In today's global economy, it's certainly not unusual to ask suppliers to tighten margins a bit. But U.K.-based Laura Ashley (with operations in the United States, U.K. and Brazil) lacked a bit of subtlety this month, when a supplier memo demanded an "immediate cost price reduction of 10 percent"--including on orders already placed--or else it would "review its supplier database."
This prompted the public wrath of a small business lobbying group, the Forum Of Private Business. A statement issued to various U.K. media characterized the retailer memo as " one of the worst cases of supplier abuse we've ever seen."
A spokesman for the lobbyists, Robert Downes, was quoted in the Financial Times as saying: "We thought we'd seen it all, but this takes some beating. Ten percent is a huge amount. In fact, it probably means in many cases the supplier is making no profit or even operating at a loss."
The letter, signed by Laura Ashley's chief financial officer Seán Anglim and chief operating officer Nick Kaloyirou, blamed E-tailers for forcing prices lower, which is ironic given the priority Laura Ashley is now giving to its own E-Commerce operations. "Retail prices are constantly being driven down with increased promotional activity and the advent of online-only retailers, online marketplaces etc," the letter said. "We feel this [price reduction demand] is both fair and equitable and will save us a process of reviewing our supplier database."
The demand for the lower prices is not ideal, but understandable. It's the retroactive part--asking that already-agreed-to prices be lowered by double-digits--coupled with the implied threat that seems to be upsetting suppliers.
The retailer issued a statement saying "[w]e have very strong and long-term relationships with our suppliers and always have. We work closely with them to deliver the right products at the right prices for our customers and are having ongoing positive conversations with all our suppliers to ensure we keep doing this."
According to The Telegraph, not all of those conversations are so positive. The publication quoted one supplier saying: "[t]his is an outrageous, bullying and arrogant letter. It's ten percent or else. It means we end up losing money on work we'd already negotiated prices for and agreed with our own suppliers. How is that fair and equitable? That's our profit gone. We can't honour this." The supplier added: "I think suppliers should play hard ball on this and not roll over."
The Telegraph pointed out that the Laura Ashley letter follows a similar demand by John Lewis.
"Last month, [John Lewis] told suppliers they are to be subject to a rebate of up to 5.25 percent on annual sales with the retailer because it needs 'all parties to participate in showing their ongoing commitment and support.' Debenhams has also been accused of putting the squeeze on its supply chain after it told companies it works with that it intends to cut prices by 2pc and delay payments from 90 days to 120 days."
Working with suppliers to lower costs is a good thing, as long as suppliers are being treated as partners. Treat them like hired help--or rivals--and this is a strategy that is likely to backfire.