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John Lewis accused of bullying suppliers into cutting their bills
Retailer tells companies to trim their invoices if they increase sales through its outlets
RETAILER John Lewis has been branded a "bully" and accused of "picking pockets" after it sent a letter to suppliers demanding they trim their invoices by up to 5.25 per cent if their annual sales increase.
The letter, which has been seen by the Daily Telegraph, says John Lewis has created a "platform for growth" by investing heavily in "new stores, refurbishments, and its growing ecommerce operations". Suppliers have benefitted from "increased profit levels" as a result, it says.
To recoup some of its investment, the store is implementing a "growth rebate" scheme that requires suppliers to slash their invoices by up to 5.25 per cent if they enjoy an increase in annual sales through John Lewis outlets.
The scheme, which takes effect from the start of last month, calls on suppliers whose sales grow by between 5 per cent and 9.9 per cent to offer John Lewis a rebate of 0.75 per cent. If sales grow by more than 50 per cent, a 5.25 per cent rebate will apply.
The discovery of the letter comes the week after John Lewis reported a 16 per cent increase in pre-tax profits to £410m and paid a bonus of more than £200m to its employees. The company enjoys a reputation as a model British company.
The letter – which was sent to about 130 suppliers on 22 February - has angered the Forum of Private Business which described the scheme as "outrageous" and accused the department store of being a "bully".
"What a way to treat your suppliers, who are effectively having their pockets picked by John Lewis on the back of strong trading," an FPB spokesman told the Telegraph. "It's a win-win for John Lewis all the way."
John Lewis confirmed last night it had written to a "small number of suppliers" to discuss "bringing their commercial agreements in line with the rest of our supply base". A spokesman for the store said suppliers "retained the right" to discuss the terms of their agreements with John Lewis and "whether it is profitable for them to supply us." ·
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I have known JLP for quite some time now. In that time
JLP has changed out of all recognition. It used to be the most supplier
friendly company and highly ethical, in fact I would say the best. It has
moved a long way from that and continues to develop its methods of driving its
own profits at the expense of its suppliers and customers. Even though individually the staff is
excellent the corporate culture at JLP demands that the staff extract every
penny they can from their suppliers. This drive would appear to come from
the senior management and possibly even from Charlie Mayfield, the chairman,
himself.
For any small company to secure a contract with JLP is a
fantastic opportunity: One that most
manufacturers cannot afford to miss. I have no doubt that almost every
potential supplier offers their very best price to JLP from the outset. I
am aware of suppliers that offer JLP in excess of a 60% discount from the
retail price and in fact JLP often demand this dependant on the type of goods.
This means that all these hopeful suppliers have already squeezed their margin
as much as they can, often in fact more than they can really afford. I
would estimate that these suppliers are only making about 20% of the RRP to pay
for all their costs aside from the manufacturing costs, eg. Staff, Property,
Product Development, Marketing, General Overheads etc.
John Lewis recently introduced a policy called "Sharing
the Proceeds of Success". To my mind that should simply mean that
JLP should continue to enjoy their 60% of any increased sales, but also be delighted
to leave the 20% for their suppliers to pay their costs and hopefully make a
profit too. In no way is it equitable that JLP should demand more as, if
there are efficiency benefits, then JLP also gain from those benefits.
By this policy of “Sharing the Proceeds of Success”, JLP imply
that it is only them that are responsible for any additional sales
success. In my experience a lot of any sales success is driven by the
efforts of the manufacturer to make a great product that customers actually
want as well as regularly check in JLP stores that their goods are well
presented.
On top of this attempt to claw an additional 5% of margin
from the suppliers, JLP have also recently introduced a Returns Debit
scheme. This means that for any return JLP gets from a customer or damage
in their supply chain JLP automatically debit the supplier, no matter who is
responsible for the return. That might be the customer, the retailer or
the distribution company. The bottom line is that the supplier pays, even
though they are usually not responsible. This typically amounts to
between 3% and 5% of the margin.
There is also a Settlement Discount. The normal idea
of a Settlement Discount is that if a retailer pays for the delivery of goods early,
usually immediately, then they may seek to agree an additional discount.
JLP simply demand a 2.5% Settlement Discount for payment 30-90 days which is no
more than standard terms and should not attract any discount.
Marketing Contribution. In order to help the goods
sell in their shops JLP demand a "Marketing Contribution". This
goes towards nothing specific in relation to the suppliers’ own products; it is
simply another way to take more of the supplier margin. This too is typically
2.5%.
If you add all these additional tarifs up they can add up to
between 5 and 15% of the RRP. This means that JLP could take as much as
75% of the RRP, leaving just 5% for the suppliers’ margin and only 20% to
actually make the goods.
It is no wonder that the quality of goods continues to
diminish - what else can any supplier do to survive but reduce the cost of
their goods, reducing the quality and desirability and ultimately destroy their
business.
There was a time more than ten years ago when M&S's
reputation was unimpeachable. They too adopted a strategy of mining out
their suppliers’ margins and eventually this was discovered by their
customers. I very much hope that JLP radically change their policies immediately
before it is too late. They are a great
retailer, but only for so long as their customers trust them.