Jan 18, 2018
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Arcadia squeezes suppliers in tough fashion retail market

Jan 18, 2018

Topshop, Burton and Dorothy Perkins owner Arcadia has given its suppliers notice that it expects a 2% discount on orders, citing the tough retail environment and higher costs for the cut.


CEO Ian Grabiner said in a letter that the discount is small and comes after the company has already "absorbed significant costs in technology, distribution and people”. He said the discount is required "in order to remain competitive in the global market.”

It will be applied to all existing and future orders as of February 1, according to an ITV news report.

The company said the move comes as the cost of “servicing and delivering to our customers through new channels is considerably higher than through the traditional retail marketplace.”

That fact is undeniable as a surge in online fashion purchasing in recent years has dented margins due to higher costs. It’s more expensive to get items directly to consumers in their homes, office or local pick-up points compared to the fairly cost-effective physical stores format. And with e-sales also leading to higher returns volumes, that adds further costs.

Arcadia said that this has “resulted in major investment in our infrastructure in terms of systems and distribution as well as a large headcount increase.” But it added that “these substantial developments to our business will mutually benefit our suppliers.”

The Forum of Private Business (FPB), a group representing over 18,000 small businesses, criticised the company. FPB said the cut in supplier payments will save it tens of millions but will damage smaller firms and comes after it did the same thing back in 2015. 

However analysts said that the move is not simply about Arcadia being greedy and could suggest that recent trading may not have been as strong as hoped for.

With the giant group being privately-owned, its doesn’t have the same reporting requirements as listed companies do, so we have less information about its ongoing trading performance. 

Its last set of results, for 2016, showed it taking a profits hit due to the fallout from the BHS collapse and while that gives little clue to current trading, the general weak environment and changes the company has made are perhaps more telling.
It has reportedly appointed management consultants McKinsey to help it boost e-tail sales and has also seen a change of management at Topshop both on the executive and creative front. 

In fact, Topshop has continually made headlines as it works to deal with the challenging environment and re-start sales growth. The firm has had to deal with last year’s failure of its Australian business and its exit from Spain and more recently has ramped up its efforts to target expanding markets such as China.

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