Retail industry: developments and impact

Retail industry: developments and impact

Gist of the opinion

Allegations surrounding the growth of retail in the EU over the past few years have surfaced in many guises recently, including a 439 MEP declaration in the EU Parliament.

Most of those allegations are centred around the power of the high volume retailers and abuses of that power on local communities, suppliers and farmers. It has been suggested that there are malpractices between retailer and supplier or concerted efforts to force small independents out of businesses. 

It is important that commercial success is not penalised, except when practices are involved which are incompatible with the completion of the internal market, in particular the existence of clear evidence of abuse of market power or harm to consumers in contravention of Article 81 of the EC Treaty.

The growth and success of retail is a positive story for the European economy. Many European businesses are now successful global companies, with new operations set up in China, the United States, the Far East and Russia.  Domestic strength has allowed the most successful firms to export their business models into some of the most challenging retail markets in the world.

That has brought great benefits to employees, shareholders and indeed consumers in Europe who benefit through a wider product choice and competitive prices.

Whilst profits can be high in the sector, success depends on numbers and the retailers ability to retain its high volume customer base, be innovative and attract the best deals for its customers, whilst reinvesting in further growth and global challenges such as climate change.

It therefore makes sense not to knock such an enthusiastic and committed sector, especially considering the largest fifteen EU retailers generate some 350 bn euros in sales and employ in the region of, 2.1 million people.

The EESC's CCMI commissioned a report by London Economics, looking at six sectors with an overview from nine Member States (Report available)  DG Competition, Internal Market, Enterprise and DG Employment are also conducting research to be published Spring 2009. These reports will look across the supply chain at all actors, and the distribution of margin.

The EESC opinion has been based on evidence, focussing mainly on the retailer direct suppliers relation.

The EESC has suggested a voluntary code of practice at national level, in an attempt to provide due diligence for retailers and transparency for the industry. A voluntary code would allow the retailers to develop a self regulatory framework between them and their suppliers, centred around a requirement for written contracts.  The code would address such issues as retrospective discounts, lump sum payments, price flexing and standard terms of business, thus bringing transparency to contracted negotiations.

The proposed code could include:

- Standard operating terms of business between retailer and supplier, with a defined period of notice for any changes, in those terms to take effect, including termination of contracts.
- No retrospective reductions on agreed prices through applied pressure.
- No obligation through applied pressure to contribute to marketing costs or retailer costs above those agreed in the original contract.
- No compensation payments by suppliers for loss of retailer profits, unless defined and agreed in advance, or where the supplier has not delivered the required amounts.
- No return of unsold goods, except for specified reasons, and agreed in the terms of the contract.
- No payments for wastage, negligence or default above those in the original contract, where the specifics are unambiguous.
- No lump sum payments to secure orders or positions. In relation to promotions, all payments must be clear and transparent.
- All promotions must be agreed by both parties in advance with a clear period of notice, and written transparent terms surrounding the promotion.
- Forecasting errors by the retailer must not be passed back to the supplier, including during periods of promotion. Where forecasting is done in conjunction with the supplier the terms must be documented.
- The characteristics and conditions of production of the products sold - particularly imports – should be provided by producers and distributors in response to consumers' expectations.
- A written customer complaints procedure must be issued to the supplier as part of the contract terms.

Thereafter where allegations were made, both retailer and supplier have written terms, a code of practice and proof of due diligence. 

This process should be throughout the supply chain farm to fork. 

Should issues not be resolved to the satisfaction of either party a national ombudsman could mediate protecting the anonymity of both parties.