This time last year the retail industry was thrown into controversy when it emerged that some retailers, including department store chain Debenhams, had put pressure on suppliers to cut their prices as a means of “investing” in the bigger business. A year on it seems that little has changed, with a new report from the Federation of Small Businesses (FSB) revealing that one in five firms had faced supply chain bullying.
According to the report, the FSB found “alarming evidence of supply chain bullying” affecting around one fifth of its 2,500 members, with controversial practices including “pay to stay” arrangements still being widely practiced. Under pay to stay terms, suppliers are forced to pay a fee in order to keep doing business with a chain – something which the FSB argues is unacceptable in today’s recovering economy.
National chairman John Allan believes the report’s findings will be viewed in an extremely dim light by consumers in the UK.
He says; “When the public think of their favourite brands, they are unlikely to connect them with the sort of immoral payment practices which are becoming all too common across an increasing number of industries.”
“However, it is clear that whenever these examples come to light, the public shares the same sense of moral outrage as the small firms that have to put up with them on a daily basis.”
Although pay to stay terms are the most popular example of exploitation by large businesses against suppliers, they are by no means the only issues. The FSB also found instances of late payments, enforced discounts for paying on time and “retrospective discounts” – when a large retailer reduces the amount owed on an outstanding balance to a supplier – whilst conducting research for the report.
The problem has now become so great that the Department for Business, Skills and Innovation (BIS) has approached national watchdog the Competitions and Markets Authority (CMA) with regard to launching an investigation into pay to stay clauses. Furthermore, it aims to reinforce the strength of the Prompt Payment Code, which allows smaller businesses to “see which big companies treat their suppliers fairly” as a means of encouraging best payment practices.
Small firms have, for quite some time, been applauded by the government for providing the “backbone” for the UK’s economic recovery and as a result have been the focus of much of the support announced recently in the Autumn Statement. However, the FSB report indicates that it is not necessarily financial but legal support that many require in order to ensure their customers play their part in acting fairly.
In a statement, the BIS said; “This behaviour is unacceptable and we want it to stop.”
“Many small suppliers feel they are being exploited and we are acting to see that this changes.”
“Large companies need to behave responsibly and should not be using their financial clout to mess their suppliers around.”
Do you think a change in legislation is required to stop this from happening, or would a consumer boycott of retailers involved in such practices prove more effective in the long term?
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