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Retailers put the squeeze on suppliers

As the high street continues to suffer the effects of slow trade, price inflation and a change in the way consumers shop, the pressure is also being piled on suppliers, who are having to share the pain with retailers.

Last week, suppliers to women’s young fashion chain Jane Norman reacted furiously to threats by the retailer to cancel or scale back its existing orders.

Jane Norman responded by saying it was working closely with suppliers and “realigning intake in line with overall stock volumes and requirements” while reacting to market conditions and the recent spell of hot weather. Meanwhile, Marks & Spencer recently called a meeting to ask 60 of its suppliers to contribute towards its £600m store revamp.

Pushed around

Against a background of high unemployment, cash-strapped consumers continue to face higher ticket prices brought on by escalating costs of raw materials such as cotton and wool.

Charles Stone, managing director of Bandana, which supplies high street retailers such as River Island, Phase Eight and Arcadia Group, says: “There’s a limit to how much suppliers can be squeezed. Retailers have pushed payment terms out – first from 30 to 45 days and eventually to 60 days. And they’ve squeezed prices for the past few seasons. It can’t keep going.”

He added that retailers have adopted more cautious buying patterns. “They’re nervous about putting down for massive quantities and they tend to trial orders before investing too much.”

Sarah Peters, lead retail analyst at Verdict Research, says the entire supply chain suffers when retail is struck a blow, such as with the recent spell of unseasonably warm weather that led to a significant drop in sales on the UK high street.

She explains: “Everybody is likely to be struggling. For instance, the hot weather had a big impact on sales of winter coats. Retailers are just trying to keep stock really tight and it’s likely to be a difficult winter and rest of 2011, which doesn’t help.”

Peters adds that retailers must exercise caution in how they manage difficult trading periods. “Retailers and suppliers are very reliant on each other. Last-minute order cancellations would have a big impact on that relationship.” Retailers working closely with suppliers is the key to efficiency in times when stock levels need to be kept tight.

Sally Bailey, chief executive officer at lifestyle retailer White Stuff, sees working with suppliers as a long-term partnership. She says: “Retailers can be quite naive. Companies that don’t have close relationships with the supply chain may get them to write the cheque when times are tough, but it’s incredibly short-sighted to try and short-change suppliers because all they’ll do is put their prices up. They will give with one hand but take with another.”

She says knowing how suppliers operate is crucial to riding out deathly blows, such as the recent Indian summer. She adds: “You have to work together. If you know everyone’s cut and make dates you can make last-minute changes, such as changing a long sleeve to a short sleeve to adapt to warmer weather.”

Anthony Thompson, chief executive of lifestyle chain Fat Face, says changing the relationship with suppliers in the short term, as Jane Norman and M&S have attempted to do, can have its disadvantages: “You have to be careful about making short-term decisions because of short-term economic pressures. It won’t breed long-term success for retailers or suppliers.” 

He says Jane Norman’s threats to cancel orders retrospectively are “inappropriate”, saying there may be times when each party has to renegotiate but it should be done “transparently and in a forward order way”. He added: “It’s naive to assume that the supplier can magic money out of thin air.”

One supplier, who declined to be named, feared the move by M&S to ask for help in paying for its refurbishment programme was a sign of things to come. He said: “They are taking advantage, and once M&S has done it other retailers will copy it.”

Regardless of whether others follow suit, one thing is certain, the move by M&S has created confusion, uncertainty and anger among suppliers.

Michael Wolff, director of M&S supplier The Fielding Group, says: “We are absolutely flabbergasted. It has nothing to do with the present sales conditions. It should have been part of potential forward growth rather than growth that you have had. Sales are terrible at the moment – who can promise growth in anything? There were 60 people in the room and one supplier was reasonably accommodating to the idea – the rest of us were not happy.”

Choosing wisely

However, not every supplier is feeling the pressure. David Attwood, sales director of luxury hosiery manufacturer Pantherella, says: “In the luxury goods sector we certainly haven’t heard of retailers cutting orders or asking for fees over the past 10 years.”

Some 20% of Pantherella’s business is supplying the high street with own-label hosiery, including Ted Baker. Attwood adds: “Luxury consumers haven’t been as affected as the middle market. Also, a lot of people have decided to move away from fast fashion towards quality brands that last.”

While prospects could be brighter for luxury suppliers, as a whole it is not looking rosy. Peters warns that tough trading conditions are here to stay for the foreseeable future.

“It’s going to be difficult for the next six months and probably into the first half of 2012,” she says. “Not till the end of 2012 will we see a better environment for clothing retail, which is why retailers should work closely with suppliers to get the best possible product onto the shopfloor.”

“Life isn’t going to get any better on either side of the fence,” agrees John Miln, acting chief executive of the UK Fashion & Textile Association. Retailers and suppliers have to work together to mitigate price increases and to present the consumer with a product they find hard to resist. He adds: “Hopefully by the end of 2012 there will be growth opportunities for everybody.”

In it together?

Marks & Spencer has asked 60 suppliers to help fund its £600m store refurbishment programme with a one-off contribution of 1.25% of their M&S revenues in the year to August.

Jane Norman has threatened to cancel existing orders and scale back on others.

Pantherella, supplier of own-label hosiery, says there has been less pressure on luxury suppliers.

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