Suppliers seeing red

Has Spicers missed an opportunity to forge closer vendor relations in the UK?

To say that vendors in the UK are up in arms at the moment over pricing issues with leading wholesaler Spicers is not an exaggeration. In fact, it’s probably something of an understatement.
At a 12 January ‘supplier engagement day’ in the UK – which Spicers CEO Alan Ball himself has described as “robust” – vendors were taken by surprise by a number of pricing and payment demands (or ‘requests’, depending on how you look at it) made by the wholesaler.
OPI understands that these include:
–    A retraction of 2012 price increases agreed at the end of last year
–    A further 5% reduction based on 2011 cost prices
–    A 1.5% discount on existing payment terms or a further 30 days
–    A 2% ‘investment rebate’ to support 2012 investments
Furthermore, Spicers indicated that it would be implementing its revised pricing with effect from 1 February and asking for a credit note for the January cost difference.
Speaking to OPI earlier this week, Ball said he felt that Spicers was not asking for anything unreasonable from its vendors.
The wholesaler’s line is that the fall in certain commodity prices and the strengthening of the euro versus sterling in the last six months – and since the 2012 prices were agreed – means that vendor prices need to be re-evaluated.
Ball also pointed to a number of price increases over the last 12 months which have “hit the pocket” of the wholesaler and its dealer customers. In fact, he said that Spicers is coming under increasing pressure from dealers to reduce its prices, a recurring message he has noted from the current Furnology roadshow meetings.
Spicers is also using current market conditions and trends as a way of leveraging improved terms from vendors.
As well as the general soft trading conditions, Spicers referred to the end-user’s preference for cheaper house-brand products over vendor brands, suggesting that it would continue to reduce the number of vendors and brands featured in the Spicers catalogue.
Life’s a pitch
Using a football analogy at the 12 January presentation, Spicers said that the pitch was getting smaller and asked suppliers to show their support if they didn’t want to get substituted.
“Some of the vendors [at the 12 January meeting] won’t be part of Spicers’ future,” said Ball. “That’s the impact that the market and the end-users are dictating.”
The Spicers UK CEO added that some vendors – including some major players – had already accepted the wholesaler’s terms, “begging the question if we were ever asking enough”, but is clearly expecting further meetings to be taking place with the majority of vendors over the coming few weeks.
Reaction from vendors that OPI spoke to both during and after the recent Paperworld show in Frankfurt ranged from “disappointed” to “disgusted”.
OPI understands that some suppliers have flatly rejected Spicers’ requests and are asking for written guarantees that the previously-agreed 2012 pricing terms will be honoured. There is also talk of suppliers refusing to fulfil orders that reflect the updated pricing, as to do so would indicate their acceptance of the revised terms.
Buying below its weight?
Clearly, the background to all this is the takeover by Better Capital of Spicers UK & Ireland, and there was talk before the spin-off of what would happen to vendor pricing and programmes now that the relationship was with a £300 million ($450 million) UK wholesaler as opposed to a £700 million pan-European wholesaler.
Contentiously, Ball believes that Spicers (when it was owned by DS Smith) didn’t receive vendor terms that were in tune with its size, suggesting that the former European purchasing team could have bought better. That’s sure to raise a few eyebrows amongst vendors who had to deal with renowned negotiator Stewart Barton-Taylor for a number of years.
Speaking to OPI at last December’s EFTOS event in Coventry, Ball said that he had received no indication from vendors that they would be seeking improved terms now that they would be dealing with a smaller entity.
However, Spicers’ recent actions would suggest that the wholesaler was at least bracing itself for some kind of reaction from vendors and has moved quickly in order to negotiate from a position of strength.
“Attack is the best form of defence in some regards,” Ball told OPI this week, adding that he fully appreciated the vendor position.
“I didn’t expect vendors to come along and give us a pot of money,” he said.
“We’ve made an ask – our team wouldn’t be doing its job if it didn’t and [the vendors] wouldn’t be doing their jobs if they didn’t negotiate. [I hope] we end up with a sensible position in the middle and then move on.”
This, at the end of the day, probably wouldn’t be a bad result for Spicers UK given its overall reduced purchasing power.
Vendor concerns
Now it remains to be seen to what extent vendors will dig their heels in. One Europe-based manufacturer told OPI that it would not be out of the question for it to pull out of the UK market altogether if it was forced into accepting the revised terms.
There are also a number of other grievances and concerns.
One is simply that Spicers is backtracking on previously agreed terms which – in some cases at least – had been negotiated directly with the UK at the end of last year and not on a European basis.
Another is that while Spicers is squeezing its vendors for price concessions, its own 5-Star brand has seen its catalogue price increase significantly in recent times.
Other vendors just disagree that Spicers is not already receiving excellent terms and that any further concessions raise serious question marks about their own profitability.
There is also a sense that if Spicers is having issues with its profitability, then it needs to address these internally rather than asking vendors to ‘foot the bill’.
Furthermore, if vendors concede ground to Spicers now, what will the other resellers do? You can imagine purchasing teams calling vendors saying something like: “Well, you’ve given something to Spicers, now what can you do for us?”
What next?
If suppliers do have some negotiating strength – the larger ones at least – then it’s from their ability to find other routes to market.
Market demand for their products will not just dry up if they are no longer listed in the Spicers catalogue; dealers will still want to offer products that sell well and make them money.
Closer ties with the other leading wholesaler VOW is an option, or vendors with the capability could choose to up their direct selling to dealers. A third way could be in the form of non-traditional OP wholesalers such as IT distributor Westcoast, which is rumoured to be looking very closely at adding office supplies to its product portfolio.
However the current situation is resolved, it remains to be seen if there is any lasting damage to Spicers’ relationships with its vendor partners.
It appears that vendors went into the 12 January meeting looking forward to working with the wholesaler to grow sales – and profits – together, but left with a deep sense of disillusionment.
Spicers’ presentation talked about striving for success and partnership, but with vendors also threatened with substitution or relegation, many are asking just what kind of game the wholesaler is playing.
Not the beautiful game for sure, is one answer.
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