For the U.K.’s Arcadia Group, the answer to bad business appears to be pressing suppliers to give them more for less.
The parent company of U.K. fashion brands like Topshop, Dorothy Perkins and Miss Selfridge, told its suppliers last week that it would start paying them 2 percent less on all current and existing orders starting next month. The company’s CEO Ian Grabiner, blamed the move on the current trying retail market.
A letter to suppliers said: “I know this is not news that you would wish to hear, but we have absorbed significant costs in technology, distribution and people as I have earlier in order to remain competitive in the global market and we trust you will continue to support us,” according to The Guardian.
Arcadia Group’s pre-tax profits have fallen more than 78 percent to 36.8 million pounds ($51.4 million), compared to 172.2 million ($240.7 million) in the year prior. Reports have said the company’s chairman, Sir Phillip Green—notorious for what many said were unethical dealings ahead of the demise of the BHS department store, which was once part of Arcadia Group—has turned to McKinsey & Company to help turn the group around.
Regardless of its business position, the U.K.’s Ethical Trading Initiative, an organization fighting on behalf of workers’ rights, said that Arcadia’s squeeze on suppliers is “appalling” and “totally unacceptable within responsible business practice.”
The organization’s executive director Peter McAllister said in a statement, “Unfortunately, Arcadia has ‘form’ for this type of action. They threatened exactly the same two years ago in August 2015.”
Continuing, McAllister said the workers in Arcadia’s supply chain would likely bear the biggest impact of the company’s decision to short pay suppliers.
“These kinds of arbitrarily imposed terms represent exactly the type of poor purchasing practices fashion brands need to change,” McAllister said. “Suppliers operate on incredibly tight margins. Virtually the only costs they will be able to cut are to wages or to essentials such as health and safety provision.”
The supplier squeeze is a move other companies have been taking in their efforts to remain afloat amid changing times at retail. In July, Walmart told its own suppliers that they would have to “deliver what we ordered 100 percent in full, on the must-arrive-by date 75 percent of the time,” otherwise face charges totaling 3 percent of the product’s value.
Arcadia has reportedly said the cost of evolving its business to meet today’s demands has resulted in major infrastructure investments and additional workforce.
“The cost of servicing and delivering to our customers through new channels is considerably higher than through the traditional retail market place,” The Guardian reported Arcadia as saying in a statement. “These substantial developments to our business will mutually benefit our suppliers.”