The Australian Competition and Consumer Commission has targeted one of the country’s largest retailers after discount department store Target said it would request a 5% discount from suppliers in another example of the growing disconnect between retailers and wholesalers.
ACCC chairman Rod Sims said yesterday he would be watching Target to ensure that it kept to regulations after reportedly sending letters to suppliers asking for a 5% discount.
“It clearly is evidence of market power. I think it clearly raises issues about the dominance of some of these players,” he told The Australian.
“It was such a unilateral act that takes the pain off Target and puts it on to other players in a very abrupt manner.”
Those comments were made in response to remarks made by departing managing director Launa Inman, who said earlier this week that Target had spoken to its largest suppliers, asking for a 5% rebate on orders between September 26 and December 23.
Target and the ACCC were contacted by SmartCompany this morning, with the ACCC saying that Sims had no further comment on the matter although a spokesperson added that “generally speaking, negotaitions between retailers and their suppliers are a commercial matter”.
“The ACCC would closely examine any concerns raised by suppliers that suggest larger retailers are acting anti-competitively or in an unconscionable manner.”
A Target spokesperson told SmartCompany there was no further comment, and that it had not been contacted by the ACCC.
This isn’t the first time the issue of competition among wholesalers has been brought up.
Earlier this year auction house eBay released research showing that many retailers have encountered wholesalers who won’t supply them because they offer cheaper goods online and erode their margins.
Melbourne Business School senior lecturer Jody Evans says while this case represents the opposite situation it isn’t uncommon for retailers to demand discounts.
“The concern here is that other retailers will respond and replicate that sort of model. I think it will make suppliers incredibly nervous,” she says, adding that the situation raises competition issues.
“If you look at the state of Australian retail it’s always been concentrated by a few,” she says.
“But the repercussions are starting to be felt now because of the global financial crisis.
“In times where the economy is great retailers talk a great game but in times of hardship that partnership gets thrown out.”
Evans says there is a lack of concern for the viability of suppliers and laments their lack of choice.
“If you want to keep operating you have to sell. For some suppliers selling to Target represents 85% of their business so they are not in a position to say they won’t do this,” she says.
Evans predicts that in the lead-up to Christmas more retailers will continue to discount in order to bring more shoppers “but this is a bad cycle”.
“It erodes margins and teaches consumers to never pay full price for anything,” she says.