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.
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.
About the author:
Robin Copland, Partner
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