time and money to establish the goodwill that the established brand has already earned. Additionally, consumers are willing to pay a premium for a branded product rather than generic or un-branded product. Where to Start:
It doesn’t stop there; once you have a fully executed license agreement you will, for starters:
Susan Chung / Licensing Consultant / susanchungnyc@earthlink.net |
MANAGING RISK: TODAY’S UNPRECEDENTED RETAIL CLIMATEHow do you know which stores to ship when there are so many unknown factors in this economic climate? I’ve heard so many answers to this question over the years. Some of the best are ‘the store is beautiful’ or ‘they’ve just opened another amazing looking store. It must have cost a fortune. They have to have plenty of money’. Needless to say, those are exactly not reasons to ship a store. The more money spent on furniture and fixtures and on leases, the less money they have to pay you. There’s a middle ground, of course, but I’ve heard this too many times not to mention it. So how do you know which stores to ship? Everyone today should at least have a credit agency checking their orders. However, one thing to keep in mind with a credit agency is that they take no risk. They offer opinions only. A factor or credit insurer does not approve an account for shipment without assuming the risk. So they have much more at stake in the decision making process. The fact that a store paid you well last season may not be a reason to ship them this season if they are being declined by your factor or given negative ratings by your credit agency. Financial conditions are changing rapidly. Though I hate to say this, don’t listen to your sales department when it comes to evaluating a stores credit. The two departments do not and should not mix. It’s like combining an advertising sales department with an editor’s news room. There is an inherent conflict between sales people and credit people, and you need to recognize and respect that. Sales people have one agenda and credit people have another. Both are invaluable, but both are thoroughly different. If a store is cooperative, willing to provide financial information, willing to work with you on your terms, then they are worth considering. If they stone wall you on information, they usually have something to hide. If they are being declined for credit in the market and they refuse to discuss credit card payments or COD terms, then you should simply ask them point blank, “Why should I take the credit risk and ship you?” Likely, they won’t have a good answer. Be very careful with COD terms. COD checks dated 30 days hence, are no different than net 30 day terms. Don’t fool yourself. If a store is declined for credit for negative reasons, ship certified COD or credit card. Negative declines refer to stores who have previously been placed for collection, whose financials are weak, who are showing significant losses on their statements, who are past due in the market. Often stores are declined for lack of current information. Request it from them. You must have a basis for determining whether they are credit worthy or not, and as I said in the beginning, what a store looks like is not one of them. I’m not getting paid. What are my options? Well, if you’re not factored and the invoice is at your risk, your options are unfortunately few. We all know that the court system takes time. Your best bet is to get the owner on the phone and work something out, regardless of how frustrating that might seem. Start a dialogue. Take back what you can, offer a discount if you must, but get the invoice settled. Don’t ship new merchandise as a lure to get the old invoices paid. You’re not making any headway at all. The old adage, throwing good money after bad, rings true more often than not. If you’re factored and your factor has other vendors owed money by the same store, the factor has leverage that you don’t have. Regardless, the longer it sits unpaid, the less valuable the merchandise becomes to both you and the store. If you can’t speak with anyone, if the voicemail box is full, if no one answers the phone during business hours, it may be too late. Then a collection agency is the best and last recourse and should be assigned the claim asap. If a designer doesn’t work with a factor, how would one be helpful? Factors today are almost a necessity. No one individual has the ability to evaluate credit in these tumultuous markets. You need a team, a trained credit department to assist you. Also, you need the guarantees, the approvals, which insure your invoices. Even the largest of stores today are subject to credit restrictions and limitations, as we all well know. Factors that cater to small companies are available to assist with these decisions daily. Even if they decline the account, they will still be able to provide you with invaluable information regarding how they are paying other clients, what terms they’re accepting, how much merchandise they are returning unauthorized, how they are responding to collection calls, and so much more. They also have daily and direct experience dealing with the stores you want to ship. If they are paying one designer well and five others poorly, and you happen to speak to the one who is being paid well, you’re not getting a clear picture of their credit worthiness or ability to pay you. Stores tend to pay the lines that are performing best and that they need the most, when their cash poor and unable to pay everyone on time. So you need a balanced opinion. Factors collect the funds and correspond daily with the stores. It’s much easier for them to advise on credit and assist with collections. If you were a store who depended upon one factor’s credit lines for 20 of your best vendors, whom would you pay first? That factor or an independent designer who isn’t factored by them? If they pay the factor late, they risk not getting shipped new merchandise by 20 vendors, not just one. What insight or advice can you share about navigating this economy? Every day is a challenge in this market. Talk to others in the business. More importantly, listen to what they have to say! If they tell you a store is unreasonable or demanding markdowns or chargeback’s that are unauthorized, take those comments seriously. Don’t sign purchase order agreements that require a guaranty of sales percentages. Don’t agree to markdowns that are unauthorized. Turn the next order down if the current invoices are not being paid in a way that allows you to make money on the work you’ve already done. Be persuasive. Be honest. If your product sells out, do you ask the store to pay you more for it? Of course not. But if it doesn’t sell well, whose fault is it? Not yours, if you delivered according to order and sample. So why should you share the blame? Don’t allow any one store to become more than 20% of your season’s business. No matter how strong the store may seem today, it may not be tomorrow. And besides the credit risk, if you are so dependent upon one store, you become a potential victim of your buyer. If one store returns one invoice that represents 3% of your total sales, you can absorb that return. If one store returns 20% of your season, you may not be able to absorb that loss. Spread the risks today or at least sell larger amounts to approved accounts that you’ve had past experience with and in whose stores your product has a history of performing. Do not force product on your stores. Tell your sales people or sales reps to sell your strongest products, the styles you know are the least risky today. Gary Wassner / President / Hildun Corporate / gary@hilldun.com / www.hilldun.com |
