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.