Suppliers told to be on guard

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While headlines focus on big-name retail failures, every boarded-up shop affects a chain of suppliers in the south west, who should be boosting their protection.

Equally, suppliers going out of business can bring down retailers who rely on them.

This is the warning from the top retail specialist at national law firm, Clarke Willmott, which has major offices in Bristol and Taunton.

According to Graham McIntyre, head of Clarke Willmott’s retail team:  “The tsunami of failures on the high street means that suppliers to retailers must revisit their terms and conditions, and retailers must ensure that their core-suppliers are protected, to avoid being tumbled over by the domino-effect”.

He points to the example of Zavvi, which was driven into administration partly as a result of the collapse of Woolworth’s EUK supply operation – which also caused “sleepless nights” at Virgin, which had guaranteed £millions of payments to Woolworths for stock when it sold Zavvi (formerly Virgin Megastores) in an MBO.

“Clearly, protecting retailers’ supply chain has never been more important, to avoid the ‘domino effect,” said McIntyre.

Major supermarkets are already starting to heed that message.

“While some supermarkets were recently demanding that suppliers accept a 2% price-cut, Gordon Brown and Lord Mandelson have been urging prompt payment to smaller businesses in this recession.  ASDA has now cut some supplier payment times to just 20 days, while other retailers are renegotiating contracts to the benefit of suppliers.

“This would have been unheard of a year ago,” said McIntyre.

He urges South West suppliers to revisit their terms and conditions and ensure, where possible, that they have “retention of title” clauses in place which, coupled with other safeguards, can help them recover products if the retailer collapses.

Equally, South West suppliers should revisit overdue payments as a source of vital cash.

“Suppliers will need to keep a tighter grip than ever on retail payment times, as sliding payment times is one of the first indicators of a retailer being in trouble.  It could well be worth chasing those outstanding payments and auditing any outstanding disputes to see if cash-flow can be boosted,” McIntyre suggests.

“Just as we are seeing calls for Government to support the motor-industry to protect its supply chain of smaller companies, the retail sector’s plight affects a vast number of suppliers.  Right now, many of those suppliers are better-placed than ever to preserve their interests,” he added.