Opinion: Supporting suppliers now will pay dividends tomorrow

That raises the thorny question of how far retailers’ responsibilities stretch, considering how much product such as apparel comes from some of the world’s poorest countries such as Bangladesh and Sri Lanka.

While many UK retail employees are furloughed and business for some grinds to a complete halt, immediate priorities and colleagues’ needs have of course been the primary focus.

But retailers’ obligations to suppliers are facing increasing scrutiny and the dilemma has brought divergent responses.

“While many retailers will understand the positions of Debenhams and New Look, their ongoing weaknesses have again been exposed”

Value fashion giant Primark, which had faced some criticism after telling suppliers to stop production but indicating it would not pay for cancelled orders, last week announced wide-ranging measures in response.

Primark is setting up a fund to pay the wages of factory workers who were employed on orders since nixed in factories in Bangladesh, Cambodia, India, Myanmar, Pakistan, Sri Lanka and Vietnam.

The retailer has also offered extended payment terms so it can accept and pay for goods ready for shipment.

Primark’s action is welcome. Despite the devastating impact of store closures, which mean it is losing sales at the rate of £650m a month, it is protected by the strong financial position of parent company ABF, which as of last Friday had about £1.7bn of cash on its balance sheet.

Survival mode

Under-pressure retailers such as department store group Debenhams, which this week gave notice that another administration looms, or New Look, attempting a post-CVA comeback, can’t hope to match Primark’s action.

New Look has drawn anger after suspending payments to suppliers for existing stock and cancelling spring/summer orders without any indication of payment. Its options are limited. As the retailer said: “This is a matter of survival.”

So it is. The same is true of Debenhams, where FRP Advisory is on standby for an administration – partly to protect it from the possibility of a disorderly liquidation if a supplier issued a winding-up petition.

At both New Look and Debenhams, it is worth pointing out, product suppliers did not suffer a financial hit during previous emergency restructurings – it was others such as bondholders, landlords and employees who took a haircut.

While many retailers will understand the positions of Debenhams and New Look, their ongoing weaknesses have again been exposed.

Suppliers, and some other stakeholders, must increasingly wonder whether either really has a long-term future and if they would not be better off, assuming they have a base of customers who are able to pay, to cut their losses and build business elsewhere.

Complicated relationships

The shock that coronavirus has sent through economies globally is likely to result in lasting changes to retail’s operating norms, including supplier relationships.

While welcome, doing ‘the right thing’ by suppliers gets more complicated the more that retail companies widen their protective umbrella over extended supply chains.

What about the suppliers’ suppliers, who might also have undertaken work in good faith? And all the links that follow, all the way down the chain?

“Retailers that are able to meet supplier obligations will only strengthen their credentials – not just for taking responsibility when they could have turned the other way, but as the sort of companies that suppliers are eager to go the extra mile for”

Primark seems to be taking account of that. It is working with UN body the International Labour Organisation “to collaborate with governments, international financial institutions, development banks and others in a position to make available medium- and longer-term financing to pay the wages and benefits of workers along with economic support to the garment industry”.

Those retailers that are able to meet supplier obligations will only strengthen their credentials – not just for taking responsibility when they could have turned the other way, but as the sort of companies that suppliers are eager to go the extra mile for when it comes to considerations such as product quality, innovation and value for money.

Those are considerations that can make the difference between retail success and failure, just as much as what happens in stores.