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Wednesday, 19 March 2014

Dutch large Retailer HEMA has had a bad year in The Netherlands in 2013… and wants its suppliers to suffer for it!

It is a open secret that the retail market in The Netherlands is currently not doing very well, to say the least.

The deadly combination of the ubiquitous consumer strike, as a consequence of years and years of wage restraint and (even) wage reduction in The Netherlands, and the excess amount of shopping space here, causes that many retailers are clinging on to life by the skin of their teeth.

The HEMA – one of the largest retail chains in The Netherlands and involved in a steady, domestic expansion strategy – always seemed a party that was relatively doing fine, in spite of a slightly dropping sales in The Netherlands in 2012.

Nevertheless, a few months ago their CEO, Ronald van Zetten, had already issued a warning with respect to the excess shopping space, as you can read in the following snippet from a January 13, 2014 article:

The Netherlands has excess square meters of shopping space. This excess shopping space has emerged, due to the fact that a great number of stores has been built in the years before the crisis, while the population density has decreased at the same time. This is the opinion of HEMA CEO, Ronald van Zetten.

Van Zetten dislikes very much the notion that municipalities are still developing new shopping malls currently.

As an example he calls Doemere in Almere-Buiten [my domicile – EL] “That is a bad idea, to put a new shopping mall outside the centre, as there is already much store vacancy in the city centre itself. Besides that, not every neighbourhood needs a shopping centre. It is already hard enough for the other shopowners without this competition”.  

Ronald van Zetten - CEO HEMA retail group
Picture copyright of: Ernst Labruyère
Click to enlarge
In spite of the fact, that the real annual data for HEMA will only be published in April, there had already been various signals that the retail chain didn’t do well at all in The Netherlands in 2013.

The following snippets come from  a February, 17 article in Het Financieele Dagblad:

As a consequence of dropping numbers of visitors in the inner cities and a very low consumer confidence, the company [HEMA - EL] saw the retail sales drop to €1.53 bln in 2013, from €1.6 bln in 2012.

Exact profit data will only be published after the annual audit, but yesterday the company stated that the ebitda profit (i.e. earnings before interest, taxes, depreciation and amortization) will be more than 10% lower than in 2012.
In the same article, the HEMA already announced that 65 jobs would be lost at the head office, the distribution centres and the bakery division. And a few days ago, there was the news that a HEMA franchise store in Geleen (Limburg) had defaulted.

This was not all; today the HEMA presented another bombshell, especially for its suppliers. The following information comes from RetailDetail, a communication portal for the retail industry:

HEMA asked – in retro-action – a 4% refund on last year’s sales [from its suppliers – EL]. To achieve this, the company has unilaterally changed the contract conditions with its fifty largest suppliers. Also this year, the company will pay less money for purchased products.

At a ‘supplier’s day’, at which all HEMA suppliers meet, the audience was informed that HEMA wants to abolish the contracts with 20% of its suppliers.The company is also planning to pay its bills after 120 days. The new conditions would come into action at 1 April 2014.

HEMA itself stated: “These are not unilateral activities at all. In every business relation, there are discussions and parties are not always in synch. Sometimes, we change conditions in favour of our suppliers and sometimes not in favor of them. This is something between us and our suppliers. We don’t further comment upon that”.

Whoever reads between the lines, understands that suppliers of HEMA either get a choice to agree with the new conditions or to abolish their contract with HEMA. HEMA demands between 3% and 5% discount from its suppliers. Suppliers which do not agree, see their contracts canceled.

HEMA has come with the new agreements, due to the fact that their sales in The Netherlands have diminished. It is not the first time that such a thing happened: six years ago, HEMA demanded a 5% “marketing contribution”, which was withdrawn from their payments to their suppliers. This 5% discount will now be withdrawn on a monthly basis, instead of per quarter, like before.

HEMA’s message for its suppliers is: we have had a bad year in 2013 and you must suffer for this. Like a representative from the retailer’s association Vivo stated in a different snippet of the aforementioned article: “Suppliers, which made for instance €2 million in sales to HEMA in 2013, are now asked to make a refund of €80,000. This is disgraceful”.

Yes, it is indeed…

And on top of that, it has been the strategy of HEMA itself, to open a store at almost every new shopping mall that has been built in The Netherlands during the last decade.

Although HEMA itself is not responsible for the excess shopping space in The Netherlands, it is a fact that by opening all these new stores, HEMA has cannibalized on its existing branches in other shopping malls.

What HEMA is doing currently is immoral and unfair, but they get away with it, because their suppliers will probably need the HEMA sales very badly. Nevertheless, it seems another variety of “beggar thy neighbour”; not only must suppliers pay back the 4% extra discount on sales over last year and the first months of this year, but on top of that they must pay four months of supplier’s credit to HEMA (the prolonged invoice payment period of 120 days). This will probably cost most suppliers about 0.5-1% in additional interest on their creditlines annually (I presume the current payment term to be 90 days; if it is less, than it will cost the suppliers more interest).

I presume that the reason for this rude and erratic behaviour by HEMA is, that the owner of HEMA – British private equity firm Lion Capital – has held a rather nasty conversation with HEMA CEO Ronald van Zetten: “Your revenues over 2013 must be up in retro-action, or you will be out!”. Or something like that… 

The fact that such actions by large retail chains are possible these days, is in my humble opinion clearly an undesired consequence of the stringent anti-cartel regulations from the European Union. These regulations make it unfortunately impossible for HEMA’s suppliers to form one block against these rude actions by this retail chain. 

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