24 April 2017
Tea Money and Skimming: The Current Blights of the UK Toy Industry
Are suppliers having to bribe testing houses to clear goods for shipping? Are retailers falsifying claims for undelivered goods? Scams both old and new are bedevilling the toy sector, but is that just a sign of a wider retail malaise?
As a journalist and an industry observer who has spent 30 years working in the toy industry, I have – from time to time – been asked to highlight some of the more questionable business practices employed by retailers. Such practices may, for example, involve contentious trading terms designed to boost a retailer's margins. This is something that suppliers often can't talk about, at least not with the same degree of license as a journalist whose business does not directly depend on the patronage of those very retailers.
However, it is not just retailers who can find themselves at the centre of controversy. Recently, for instance, I heard of the apparent return of one particularly dodgy practice that many had long thought extinct – Tea Money.
If you are fortunate enough to be unfamiliar with the term, then let me enlighten you. The phrase refers to a scam operated by a number of testing houses – often those representing large retailers in the Far East – which sees them requesting money from factories in return for passing goods for shipping. Anti-corruption measures were once thought to have ended this particular practice, but now, apparently, it has reared its head once more.
The big question is, of course, are the big retailers simply turning a blind eye to the problem or are they genuinely unaware of what is going on? According to one supplier, when he raised the issue with a retailer, he was told it would be investigated, only to find that the delivery of his orders subsequently slowed down dramatically.
When Toy World published the story, numerous suppliers came forward with broadly similar tales. If anyone had assumed the problem was solely restricted to small, localised operations, they were soon proved wrong. The testing house against which most accusations were levied is arguably one of the world's largest. Indeed, several suppliers noted that it is the biggest operators who feel they are somehow outside the law and can get away with far more.
The return of the Tea Money phenomenon is by no means the only challenge facing suppliers in the highly-charged, post-Brexit market, where the 16% fall in the value of the pound has led to tighter margins across the board. Inevitably, UK-based retailers have fought hard to counter the price increases being mooted by many suppliers.
Some have tried negotiation – asking for rebates or additional marketing support – while others spent all their money before Christmas, keen to acquire stock before the prices went up in the New Year. Some retailers have simply refused to accept increases, which, in most cases, has resulted in suppliers not sending them stock. While a Mexican stand-off on a truly grand scale may be taking place on some accounts, in the end it likely to come down to a compromise.
All of the above tactics are – to a greater or lesser extent – legitimate responses to these trying times. Other tactics being employed by certain retailers are, arguably, far less so. After the Tea Money story broke, for instance, Toy World was contacted by several suppliers who were keen to complain they had been 'skimmed' by retailers.
For the uninitiated, 'skimming' is the practice of claiming part of a consignment has gone missing from a delivery, with payment then deducted from the account to cover the cost of the allegedly absent stock. You might be forgiven for assuming that such arrant roguery would be hard to sustain given the cutting-edge logistics systems now in place. But, not only does it exist. it also seems to be endemic in the case of one particular retailer.
So much so, in fact, that some suppliers are even said to factor it into their trading calculations with said retailer. If the stories doing the rounds are anything like true, then the problem clearly goes way beyond one or two rogue warehouse operatives. Given the size of the retailer in question, though, the reluctance of suppliers to raise the issue is wholly understandable.
The reaction to the skimming story suggests that it, too, is a widespread phenomenon. Indeed, one acquaintance even explained just how skimming goes undetected – apparently, the trick is to remove items from the bottom of the carton, rather than the top, where it is less likely to be detected. Another supplier even went as far as to put a monetary figure on his losses, with his shortfall having doubled from £10,000 (US$12,400) in 2015 to £20,000 last year. If he doesn't get to grips with it, he expects it could easily be £30-40,000 before too long.
By all accounts, though, 'getting to grips with it' will be no easy task. For one thing, the retailer's recommended carrier often fails to supply the paperwork required for suppliers to successfully dispute a claim, a problem compounded by the fact that digital screens can't be stamped. Indeed, one supplier even suggested that the retailer's software is programmed to report shortages randomly, but deliberately.
On top of this, many are still facing the problem of disputed marketing contributions. All of these problems are further compounded when buyers move on and, apparently as a matter of company policy, suppliers are not informed of the name of the replacement.
Overall, it could just be the sheer scale of the administrative burden, rather than any nefarious intent, which is the underlying issue here. Whichever way you look at it, though, the added costs of these various illicit practices are far from small. Indeed, it's hard to see them as anything other than an account surcharge or a tax on doing business with a particular retailer.
Of late, there has been an interesting postscript to at least one of these stories. Over the past week, BBC Breakfast and Radio 5 both carried news items relating to skimming, but with a focus on the grocery trade and food suppliers. Clearly the toy industry is not the only sector suffering from such regrettable practices. As with the issue of Tea Money, it appears such shady dealings are far from secret, unlike the means by which they might be countered.
John Baulch is the Publisher of Toy World,
the leading trade title for the UK and European toy trade