The retail giant has upset its suppliers with a surprise take-it-or-leave-it cost reduction. Jan Cavelle urges small and mid-sized manufacturers to rebel against these tactics.
Last July, Laura Ashley were able to report £18.8m annual profits, with a 4.1 per cent increase in UK retail sales in the first 18 weeks of the year alone - combined with an 18.8 per cent year-on-year website sale increase.
The business is credited with having successfully combined showrooms, where customers can do the "touchey feeley" bit, with an online shopping facility. The second half of last year showed similar results, with sales growth coming in at 4.2 per cent until September.
This was the second year running in which the company was able to send its share values soaring when other retailers were finding it tough. All credit to their Malaysian chief executive, who has brought the company back from the brink of 2003.
However, for a company that claims it has “very strong and long term relationships” with its suppliers, it has come into some extremely bad press this week. These stakeholders they supposedly hold so dear were dealt a heavy blow earlier this month when, without warning, letters arrived on their doormats demanding an immediate cost reduction of 10 per cent with the none-too-veiled threat that getting this would save them the process of reviewing their supplier database. Suppliers have not even been given any warning but have been told to apply the slash to existing orders.
The FPB (Forum of Private Business) has quite rightly declared it “supplier abuse, lazy and destructive.”
Laura Ashley are not the only ones. Debenhams told their suppliers their intention to cut prices by two per cent and swop payment terms from 90 to 120 days. John Lewis announced they expected up to a 5.25 per cent rebate on annual sales, having shown a 16 per cent increase in pre-tax profits. Monsoon reported profits of £100m and equally informed their suppliers at the end of last year that they would be discounting supplier payments by four per cent and extending payment terms from 60 to 90 days.
Many moons ago, I extracted myself from a deal to supply furniture to Laura Ashley. Farmer’s daughter that I am, I had been weaned on horror stories of parental peers being squeezed out of business by this sort of behaviour from giant food retailers. I never regretted my decision.
Profits in British manufacturing are minimal. Many small firms are in permanent cash flow crisis. The behaviour of these major players will ensure many more go resoundingly bust, either losing their main customer by taking a stand, or attempting the impossible of surviving on too smaller margins and too longer credit terms. Ironically, such behaviour and its results will therefore only lengthen the recession in Britain, ensuring more people out of work and less cash available to spend at their greedy little tills.
Do not doubt for a minute that they will continue this behaviour for as long as they can. Do not doubt that we will have to read more of their increased profits. Their tactics are obscene.
It is easy to be swayed by the bright lights of huge contracts but it is also a sharp ride towards inevitable business failure. Bullies continue to bully until someone takes a stand. I absolutely urge all British manufacturers to say no to these companies and to never take on their business.
Photo via Flickr / ell brown
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