This article was originally written by Caroline Parry for Drapers.

Tough trading on the high street has left retailers looking for ways to claw back margin – and suppliers are increasingly bearing the brunt as new payment terms are imposed.

The British weather may get the blame for many of the country’s ills, not least the poor performance of the retail sector, but beleaguered fashion suppliers fear they will continue to feel the chill from prolonged wintry weather long into the summer.

With retailers including Monsoon Accessorize, Laura Ashley, John Lewis and Debenhams reported to be squeezing suppliers by extending payment times and ‘requesting’ mandatory discounts, suppliers fear there will be worse to come if spring stock does not start moving soon.

“It is going to be another very tough year for us all,” says one supplier, who works with various high street names.

“Retailers are having a hard time as their costs are rising, customers aren’t spending and the weather is against us. There will have to be further markdowns as they have all this [spring] stock to manage.”

Suppliers are under no illusion about where retailers are looking to claw back lost margins, and many feel they have no option but to play ball, with the power firmly in the retailers’ court.

“A supplier that does massive volumes but only for a handful of customers is going to be vulnerable to a retailer’s demands,” says Charles Stone, managing director of accessories supplier Bandana. “People do try to take advantage, but suppliers in that situation will probably just have to swallow it.”

So far, the level of discounts has varied greatly, with John Lewis asking its 130 suppliers for discounts starting from a 0.75% discount on invoice for sales between 5% to 9%, and rising to 5.25% if sales grow by 50%. Laura Ashley is reported to have asked for an immediate cost price reduction of 10% on all orders, including those already placed.

Over at Monsoon Accessorize, payment terms have increased from 60 to 90 days and suppliers told that invoices will be subject to a 4% discount. The womenswear and accessories retailer is also using prompt payment as a bargaining tool, telling suppliers that if they accept a 10% discount, payment will be made within seven to 10 days of receiving product.

“Retailers are using many clever practices to find ways of cutting costs but it puts a lot of pressure on smaller suppliers,” says Robert Downes, spokesman for membership organisation the Forum of Private Business.

“Retailers are looking at the least damaging way to save money but it’s a lazy way to do business.”

It’s also a short-term solution, as suppliers will factor the new discount into their cost price for the next season. “It only works for about three months and each part of the supply chain builds [the cost] back in,” explains the high street supplier Drapers spoke to.

For Anusha Couttigane, fashion consultant at analyst Conlumino, it’s also a short-sighted strategy. “While retailers can fall back on credit arrangements when profits are down, transactional delays can literally have the effect of putting suppliers out of business. If suppliers run the risk of being eliminated in the process, it has the potential to destabilise the supply chain altogether. Many retailers are failing to consider this,” she says.

There are suggestions payment times may extend beyond 90 days, with Debenhams asking suppliers to agree to 120 days. For smaller firms that could cause a fatal lack of cash flow but, as one footwear supplier points out, even established suppliers struggle to shoulder such terms.

“Credit insurance usually dictates a maximum number of days for payment – it’s usually 60, sometimes 90 days,” he explains. “After that you aren’t insured, so you can’t do it. We wouldn’t be prepared to do it.”

Another supplier argues that multiple retailers have become arrogant and are now looking to cut more out of the supply chain than is necessary, but are at least being honest about what their strategies hope to achieve. Other suppliers allege that not all practices are so upfront.

Some manufacturers and suppliers suggest retailers also seek to avoid paying for poor-selling lines by claiming products do not meet quality standards. One supplier to a major fashion chain says she suffered a “very nasty experience” over one product line that was initially stocked in store and online.

Once it became clear the product wasn’t selling, she claims, the retailer stopped taking deliveries. “They were rejecting product for loose threads, which in the past they could trim.”

Stephen Sidkin, chair of the fashion law group at law firm Fox Williams, says there is “no question” this practice goes on. “Sometimes it’s genuine, sometimes it’s not,” he adds.

In the main, he says, goods are either supplied on the retailer’s terms and conditions, which are designed to protect the retailer, or the brand’s, which are not always properly written into the necessary contracts. The latter, however, usually ensures independent retailers have a period in which they can remedy quality issues with new product or a credit against next season.

“Manufacturers, suppliers and brands should look at whose terms and conditions apply and what they actually say. Often they just don’t even get looked at until this kind of thing happens,” Sidkin explains.

As the tough times continue, suppliers are urging retailers to introduce more open channels of communication.

“We are pushed on margin, we have to offer value for money on every product as well as putting all the energy into each style and getting it right,” says Stone. “We are here to support the retailers as much as we can, but everyone’s got to make money at the end of the day.”

In the US, brands and department stores meet at the end of each season to negotiate levels of discount. Brands that do not negotiate, it is understood, tend to be universally dropped.

Downes says it’s not a perfect solution, as retailers are still asking for and receiving a discount, but he admits it would be “fairer and more preferable”. Sidkin agrees that this is closer to a typical commercial partnership than the current situation.

“I hope the retailers will work with us,” says the high street supplier. “The most important thing is to have open channels to sit and talk. Then you can understand more about their thinking and they can about yours. It should be a two-way street.”

But after years of tough trading, many doubt that retailers are either willing or able to look past their falling margins in a bid to maintain relationships with their suppliers, however short-sighted that may be.

For further information please contact Steve Sidkin, partner, Fox Williams LLP.


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