"Most brands that we have spoken with recently advise that the level of cancellations is escalating," said Susquehanna Financial analyst John Shanley in an e-mail exchange.

Columbia Sportswear Co, which makes outerwear, sportswear and shoes, reported a surprise quarterly loss in late July, saying that retailers canceled orders at an unexpectedly high rate as the economy weakened.

The orders, placed by retailers last summer, were cancelled this spring, leaving Columbia stuck with clothing it had already purchased from contract manufacturers that was already too far along in the manufacturing process to be stopped.

"We've never seen that magnitude of a cancellation rate in the 10 years we have been public," said Ron Parham, director of investor relations.

Columbia's shares, which were down 9,7 per cent for the year before it announced its surprise loss on July 24, have fallen another five per cent since.

Now Columbia is being more cautious and looking to expand its group of outlet stores to protect itself.

Other suppliers may need to re-evaluate their own strategies to prevent getting stuck with unwanted merchandise.

Retailers had already been trying to keep inventories lean, cutting back on what they order.

Shoemaker Crocs Inc warned last month that 2008 profit and revenue would be much less than expected as retailers cut orders.

But the Columbia orders were made before the depth of the U.S.

consumer downturn was evident, Parham said.

With gasoline hovering at about $4 a gallon, mortgage payments rising, home values falling and food prices jumping, consumers have reduced their purchases of apparel, leaving retailers looking for ways to protect their bottom line.

"The consumer just kind of dove off a cliff," retail analyst Jennifer Black, said.

HOLD THAT SHIRT! In the past, retailers were more likely to ask for promotional cash from suppliers, which allowed them to slash prices in hopes of selling unwanted items.

But increasingly, retailers are not taking the goods at all, said Richard Hastings, consumer strategist at Global Hunter Securities said.

Over the past several years, merchants have spent a lot of money improving information technology systems.

They can now see more quickly what is selling, and make adjustments, "creating cancellation risks that weren't as severe one year ago," Hastings said.

Suppliers have also been hit as more retailers have gone into bankruptcy, including Mervyns LLC, Goody's Family Clothing Inc and the latest, department store chain Boscov's Inc, which filed for Chapter 11 bankruptcy protection recently.

Some retailers are also reaching the limit of how much creditors are willing to lend them, meaning they cannot hold as much inventory, Columbia's Parham said.

The prevalence of private label merchandise is compounding the issue.

In recent years, retailers have offered far more private-label merchandise to try to differentiate themselves from competitors and because brand-name manufacturers did not want their goods in certain stores.

"Retailers cannot cancel private-label goods, which have been growing at a rapid rate, since they own the merchandise from the time they place orders with Far East suppliers," Shanley said.

So when consumer demand weakens, retailers are more prone to cancel orders from suppliers like Columbia, leaving the supplier with little immediate recourse.

"There is not contractually speaking a penalty per se, but it does mean we will be more cautious with them in planning their (future) orders," Parham said of retailers that cancel.

Working more closely with retailers is one way to avoid being stuck holding extra merchandise.

"The key for the supplier in this environment is to be as innovative as possible, be as integrated with your retailers as possible," Hastings said.

Also, when that canceled merchandise has to be sold, suppliers might get a better return if they are doing the selling themselves instead of sending it to retailers like TJX Cos Inc and Ross Stores Inc that buy from suppliers at deep discounts.

Nampa-Reuters

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