House of Fraser chairman Don McCarthy has hit back at suppliers threatening to pull out of the department store chain because of its new terms.
McCarthy denied that the terms, imposed to help pay for HoF’s £250 million rebranding, were too tough on brands, and said discounts were justified because rising rents, rates and utility costs were putting pressure on HoF’s cost base.
Speaking exclusively to Drapers at the launch of HoF’s revamped Oxford Street store in London, McCarthy said: “With the rate of investment we’re putting into the business, this is as good a deal as suppliers will get anywhere, even with the new terms. When was the last time any supplier called me up and offered help with rents and energy costs?”
Suppliers have reacted angrily to the new terms, which were unveiled last month, with some claiming they will end their partnership with the department store (Drapers, September 29). The discounts for marketing, distribution costs and a contribution to HoF’s loyalty scheme add up to a minimum of 9.8%, and suppliers must pay an additional tax relating to their sales if they are in flagship stores.
McCarthy added: “We’ve got to do what’s right for HoF. We’re not a short-term player and we’re not cut and run. We’re saying ‘this is the vision, do you want to be part of it?’”
McCarthy, who previously ran concession business Shoe Studio Group, said he was confident the new terms were viable for brands and that suppliers could be persuaded to support the new strategy. He said: “We’ve seen their accounts and we know what they can and can’t do.”
McCarthy also pointed to the first round of changes to supplier terms he instigated last year. He said: “We were very happy with the first round of negotiations and I can’t think of any suppliers that left as a result. Once we sat down and talked it through they had trust in us, and I’m confident the same will happen now.”
HoF admitted there had been some confusion over the details of the terms, especially the retrospective incentive bonus scheme, which is a penalty paid by suppliers as sales grow. However, concessionaires are given a rebate on sales growth.
Chief executive John King joined McCarthy’s defence. “We [the HoF management] have been suppliers, retailers and have run concessions, so we know the challenges. The terms are nothing that the likes of M&S or Bhs haven’t done,” he said.
HoF is meeting with brands to discuss the new terms and said no supplier had left the business.