In the lead up to Christmas 2013, a number of retailers demanded rebates from their suppliers as a result of the uncertain trading conditions. In part this is because, although the retail industry has taken great steps towards recovery, the memories of the tough times faced in the recession are never far from retailers’ minds and they therefore wish to build up capital in order to cushion their businesses from further downturns in the future.
This week, Home Retail Group became the latest retail chain to ask suppliers for a rebate, indicating that retailers still remain far from confident about their financial futures. In letters sent to suppliers, both Argos and Homebase demanded a 2 per cent turnover rebate for future orders placed on and from the 1st of March, and claimed they will also “take this opportunity to discuss and agree with you proposed changes to the existing payment terms.”
Despite the fact that Argos and Homebase performed relatively strongly over Christmas, posting increases in like for like sales of 3.8 per cent and 4.7 per cent respectively, profits for parent group Home Retail are still significantly lower than those seen in the pre-recession era. Furthermore, as both retailers are currently undergoing mass store renovations – which for Argos at least has involved a £300 million investment into in-store digital upgrades – bosses are keen to source alternative means of financing from wherever possible.
Commercial director for Argos, David Robinson, alluded to this transformation in the letter to suppliers in which the rebate was demanded.
He said; “As we travel along this journey, it is vital that both Argos and its suppliers play their part in supporting this transformation.
“And hence with effect from 1 March 2014, we will be amending our standard trading terms to include an additional 2 per cent turnover rebate for orders placed on or after that date.”
While it has become more common for larger retailers to demand a rebate from their suppliers in recent times, many have voiced concerns that this trend will have a widespread detrimental effect upon small business growth. Home Retail Group already takes 60 days to pay its suppliers according to its annual report – one of the longest timeframes in the retail industry – and with this latest setback it seems that the situation may yet worsen.
In response to the news, the Forum of Private Business has asked the government to intervene in the situation as well as halting future examples of obligatory rebates. Head of policy, Alexander Jackman, believes this is vital in encouraging small supply businesses to flourish without fear of taking on new customers.
He says; “Small businesses are some of the great innovators in the UK.
“Sadly, more and more of their customers higher up the supply chain are increasingly innovative in methods to extract more money from them.
“Whilst interfering in private sector contracts is a tricky business, we are urging Government to find a way to stop these damaging rebate schemes.”
Do you think large retailers have the right to demand rebates from suppliers if it leads to a higher level of custom and therefore additional income for the supply chain?