Myer, David Jones threaten suppliers: discount or we walk

Department store giants Myer and David Jones are urging suppliers lower their prices, saying persistently high labour costs and rents are the catalyst for the pressure.

The accusation of price gouging is the latest in a string of finger-pointing directed at suppliers, who have been accused of maintaining higher prices for Australian retailers, along with separate calls of unlawful price maintenance for online retailers.

Such actions have prompted some businesses, including JB Hi-Fi and Harvey Norman, to source product directly from manufacturers, and now David Jones and Myer are threatening to the same.

“Suppliers have differential pricing so it’s up to them to come to the party,” Myer chief executive Bernie Brookes told The Australian Financial Review.

“We have over 30 buyers and each of those buyers within their own categories are almost daily talking to suppliers about the fact that their prices relative to online don’t match and they’re selling product online either through agents or through their own websites at cheaper prices – in some cases, prices that are close to our buying price,” he said.

Brookes told the publication he wanted discounts of up to 40% on some products, and that people were on the ground in Hong Kong looking at new opportunities to source products.

It’s clear these businesses are willing to slash prices, but only if the suppliers move first.

“Our buying offices overseas have been not only looking at sourcing products we manage ourselves but sourcing anything they can buy, even if it means bypassing agents and representatives here,” he said.

David Jones chief Paul Zahra said customers were no longer willing to pay 20-50% extra for the same product they could buy from manufacturers.

He said the business was making cost a supply issue due to labour and rental costs that weren’t likely to change any time soon.

“We’ve made it the top of our agenda with our buying team and each of the 60 buyers are having those conversations.”

Brookes said Myer wanted to maintain its margins, and added it would move past suppliers which don’t drop their prices.

City Index analyst Peter Esho told SmartCompany this morning that while suppliers were definitely charging higher prices, they weren’t necessarily gouging retailers for the sake of it.

“It’s not that the suppliers are directly gouging. They’re trying to build a margin into something that is non-competitive and the major chains have to figure out what to do.”

It also raised questions about department stores’ business models, he says, as directly importing removes one element of a model.

“If you’re importing, your competitive advantage is now eroded by another step. JB Hi-Fi is buying camera equipment from Hong Kong, but I can do that too, so where is the advantage?

Esho says retailers that have invested in their own brands will start seeing benefits over the next few years, even in a harsh retail environment.

“The smart retailer, like Kathmandu for example, invests in their own branded product. Oroton turned its in products into a luxury range, and they’ve been successful.

“But those other retailers that are in the business of aggregating and reselling, they’re facing a structural question mark.”