The Original Factory Shop angers suppliers with 'Santa tax'

The value department store group, which is owned by private equity firm Duke Street Capital, has asked suppliers for their support in the form of a ‘marketing contribution’ and automatically deducted the fee from their invoices, without prior warning or consultation. 

A letter seen by Retail Week from the retailer’s commercial director Tim Bettley to suppliers said the business was planning to increase its annual advertising spend by more than £4m.

It said it is also looking to invest £4m on “store improvements and creating an amazing customer experience”. 

Bettley said: “Over the years our suppliers have supported us and shared in our success.

“As you can see your business is strong with us in what is a difficult trading market. As a result of this we are asking for your support in contributing to the investment and development of the TOFS store portfolio.”

The letter went on to explain that the contribution will be deducted from the supplier’s next payment and stated, “you do not need to do anything in response to this letter”.

One supplier told Retail Week that they “have no choice but to comply” to the demand, which they described as an “all too common, unfair, draconian and bullying practice”.

“We depend on their business,” said the supplier, which had thousands of pounds deducted from its invoices.

The spat follows a row between Debenhams and its suppliers last year, over what became known as the ‘Santa tax’.

Debenhams contacted suppliers asking for a reduction of between 1% and 2% on bills in exchange for paying them 30 or 60 days early.

The Original Factory Shop, which has 216 stores, posted a 6.3% increase in EBITDA before exceptional items to £15.1m in its full year to March 27.

It said that with its “strategic growth plans”, it was “well-positioned in the face of sector uncertainties”.

A spokeswoman for The Original Factory Shop said: “Like other retailers, we request that our suppliers contribute to the company’s ongoing growth plans, and we are proud to enjoy long-term relationships with many of these, always aiming to maintain an open dialogue.”