The letter said:
“Since our orders were placed, circumstances have changed, including the Australian dollar and improved commodity prices. Rather than renegotiate every cost price we intend to take an additional five per cent rebate on all orders received from 26 September - 23 December. We have not taken this decision lightly. For all orders from January onwards our negotiations will take into account these challenging conditions.”
With suppliers open mouthed in disbelief and the ACCC showing raised eyebrows, Target has finessed its position and is now saying: “Target contacted all our key suppliers in Australia and overseas with the intention to open up conversations with them in the context of the substantial appreciation of the Australian dollar and more favourable commodity prices. This dialogue and these discussions are currently taking place. We have not and will not automatically deduct 5% from any supplier.”
While this position sounds more conciliatory, and might not have raised the ire of the trade the way the letter did, it still represents a new low in supplier treatment.
Like every other retailer, Target is doing it tough, but how many of its competitors would be game to look for a reduction in supplier payments simply to fertilise their the bottom lines? Certainly, most big retailers have reverted to re-negotiating prices from time to time, or have been inventive with a discount that might bring a benefit, albeit tenuous, to the supplier. But an undiluted rebate like the Target one is rare. You’d have to ask what commodity prices and the value of the dollar have to do with it.
While a rap over the knuckles is unlikely from the ACCC because this is a commercial negotiation between Target and its suppliers, it still has resounding ramifications in the Australian apparel industry in general.
If Target is allowed by its suppliers to deduct a whimsical five per cent from their invoices, doesn’t that set a precedent for other retailers to do the same? Will this not establish the new industry norm that, after orders have been placed, along with already substantial discounts built in, another rebate can be introduced – simply because trade is tough? That implies that trade is tough only for retailers, which is far from the truth. Wholesalers are hurting too.
And what about the legality of such a rebate? The terms of the Target letter suggest that the supplier is not being asked for the rebate, but told – although the later statement waters it down to “ opening up conversations”. Because Target is in the position of paying out the money it is also in the position of being able to peck out five per cent as the booty passes.
Suppliers are already beset by all manner of discount ploys invented by major retailers. David Jones, for example, is a master at it, but at least its suppliers can take it or leave it. They don’t have to supply David Jones. In the Target case, the rebate is for goods already in the pipeline – and that’s what makes this tactic particularly irksome.
I asked Target whether it had “opened conversations” with its direct import suppliers, mostly Chinese factories. The answer was yes, but I’d be surprised if the same answer came from the factories. In Australia, Target is a prize account but to a Chinese factory with 2000 machinists, the suggestion of a rebate would hardly be greeted with a nod. More likely it would produce an index finger pointed at the exit.
This is another example of the downside of direct importing. Overseas factories are not intimidated by Australian orders, whereas local suppliers are. Although they may take some of the retail profit margin, you can negotiate prices, logistics and deliveries with the locals. You can also fine them heavily if they stuff up. But with direct importing, what starts out as a mouth-watering margin is eaten away by having to maintain buying offices with stylists, quality control and logistics all to be paid for. It then gets down to the retained margin. With a local supplier that can be calculated down to the last cent and when conditions get tough, there is somebody who may show sympathy and cooperation.
Even after the dust has settled on this matter, as it will, Target suppliers may rejoice in their future orders but have some fear as well, especially if Target gets away with the current rebate ploy.
And what of the departing Launa Inman? Her working life is far from over and now she carries with her the burden of her letter to suppliers. I look forward to the day when Target, or any retailer for that matter, sends all its suppliers a letter telling them that business is so good that for the next three months a five per cent bonus will be added to each purchase payment.