Bhs is just one of the retailers changing supplier terms. Here, we ask what kinds of discounts suppliers are being asked for and how supplier terms are changing.

What are the kinds of discounts being asked for?

These vary widely from one retailer to the next, depending on their size and the type of supply chain. Prompt payment is regularly used as a way to negotiate discounts – in Arcadia’s case now 14.25 per cent. Suppliers are now often asked to contribute to marketing and warehouse distribution costs. Retailers can also sometimes agree a retrospective discount at the start of the year, based on discounts for certain volumes or cost of goods supplied. 

How have supplier terms changed over time?

20 years ago the main risk for garments was carried by the retailer. There was a system in place whereby retailers owned the cloths and trims and provided them to factories, and garments were often paid for in around seven days. Now, with offshore production the norm and
the production elements usually owned by the supplier, the balance has shifted.

Retailers that even 10 years ago were likely to pay within 30 days of delivery are often paying after stock is sold, with 60- and 90-day payments more typical. Some retailers will also ask for contributions to markdowns if an item has not sold as expected.

How has the downturn affected supplier terms?

With many retailers losing their credit insurance and the high-profile collapse of some big retail chains, the risk has proved too much for some suppliers, which have not been able to survive, particularly if a large percentage of their turnover relied on a collapsed retailer.

What ways of redressing the balance are being looked at?

Some retailers are having to develop facilities with banks to cover the cost of the risk to their suppliers, while others are looking at what the ceiling of financial risk is to suppliers and only ordering up to that ceiling. Retailers are in some cases having to pay more quickly than before, even making weekly payments.

Patrick Woodall, managing director of consultancy Pragma UK, says that more enlightened retailers are also looking at other ways to reduce risk for their suppliers. “They are looking at how large an exposure a supplier has to them and looking at ways to open those with enlarged exposure up to non-competing retailers to minimise that.”

Focus DIY chief executive Bill Grimsey has taken a very hands-on approach with his suppliers since his chain lost its credit insurance. He now talks to his suppliers and meets with them more regularly, as well as giving them access to management accounts.

 

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