Debenhams turns the screws on its suppliers

The new owner of the Debenhams department store chain has launched an aggressive cost-cutting programme by demanding tough new terms from its suppliers.

The retailer wrote to suppliers shortly before Christmas informing them of the changes. For most, payment dates will rise to 60 days, at the top end of the industry average of 30 to 60 days. Some suppliers, however, have been told they will have to wait as long as 90 days.

Debenhams is also demanding much higher discounts from its suppliers across the board.

Baroness Retail, the private-equity backed consortium that spent £1.72bn buying Debenhams late last year, confirmed terms were being changed. "It's part of the overall work that's been going on since Baroness Retail took over," a spokeswoman said. "We are looking at ways to try to improve the supply chain. This is an opportunity to improve operational effectiveness and we are looking at a number of changes."

The discounts would be increased by "only a very small percentage" and suppliers were also being canvassed about areas they thought could be improved, she said.

But one senior retail source expressed concern about the impact such a move would have on Debenhams' suppliers. "If you are able to sell the product before you have to pay your supplier for it, that's a licence to make money," he said. "They are squeezing their suppliers.

"The new owners are changing terms so Debenhams can make more money and their suppliers less. If you strike a deal on the basis of certain terms and then find the goal posts have been moved, I can't think that anyone's going to be very happy."

Some suppliers would stop trading with Debenhams rather than accept the new conditions, the source said, claiming the move would only help profits in the short term.

Baroness Retail is backed by private equity firms CVC Capital Partners and Texas Pacific. Its directors include John Lovering, the chairman of discount retailer Peacock, and Rob Templeman. Mr Templeman, previously the boss of DIY chain Homebase and cycle parts business Halfords, has taken over from Belinda Earl, who stepped down as chief executive of Debenhams shortly after shareholders voted in favour of the deal. Mr Templeman changed supplier terms in a similar way at Halfords and Homebase.

In recent years, Debenhams - now delisted from the London Stock Exchange - has built up the number of dedicated branded goods sold in its stores, particularly in the fashion departments.