Paper Plus puts heat on suppliers

The Warehouse's efforts to cut suppliers' prices have had a follow-on effect - book and stationery rival Paper Plus is demanding the same deals too.

Last week, the Business Herald revealed The Warehouse was part-way through a series of meetings with suppliers, with some asked to cut prices by 10 per cent.

The company is also planning to slash the number of suppliers by 50 per cent.

Now Paper Plus, the largest stationery and book franchise in Australasia, has followed up with a letter to its 2500 New Zealand manufacturers and importers.

More than 160 Paper Plus and Take Note stores operate in New Zealand, and they have a combined turnover of nearly $160 million a year.

In the letter, chief executive Garry Donoghue said Paper Plus and other smaller groups were already to some extent "subsidising" The Warehouse.

"Given The Warehouse may succeed with some suppliers, Paper Plus puts on notice that the parity that currently exists between Paper Plus and The Warehouse is at a minimum maintained," he said.

"We are aware many of our suppliers currently supply The Warehouse and Warehouse Stationery and we too are looking forward to a 10 per cent reduction in the 'cost of goods'."

He said Paper Plus buyers would be following up with suppliers in the short and medium term to ensure they got the same terms as the discount giant.

One supplier who received the letter said: "It reads like a wind-up, except it's not. [I'm] not at all impressed."

Donoghue confirmed he had sent the letter, but said it was a "private matter" between the company and its suppliers.

But he also said he had been concerned at reports of The Warehouse's action and had to respond to stay competitive.

Macquarie Equities retail analyst Warren Doak said Paper Plus was smart to ask - but it was being optimistic to expect the same discount as The Warehouse.

"Warehouse is leveraging its dominant position," he said, and would be able to dictate terms to some of its suppliers. The request by Paper Plus would likely be a starting position from which it would have to negotiate in the traditional way.

While the move by The Warehouse had clearly opened the door to similar requests by other companies, at least one other major retailer has rejected such a move.

Farmers chief operating officer Rod McDermott said he believed applying pressure to suppliers would go down "like a bad meal".

"Trading for us is very good," he said. "We haven't found that necessary."

The story so far

February 8: Business Herald reveals Warehouse efforts to put squeeze on supplier costs.

February 9: Investors reported to give cautious thumbs-up.

February 10: Paper Plus says it wants the same deals.