Is John Lewis fleecing its suppliers?

Britain's 'model business' has been found to be 'abusing' its supply chain by demanding rebates from those enjoying bumper sales through its stores, according to a letter seen by the Daily Telegraph.

by Michael Northcott
Last Updated: 19 Aug 2013

It has been praised as a model British business thanks to great financial figures and large bonuses for staff, not to mention the employee-ownership model looking friendlier than ever. But its sheen has been taken off today, after a letter to suppliers seen by the Telegraph, suggesting that some of them now have to pay a rebate of 5.25% on their annual sales in order to keep the contract.

In other words, suppliers whose products are flying off the shelves of the local John Lewis are effectively required to offer lower wholesale prices when the popularity becomes apparent. Apparently, the system means that a suppliers’ invoice must be reduced by 0.75% if sales grow by between 5% and 9.9%, all the way up to a 5.25% reduction if sales grow by over 50%. John Lewis allegedly claims the rebate is to ensure ‘all parties…participate in showing their ongoing commitment and support.’ 

Insisting that its investment in new stores, refits and increasingly popular e-commerce offering are to thank for growing sales, John Lewis said: ‘By providing this platform for growth our suppliers have in turn benefited from increased profits levels through efficiencies provided from the increase in volumes. It is therefore essential that the collaboration shown to date is continued and that John Lewis and it suppliers share the benefit created from these significant growth opportunities.’

It is true that the firm is doing better. Last week, it announced pre-tax profits up 16% to £410m, and also its biggest-ever bonus for staff, which topped £200m for the first time. According to the letter, the ‘growth rebate’ initiative took effect at the start of February – a time when it was becoming clear how well John Lewis had done over the Christmas period.

That other major retailers have been operating a similar model to this for years will be little consolation for the army of well-heeled customers for whom John Lewis' ethical stance has made it a popular choice. The firm has benefited hugely from its ‘friendly, local-supplier-using, employee-valuing, non-exploiting’ image in recent years, and this risks making it look like more of a high street ‘baddie’ than many of those customers originally thought.  

Big, bad corporations face arguably more scrutiny than ever at the moment, especially whilst Brits’ purse strings are so tight. And if this letter provokes enough outrage, JLP may have to revise its strategy if it wants to hold onto its feel-good reputation…

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