In my capacity as agony uncle to the trade I have been asked for advice. It seems that a well-known chain of department stores, no names no repercussions - has suggested to their suppliers that they might like to contribute to the refurbishment of the stores and the strengthening of the chain's brand by giving an extra discount.
On the face of it this seems like an offer any supplier would be unwise to refuse. It makes sense. When the stores are refurbished and the chain's brand reburnished its sales will go up, and so will the orders to the suppliers, so everyone wins.
It is after all an extension of the end of gondola argument. In case you are not in the know a gondola (don't ask me why) is what a free-standing merchandising unit is called, one of those things in a supermarket devoted entirely to cheese, for instance.
If a supplier wants to promote a new sort of cheese then he is invited to have it displayed at the end of the gondola, which is a prominent position where the punters will noticed it, for a stated period for which the supplier pays a handsome rent. Once again it can be argued that both sides benefit from the transaction.
Another way of looking at it is that it is a bit like an extension of franchising, where a branded supplier takes space in a store to sell their goods. Indeed, some department stores have adopted this policy, on the grounds that they know far less about buying and selling shoes (for instance) than a shoe brand, to the extent that their stores tend to look more like a collection of market stalls than a store.
I hope that by now my reader has spotted the snag, the fly in the ointment. Unlike the renter of the prime position gondola or the franchiser, the supplier who is going to pay for the refurbishment has no control.
If you take a gondola end you can put what you like on its shelves, and up to a point use your promotional materials. A franchisee just pays rent and a percentage on sales, subject to certain conditions, and both have a fixed term contract. In the case of the poor supplier who is invited to help smarten up the department store, it may result in more business, but it may result in none.
What happens if, as is very possible, the supplier's goods, which sold fairly well in the old fubsy department store, do not go with its new bright shiny up the minute image? Is there any obligation on the part of the store to go on buying the suppliers products, and if so, for how long. I suspect not.
This sounds to me like the sort of thing which is dreamed up at the top of a financier's skyscraper, far removed from what goes on down there in the real world of flesh and blood buyers and sellers who actually handle the goods.
The suppliers are asked to take a leap in the dark. If they get the increased trade, well and good, but if for any reason at all the store decides not to take their stuff, then they are well and truly stuffed. They have paid for their dinner and got one meat ball.
They are on a hiding to nothing. They may be tempted to gently increase their prices to make up for the extra discount, or reduce the quality in some slight way, which sounds awfully like cutting off the nose to spite the face.
Or they may think the best policy is to tell the store, very politely, that they are not interested. If their brand is strong enough they may get away with it, but if not, then they will find their orders drying up.
If enough people do that then the store's bluff will be well and truly called, and that will be the end of it, but the problem, as anyone who is trying to sell anything knows, is that these days we live in a buyer's market. Every supplier knows there is someone out there doing their best to take their place in the affections of his customers. It will be a brave guy indeed who stands up to the store.
Unless, and this is the lesson to be learned, the chain's orders are loseable. If the loss of the chain as a customer is going to send the supplier's business into a nose drive, or even a flat spin, then there is something wrong with their marketing. They have made the mistake of putting all their eggs in one basket. I know it is all very well to preach, and it is very hard to refuse someone who regularly takes half, or even all, of what you have to sell. Life becomes easier and comfortable for both sides and there is nothing wrong with such a relationship, provided, as in a marriage, both parties respect each other and work at keeping the marriage on an even keel. The trouble is that in too many cases one partner to the deal becomes dominant, which is when trouble starts.
The whole point of having a brand is to appeal directly over the head of your retail outlet to the man or woman with the credit card, so that you can get extra value and have a measure of control over your own destiny, and if your brand is so weak as to be susceptible to erosion by paying what in effect is a tax levied by your customer, then there is something wrong with it.
Another well known chain, this time of shoe shops was founded on the basis that the suppliers gave twelve months credit in return for everlasting business. The factories, mostly in Italy, complied with the request. After 365 sleepless nights the cheque arrived, as did further substantial orders, and everyone was happy for a while.
That chain no longer exists. Says it all.
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