House of Fraser’s makeover tax on suppliers

The department store chain controlled by Icelandic investor Baugur plans to impose a levy of up to 4% on suppliers to finance a store refurbishment and rebranding programme that will help to take the stores upmarket.

Suppliers in flagship stores will ‘contribute’ 4% of turnover, while suppliers to other stores will pay a levy of 2%-3%. The levy will be cut by 0.5%-1% if suppliers achieve like-for-like sales growth of between 5% and 10%.

Stefan Cassar, finance director of House of Fraser, set out the terms in a letter entitled ‘Building the brand’ to suppliers last week. He wrote: ‘In order that all parties may benefit from these significant growth opportunities, continued collaboration is needed. All parties need to participate in showing their ongoing commitment and support and therefore I am writing to formally notify that from 30 December 2007, the following trading terms will come into place.’

Suppliers have described the demands as ‘aggressive’ and ‘bizarre’ and many are expected to resist the move, particularly given the fragile retail environment.