Communication is key to chains facing financial pressures

Discount Store News, March 15, 1993 by Mary Ellen Kelly

The word partnership suggests equal participation, cooperation and commitment. But what happens when the balance of power between retailer and manufacturer shifts? Or when it is questionable whether the retailer will be able to pay for goods on time, inn full ... or at all? Retailers said, by and large, their partnerships stand fast.

The list of discounters and chain specialty stores which confronted financial hardship during the past year is long: Ames, Best Products, Hills, Leewards, Rose's, Sprouse, Stuarts and many others. The single most important way to sustain these partnerships is to keep open the lines of communication. The Key is to keep suppliers posted every step of the way on what to expect from the chain and when to expect it.

Rose's Stores appears to be benefitting from its various turnaround efforts, having reported a 13.7% gain in same store sales for the month of January. But during the beginning of last year, several apparel factoring companies were advising vendors to stop shipment to Rose's. At he same time, Bob Carbonell, director of credit for Dun & Bradsheet's credit clearinghouse division, had found the situation unusual because Rose's had a "relatively strong cash position," and still had "time left to resecure lines of financing with banks."

Nonetheless, the concern rose to an unwarranted level with some sources saying they were "scared," "troubled" and "reviewing credit" because they knew "a lot of other suppliers not planning to ship" more goods to Rose's

It is easy to see how a situation like the one at Rose's could have become a self-fulfilling prophecy if vendor partners followed each other like sheep and left the chain without enough merchandise to conduct business.

George Jones, president of Rose's Stores, said, "Our strong relationships with key vendors really helped us through this parts spring, before we completed negotiations for our new bank deal [which was finished in May 1992]." Jones said that apparel factors have been the toughest to work with, but that the situation has "improved immensely since our sales have been so strong for the past five months."

Jones acknowledged and appreciated the majority of Rose's suppliers that "continued to ship us while we were going through bank negotiations last spring, even though they had been burn before by other retailers who ended up going into Chapter 11. Our strong partnership really paid off, because we told them, |Trust us, we are sure we are going to get this bank deal done and you will definitely be paid for your merchandise." The chain's past record of integrity was key for this to be believable, Jones noted

In the case of Leewards, a craft chain specialty retailer, partnership may have saved it from a Chapter 11 filing. The company had prepared for an IPO and had begun to prepare for the expansion that the funds would finance. At the last possible moment, the IPO fell through, leaving the company overextended.

The chain turned to its partners. Kimberly Lee, vp with Leewards, explained that the company "developed a comprehensive business plan to help our company through the cash crunch and shared it with all of our vendor partners. We established a monthly repayment schedule, and express mailed it to all plan participants with a brief update of our progress toward achieving our plans."

Like Jones, Lee found that to most important element to the partnership when faced with financial hardship was to keep the lines of communication open, "taking extra care to ensure that no phone call or question went unanswered."

Being careful that no partner receives "special treatment" and that the chain lives up to its commitments was also crucial. "In Leewards' case, none of the partnerships fell apart," noted Lee. "We had no vendor abandon the payment plan for any reason, once having agreed to sign on."

Leeward's proposal to vendors was evolving while toy chain Child World was also investigating a deferred payment plan.

"As we proved at the end, our situation was certainly not analogous to the situation at Child world ... the type of plan that Child World offered their vendors was significantly different than Leewards offered its vendors. Our plan was accepted and was successful."

While most vendors' partners were willing to work with struggling retailers, there were those which did not or could not, mostly because executives believed their companies were already too weakened by chains which did file brankruptcy or because the company was too small to absorb potential losses. In the crafts industry, small vendors continue to be the lifeblood of product innovations, but could be put out of business if a chain of Leewards' size were to go bankrupt.

Joe Ettore, chairman of regional chain, Stuarts, said some partnerships were composed of more fair-weather friends than partners, unwilling to supply the chain when there were hard times, but there were "very, very few, and fortunately for Stuarts, none of our important partners fell into that category," Ettore said.