Home' The Channel Magazine : October 2011 Contents National Newsagent October 2011
All those entering into contracts
should be aware of the following:
• Fixtures – Do you really, really need them? Will they cause you
to sell more greeting cards resulting in more profit? Could you
refurbish your own fixtures at your own cost and negotiate better
terms and make much more profit. This is better for both parties,
it conserves cash flow.
• Period of Contract – Is it a fixed term or can it be extended
through a non-performance clause for non-achievement of a
sales performance level over the period of the contract. The
performance of retail sales is a jointly responsible matter of:
(i) The agent offering the best service, lighting and space, and
(ii) the supplier providing up to date designs, quality and consistent
and good service (remember cards are fashion products). My
advice: Cross the clause out!
• Performance – Does your contract call for a specific volume of
purchases over the contract. If so, will you agree? Can you be so
sure of the future? Can you be sure the product quality will aid
sales; will external things like council road works reduce store
traffic; will shopping centres close you down for months during
refurbishment and will there be a financial penalty for non-
achievement? My advice: Cross the clause out!
• Free Fills – Here is the biggest ruse, whether on purpose or by
just not knowing the law of contract. Unless a credit is issued for
the lift-up of a competitor’s stock and the replacement stock is
issued to you free of charge, it will not be a free fill, it will only
be a replacement of stock if the new stock is invoiced to you. You
will then have no added valuable benefit (consideration). If this is
the case, then such should not be a contractible item, although
it often is incorrectly included for penalty purposes. Make sure
your supplier removes the old stock they are replacing, otherwise
they can argue (probably unsuccessfully) that as you still had the
original stock, though you can’t really sell it, you do have an added
• Fixed Sum ‘Lift-up’ – Many contracts allow for a fixed value lift-
up ‘allowance’ of other suppliers’ stock. Sometimes this value
does not equate the value of your stock removed by a substantial
amount. It should at least be equal.
• Taxation – Are you aware that many benefits supplied have
income tax complications? Does your supplier advise you on this
and does he indemnify you in the contract against this happening?
You should insist upon written confirmation.
Acceptance of the use of fixtures does have a tangible benefit to the
retailer and as such has a measurable benefit that can be defined by
the taxation department against you as taxable income. It is not good
business practice to accept the use of fixtures; it is a sleeping penalty
that can be applied by the taxation department for not declaring it. Opt
to negotiate terms, at least that way your discount is already included
in your purchases and has no problems in disclosure. Likewise
cash handouts, free stock, free anything that has a value to you.
Remember, you get “nutt’in for nutt’in” . Sleep easy, don’t do it.
• Benefits and/or Fixtures Depreciation – Does the supplier
recognise that the partnership of supplier and retailer is creating
profits for both parties along the way, and depreciate the benefits
given and fixtures over the period of the contract, or does the
contract require you to pay back the original full amount by way of
penalties? Ensure that all penalties are identified by the supplier
before you even consider signing, as you will often find that what
is in your letter of offer is somewhat different to what is in the
• Discounts/Rebates – Are they real? Is there any likelihood of you
ever achieving them? Is your threshold of purchases you have to
attain so high that it will result in little or no rebate? Who sets the
sales estimate? Do they neutralise your rebates? Many rebates
will, as they will be applied by some suppliers to write off the
benefit given to you in the first place – so where did it go? Will you
recognise your rebates for tax purposes if offset?
• Cash Offers – Beware! Are they taxable? Are they refundable to
the supplier in total in the event of default?
• Privacy – Does the contract give the supplier the right to conduct
property searches, or even take out a Lien over your private
property? This does happen.
• Supplier Liabilities – Contracts are a two-way stream. Both
parties have a responsibility to the other. Retailers have a
right to include reasonable clauses as to service and supply of
product whereby if, after written advice of non-performance, the
contract may be exited with agreed reductions in the supplier’s
listed penalties. Ensure you are not overstocked with product. A
vendor refill is not an excuse for shovelling in more product at
your expense; write that into your contract as a reason to exit the
contract, or at least return the product for immediate credit.
• Your business is in your own hands. Don’t abrogate your rights.
Your future profitability and welfare should be well considered and
decided before you lift the pen to sign. Do take your time and seek
help if you have any doubt, it is after all, your business. Turn the
contract into a win/win instead of a lose/lose.
RETAILER AND SUPPLIER ROLES
Better still, let’s go back to the newsagent being a retailer
who supplies all that is necessary to sell his own products and,
the supplier supplying product, relying on the quality of his
products to create good sales for the newsagent, be performance
related and have the confidence in their own product to do so
without requiring a contract which can lead to lack of attention to
the customer. All this requires is a good old fashioned discount
off invoice that is tailored to the volume of the sales anticipated
— no penalties, no give-aways, no hidden tax liabilities and an
ability to sleep well at night.
Tom Stevenson is a Fellow of the Certified
Practising Accountants, holds a Graduate Diploma in
Business Administration and is the CEO/Director of
Henderson Greetings Pty Ltd.
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