Small businesses supplying Matalan are reacting angrily after the retail giant announced a mandatory two per cent cut in payments to suppliers.

The facts:

Matalan will make the deduction from 1 September and it says it will use the extra cash to fund PR and marketing activities. The budget fashion shop chain justified itself in a letter to small business lobby group the Forum of Private Business (FPB).

An excerpt from the letter reads: "The benefit from the above expansion will generate increased business, and I hope that you will participate in this growth." In June, Matalan announced pre-tax profits of more than £53m.

But the FPB is also aggrieved at the company’s plans to expand retail parks, develop international franchises, expand its online business and refurbish stores; which it says will come at the expense of suppliers.

The business lobby has entered Matalan into its ‘hall of shame’ which identifies and condemns large corporate entities when they squeeze small business suppliers. Also on the list are Tesco, John Lewis and Woolworths.

They said:

"This is not the first time that Matalan has passed on costs to its suppliers and it represents a payment problem that is endemic across a number of industry sectors," said FPB chief executive Phil Orford.

"The fact that this latest charge is being justified to fund initiatives like marketing and international expansion adds insult to injury for many smaller firms, which are struggling to control essential costs as the economic downturn continues."

Raymond Frankle of Frankle Trimmings in London kicked up a fuss the last time Matalan introduced a compulsory discount in 2006: "We didn't agree to the deduction and very shortly afterwards the company stopped dealing with us.

"It won't take out new orders, but neither will it pay back the deduction from our 2005 orders. The thing that hurts me the most is seeing its high-profile advertising campaigns and I am not prepared to let my money pay for them.

"You enter into a contract and deliver the goods, so it is not unreasonable to be expected to be paid for them. Agreement to a change of payment terms should be reached by both parties, not just one."

We say:

The FPB’s hall of shame is growing all the time, and it looks as though supplier discounting is here to stay. But it seems terribly Machiavellian to squeeze your suppliers’ margins just because you want some extra cash to advertise.

We’ve heard plenty of examples of small businesses cutting their ties with the supermarkets and selling direct to restaurants and small shops who pay a fair rate. Large chains shouldn't be surprised if this trend develops.

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By News Desk  on   Aug 19,2008

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Keywords

FPB    shops    retail    small business    suppliers    customers    sales   

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