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HoF squeezes suppliers for 20% discount

House of Fraser is asking brands for a discount of up to 20% based on growth shown with the retailer under a new retrospective bonus scheme.

The scheme is based on increases in wholesale orders so the more the brand grows its orders with HoF, the bigger the discount the department store group will get. If a label grows by 25% in a year, HoF will get a 10% discount. If orders go up by 50%, HoF will get 20% off.

The discount is on top of any other wholesale buying discount implemented by HoF, which is believed to be nearly 10%.

One supplier affected by the scheme told Drapers the terms of the deal were “unbelievable” and made it “impossible” to grow.

“To be honest these terms make decent growth with HoF almost impossible. It is a disincentive to grow. I wouldn’t be surprised if brands end up putting the costs back on to the cost prices quoted to HoF to counteract it, so it will be of no advantage to anyone in the long run.”

The source also indicated the change was influenced by the new Chinese ownership as the scheme was first mentioned to brands in a letter from Nanjing Cenbest in December. The Chinese business completed its purchase of HoF in September last year.

The letter, seen by Drapers, stated a total investment of more than £150m will be made in the retailer through international growth, improving UK stores, IT infrastructure and HoF’s multichannel offer. The bonus scheme will be introduced to “underpin increased buys” that will be required by HoF to support its growth.  

A spokeswoman from HoF said: “There is no doubt this investment will benefit all parties and therefore, in turn, we will appreciate our partner’s continued collaborative support to ensure full delivery of our exciting plans. To underpin the increased sales potential, House of Fraser will be looking to introduce a Retrospective Incentive Bonus Scheme (RIBS) based on growth of its wholesale purchases.”

Full details of the scheme were not revealed until the end of January. The scheme came into effect on February 1 and the discount applies for the HoF trading year from February 2015 to January 2016 and will be debited from suppliers’ accounts in March 2016.

Another brand stocked said: “The HoF customer is all about Sale, discounts and more discounts so I’m not surprised they want to try and gain more margin wherever possible. We can’t wait to get out of our contract with them.”

One menswear brand that works with HoF through a concession model and so is unaffected by the scheme said:  “No one can work with a 20% discount, margins don’t allow for it. It’s terrible, we wouldn’t be able to do it.”

Another brand stocked in HoF said: “No one else could demand that. There is power in numbers in terms of the sheer volume of goods they buy.”

HoF will open three stores in China over the next two years, the first will launch in 2016. The retailer plans to open up to 50 department stores in China in total.

Readers' comments (13)

  • HoF only have 60 UK stores - how to kill brand support.

    Brands should recognise that there is no partnering with shared market places. In store or online. I would recommend a joint venture by a group of brands, perhaps with various shopping centre landlords. HoF is deluded.

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  • What has happend to our Industry?
    First we have loads of bad news with retailers either closing branches, then we have Mr Ashley , now HOF, min wages not being paid ,sweat shops in the the midlands.
    Get a grip HOF this is really stupid, I agree with all the comments made. We will now create a special HOF price list and be warned Mr Concession its only a matter of time till they come knocking for more percentage!
    Oh the joys of suppliers!!

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  • Where is the morality in the above settlement, so the better you do the more you get punished!
    I will now show my age, they used to pay 5% 10 days end of story.
    "The times they are a changing"

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  • What happened to the WIN WIN business relationship....
    The take take relationship only ever ends in divorce or bankruptcy.

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  • This is exactly why brands should be very careful who they choose to distribute their products.

    The supermarkets punished brands by developing their own label on the profits that brands drove for them.

    The same is happening in fashion. It's called commoditisation.

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  • And the more the figure men get involved the worse it becomes. We used to be known as a nation of shop keepers now its a nation of ? We the suppliers are not your enemy,so why are you beating us up??
    Who remembers when supplying was a joint venture between the 2 parties.
    Makes JLP even stronger. I would love for some of the suppliers to say "enough is enough" I did and have survived.

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  • Who remembers when supplying was a joint venture between the 2 parties.
    Makes JLP even stronger. I would love for some of the suppliers to say "enough is enough" I did and have survived.

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  • The current discount is a lot more than 10% with 3% marketing discount, 1.8% rebates and 5% NDC payment, then on top of this they take 5% to pay 90 DAYS!!!! so in total it is more like 14.8% and this is if you have been lucky enough to get out of mark down contribution. This is 14.8% before these extra discount measures.

    We had no choice but to stop selling to HOF. On top of the trading term discounts our brand was 30% off at some point every month as the whole category was being discounted like this and it was hurting our other stockists who work hard to promote our brand without regular heavy discounting. Not really a sustainable business model for working with suppliers or selling to customers who just wait for the regular heavy discounts and as they don't need to pay full price.

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  • More like a discount of 30% off list price ! Before they come at you with promotional mark down and end of season. They wanted to stock our brand but in the end we decided it wasn't worth the hassle. Brands do not need these department stores any more - their whole strategy is to go online and brands can do that by themselves - with imagination and clever marketing they can create the brand vision they want.
    I can't believe I even wasted my time going to meetings.

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  • I would love to know if Boss, Paul Smith, Ralph Lauren and Gant etc are paying these discounts. Look forward to one of them confirming yes or no!

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