DOS AND DON’TS: WEBSITE 101In a world where websites and blogs have not only become a business necessity, but a daily obsession, it might seem that any website will do as long as you have one. This is the equivalent of assuming that dial up is just as useful as high speed internet. Web design expert and BSN Member Jessica Lim of Sprout Creative Group offers her list of website Do’s and Don’ts. If you spend as much time browsing online as Sprout Creative Group, some of the tips will resonate with you. 1. DON’T create a blog unless you have something interesting to say – this usually means focusing on a specific topic. 2. DO have a website that reflects current products, press, and services 3. DON’T let your web content get stagnant- it will begin to look…stagnant 4. DO have a strong relationship with your internal web team or external web partner 5. DON’T hire your friend’s younger brother’s best friend from high school 6. DO get ahead by creating unique site content beyond the expected ‘seasonal updates’ 7. DO offer e-commerce 8. DON’T get left behind. Stay in tune with industry trends by attending insider conferences. I recommend: http://events.carsonified.com 9. DO find your next CTO by networking at the above mentioned conference 10. DON’T pay too much attention to advice from “luxury experts on technology”- advice should come from people who breathe web (see #8) 11. DO get ‘sticky’. Figure out a way to engage with your visitors and keep them coming back. Go beyond pretty photos and esoteric words or industry lingo 12. DO have content that is tailored to the web 13. DON’T sign-up for a proprietary ‘in-house CMS system’ that locks you in for the next 3 years (you just may be funding their software project) 14. DO offer web only promotions (not just an extension of an in-store event or sample sale) 15. DON’T force your site visitors to sit through endless loading, or loading with every click. They hate waiting! 16. DO have a clean layout that gives users what they want 17. DON’T go so crazy with Flash, the wet floor/reflection effect, or navigation that is more mysterious than simply easy-to-use. It gets old, fast. 18. DO enable “search” on your site- let customers find that shirt they saw last week in a magazine 19. DON’T underestimate how SEO and Search Marketing can change your online game 20. DO check out the Sprout Creative Group’s blog “Sprouting Edge” www.sproutingedge.com which offers advice on web and style Jessica Lim / CEO / Sprout Creative Group / jessica@sproutcreativegroup.com / www.sproutcreativegroup.com |
LIVE FROM D&A: TRENDS FROM OUR FAVORITE TRADE SHOWHere is the latest show report on the trends that stood out during our recent NY Designers & Agents Fall 2009 show. I can say that the overall feeling was one of realistic optimism, not quite the blind faith of the past but surprisingly enthusiastic. Given the current economic culture both designers and retailers have sharpened their pencils. Designers brought a fresh yet refined approach, which was matched by ready, willing, and highly focused retailers. Both sides needed the positive forum that Designers & Agents created to stand eye to eye and move forward. The electricity brought by this tuned in frequency created a positive buzz throughout the three day show. In the end the experience exceeded everyone’s expectations. Orders were written and placed, with many retailers filling in summer deliveries, which was definitely a good sign. TRENDS: Yes, it was a big accessory season! This is always the case when one desires a big bang for their buck. Accessories appear to be the least guilt ridden category these days. • Jewelry sparkled, it ran the gamut from precious metals with dainty semi precious stones to bold and multi layered bling bling. • Gloves, both short and long made a strong appearance as a fashion item, some with openings to allow for blackberry texting • Handbags were soft and supple, fringed, oversized to small, lots of shoulder length straps, and there were colors across the spectrum. • Strappy platform sandals wrapped the ankles. Boots were everywhere from ankle height to over the knee. Belts, also strong right now, both were both wide and slim worn high, low and doubled. • Scarves continue to be strong with woven elements of print and texture. • Fall neutrals were shown in strength, in particular gray and black, but also included were shots of vivid color. Dresses were evident; shapes were sophisticated, there was an abundance of sheer and silk fabrics. Shine and sequined materials were frequently seen. • There were lots of layers and lengths to pile on. Shorter jackets over tunics over slim pants. Blouses were often sheer and provided another layering opportunity. Strong independent items were important, including novelty sweaters and beautiful tops. Loads of soft touch knits taking over from the basic T shirts of the past. Leather looked fresh in the form of skinny pants, strong jackets, and separates. Jackets with a military feel looked new, so did plaids, and wool with velvet and embroidery detailing. Within the collections buyers were not always after the total looks per se, but individual signature pieces that could stand on their own and be merchandised easily. The “investment” piece still had some legs for those who could spend on an item that looks fresh and gives an edge, yet is classic enough to have longevity. Sustainable brands continue to build momentum with larger offerings within each collection. Buyers are seeking out designers and brands that are selective in both their design integrity as well as distribution choices, steering away from those who sell to department stores and shops that play with early markdowns. Each season Designers & Agents present a press breakfast at which a merchandised selection of looks from participating designers is featured. This season a guest stylist was invited to put their spin on the presentation. Lynn Yaeger, iconic fashion columnist took up the challenge and turned her distinctive style towards creating an inspired mix of fashion looks, highlighted by a host of accessories and her quick wit. Lynn, we want to thank you for sharing your keen eye and wonderful spirit with us at D & A. Barbara Kramer / Co-founder / Designers&Agents / bk@designersandagents.com / www.designersandagents.com |