On the BBC news website in a move eerily reminiscent of Laura Ashley and John Lewis (see 28 March blog), it has been confirmed yesterday that department store Debenhams has told suppliers of its own brand products to cut their bills by 2.5% as a "contribution" to its investment plans”. It said it would deduct this from all outstanding payments on Tuesday night and would apply another discount of 2.5% to orders open on its system.
The company’s reasoning behind this unilateral move is that its suppliers will benefit from its investment plans, including a £25m refurbishment of the flagship store in central London. Perhaps the real reason though can be found in the Debenham’s trading figures, which show falling profits. Perhaps even more telling is the City’s reaction to the trading figures; Debenham shares were down more than 4% on Tuesday, and they fell a further 1.3% in Wednesday trading.
Simon Herrick, Debenhams' chief financial officer, told suppliers: "As we will mutually benefit from the growth of Debenhams we are now seeking a contribution from our suppliers to support our commitment to on-going investment." He added that they could discuss the matter if they wished to with the "relevant divisional trading director".
If I was a supplier of own-label goods to the company, I would take a very dim view indeed of this raid on my profit line. It is unilateral; it is unannounced and it sets all kinds of dangerous precedents for my future dealings with Debenham and indeed with the rest of the retail trade. Somebody was obviously angered enough by move to go public and release the news to the media.
I suspect that the “relevant divisional trading directors’" phones are already ablaze with irate suppliers mumping and moaning about the tactic. There are various options open to the suppliers.
- Some may cave in – more fool them. Not only do they have to worry about the immediate shortfall, but they have to worry about all of the future shortfalls that their decision opens up.
- Some may reckon that Debenhams are “at it” and that this putsch is nothing more than a try-on by them. They will reason that a quick phone call to their contact suggesting that the original price be honoured will be all that is required. “Remember that day at the races we organised for you – you wouldn’t do this to your chums, would you”, kind of a conversation.
- If that approach did not work, then they will attempt to limit the damage by haggling – potentially settling “somewhere in the middle” at about 1.25%.
- Others may decide to fight back on a point of principle and insist that the contractually-agreed price be honoured – in other words, potentially, go to deadlock. To be fair, Debenhams will presumably end up having to pay the price they signed up to, though the long-term cost may be a damaged relationship.
- The negotiator, on the other hand, will want first to satisfy themselves that there is a genuine need behind Debenham’s proposal. If they feel that there is a need, then they will arrange a meeting with “relevant divisional trading director” to discuss the terms. The terms may include things like earlier payments, payments up front, increases in volume, guaranteed above-inflation price increases next year, joint planning of the relevant store displays, access to sensitive marketing information about competitor businesses, shares in the business to the value of the discount given or even an enhanced share of excess profits when the good times come back.
In other words, if they do decide to cooperate, it will only be in return for significant gains elsewhere. That’s maybe not terribly fair on the others – but who said that business was fair?
In any case, a very Merry Christmas to all our readers and we will publish the first blog in the new year on Thursday 2 January.