Artikel KamCity.com: Argos Terms change could mean supplier sales increase of 8% to restore cash margin

UK: Argos Terms change could mean supplier sales increase of 8% to restore cash margin

Article by Brian More (NAMNEWS, www kamcity.com)
The Forum of Private Business (FPB) has attacked Argos for doubling the time it takes to pay suppliers. The catalogue chain’s suppliers are being forced to wait up to 60 days for invoices to be settled - compared with the previous limit of 30 days. The Home Retail owned chain has also said it will knock up to 4% off bills it pays within the new longer time limit.
This means a supplier could need an 8% increase in sales to restore its cash margin.
See why below.

Financial impact on Supplier:
1. Price discount of 4%, all costs remaining constant: Extra sales required

• On annual sales to the customer of £150k, the supplier currently makes a gross profit of 40% i.e.£60k on ex factory cost of £90k.
• Reducing prices by 4% means that sales to the customer are reduced to £144.0k, and assuming that ex factory cost remains at £90k, the new gross profit is £54.0k i.e.37.5% of sales.
• Then, New Sales x 0.375 = £60k
• Therefore, New Sales = £60k/0.375 = £160.0k

i.e. extra sales of 6.7% to restore supplier’s cash margin

2. Cost of giving the customer 60 days credit

• Here the supplier is effectively giving the customer an interest free loan = 60 days sales
• On sales of £150k to the customer, a 60-day customer pays the supplier 365/60 times per year, i.e. 6.08 times per year.
• This means that the supplier is lending the customer £24.67k, interest free, permanently.
• Say the cost of borrowing is 10%, then the supplier is effectively borrowing £24.67k @ 10% i.e. £2.47k to give it to the customer, interest free.
• However, taking previous credit to the customer of 30 days, then 60 days represents an additional 30 days credit.
• Using the above calculation, this means that on 30 days extra @ 10% cost of money, the supplier is effectively giving the customer a discount of 0.82% on sales of £150k.
• Reducing prices by 0.82% means that sales to the customer are reduced to £148.767k, and assuming that ex factory cost remains at £90k, the new gross profit is £58.767k i.e. 39.50% of sales.
• Then New Sales x 0.3950 = £60k
• Therefore New Sales = £60k/0.3950 = £151.9k, i.e. a sales increase of 1.3% is required to restore supplier’s cash margin.

In other words, if the customer asks for 30 days extra credit + a 4% discount off invoice, the supplier needs an 8% increase in sales to the customer, to restore the the supplier’s cash margin

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What is Category Management?

What is a ‘Category Development Professional’?
‘Category Managers’ and ‘National Account Salespeople’, as well as other related roles, are professionals who use ‘category management’ methods and data to increase sales. 

Every ‘category’ (product or group of products like ‘beverage’ or ‘pet food’ or ‘OTC/over-the-counter drugs’) is closely tracked for sales history using scan data from the retail check-out counter, which is combined with the manufacturer’s internal historical sales data, data reflecting total category sales (purchased from third party vendors), and other qualitative data (consumer surveys, etc).   The analysis of this data results in a recommended assortment of products for the store shelf in each category, and this exercise is referred to as ‘category management’.
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Deductions, an Opportunity for All?

Deductions, an Opportunity for All?
By Brian Moore, Global Retail Consultant and CEO of EMR-NAMNEWSGiven that deductions can represent 7-10% of a supplier’s sales, and as net margins continue to fall, then any improvement will not only have a significant impact upon cashflow and profitability, but will also have a major impact upon the equivalent incremental sales-profit relationship.

For instance, a supplier making 6% net profit before tax, on a sales turnover of £50m, reducing deductions by £1m will impact the bottom line with the equivalent of an incremental sales increase of over £16m…a 32% uplift in sales!

Moreover, apart from the obvious financial benefits, the process of deductions improvement can help in addressing and ensuring trade compliance, reducing preventable deductions and also assist in keeping unauthorised deductions to a minimum.

Essentially, the management of deductions is complicated by the lack of direct ownership, in that departments such as sales, marketing, logistics, category management and finance all have an influence in terms of cause and effect upon the level of deductions made by customers. Despite the fact that many deductions are preventable, deduction resolution is still regarded as a low status, ‘negative’ activity and in a time of cut-backs, tends to be under-resourced in terms of people, systems-support and relevant information. (more…)

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When a Buyer Wants ‘Too Much’…

When a Buyer Wants ‘Too Much’…
By Brian Moore, Global Retail Consultant and CEO of EMR-NAMNEWS

With financial pressures causing some retailers to attempt to compensate for falling sales and profits at the expense of suppliers, it is important that both sides agree to establish and preserve the ‘status quo’ in a trade partnership.

In other words, a business deal has to be an agreement to conduct the supplier-retailer relationship on a zero-sum basis, whereby any gain by one party will be at the expense of the other party, unless equivalent value is given in return, thus maintaining the status quo, or balance of needs-satisfaction in the partnership.

Given that a trade partnership is based upon a negotiated commercial settlement between ‘equals’ and presumes compliance in an environment of trust, this status quo needs to be maintained in order to ensure longer term investment in the relationship by the supplier. It follows that a one-sided demand or short-term action by the retailer automatically abuses the rights the supplier was led to expect upon entering the agreement, unless reciprocation is possible.

Obviously, major suppliers are capable of insisting upon their partnership-rights when these are challenged, and can resort to litigation where necessary, but medium and smaller suppliers have little alternative but to acquiesce or face the consequences of  walking away from a customer that may represent 20% or more of their turnover. A solus use of a legal route is not usually a viable alternative. (more…)

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Power shift from Supplier to Retailers

Source: Deloitte & Touche USA LLP - United States Many suppliers are losing brand equity. Consumer purchases are increasingly driven by price instead of brand loyalty. Most shoppers see only minimal differences between higher priced nationally branded goods and the more value-oriented private labels from retailers. Between 1998 and 2002, supermarket sales of store brands increased 18.4 percent to $42 billion. Sales of national brands increased only 11 percent over that same period.

Manufacturers face the significant challenge of convincing consumers that their branded products have unique value that is worth seeking out. Some branded food companies are already being singled out by analysts for their weak earnings figures that in part are said to result from charging more than private label brands. One response has been to increase promotional activity to narrow the gap between the manufacturer’s retail prices and those of private label products.

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