In competitive industries such as apparel retail, it is common practice for buyer–supplier relationships ‘to be viewed as win-lose situations’, even when the collaboration between buyers and suppliers is crucial to survival in changing business environments (Munyimi & Chari 2018:1). Cox (2004) maintains that even when given win–win partnering or win–lose outcomes, there is not only one way to manage the buyer–supplier relationship.

Supply chain relationships are driven by collaboration through high levels of information sharing (Emmett & Crocker 2006). In this context, three types of collaboration can be identified: Type I are collaborative transaction management relationships which focus on standard information exchanges. Type II are collaborative event management relationships that pursue ‘standardised decision-making’ and ‘exchanges of non-transactional information’. Type III are collaborative process management relationships that require ‘building trust, setting joint business goals and designing inter-enterprise processes’ (Whipple Judith & Russell 2007:184).

For small and medium-sized enterprises (SMEs), strategic collaboration and information sharing in the supply chain are essential elements of competitive advantage (Kumar, Singh & Shankar 2016). The assumption, however, that collaboration is voluntary and results in equal power in the supply chain is unfounded (Kampstra, Ashayeri & Gattorna 2006).

Kampstra et al. (2006) further outline that powerful retailers such as Walmart often dictate how collaboration is practiced in a supply chain. Financial actions such as pay to stay, long-term payments, late payment, prompt payment discounts and respective discounting are often used to exert dominance (Durocher-Yvon et al. 2019; The Federation of Small Businesses 2018). Barber (2011) identifies five types of supply chain dominance: manufacturer-centric dominance, retail-centric dominance, supplier-centric dominance, distributor-centric dominance and reverse dominance, of which retail-centric dominance is discussed in more detail.

A power shift downstream in the supply chain, where customer information is more readily available, has resulted in retail-centric dominance by powerful retailers such as Walmart, Amazon.com and Costco (Defee, Randall & Gibson 2009; Dekimpe 2020). The presence of a dominant retailer in a supply chain has many benefits, such as lower total transaction costs (Barber 2011), facilitating retail segmentation into discount and speciality shops (Dukes, Geylani & Srinivasan 2009), lower retail prices for consumers (Chen 2003) and the ability to lower wholesale prices when the dominant retailer has a large market share (Chen & Zhuang 2011). Dominant retailers tend to focus their efforts on fast-moving consumer goods (FMCG) where product design is simple, high volumes are manufactured, lead times are short and manufacturing processes are reduced (Bala & Kumar 2011).

The relative downstream position of the retailer in the supply chain affords the retailer market size, market sensitivity and retail-processing cost information, which can be used to dominate suppliers as part of achieving their strategic goals (Wang, Lau & Lau 2008).

Habib, Bastl and Pilbeam (2015), citing Cox (1999) and Cox (2001), view the dependent supplier as a construct of dominant buyers, although a dominant position by a retail buyer is not always viewed as negative. Seppenwoolde (2019) found that even where supplier squeeze occurs, a supplier may be happy with the relationship if it offers growth opportunities. Furthermore, the need for long-term cooperation can lead to more fairness by dominant players (Jarratt & Morrison 2003). Small and medium-sized suppliers can balance out the actions of dominant buyers by customer prioritisation, presenting competitive advantage opportunities and developing specialised knowledge (Talay et al. 2020).

Both buyers and suppliers have sufficient reason for wanting to occupy positions of power. Collaboration is a means of managing the relationship even if one party will always exert more influence than the other in the supply chain. It is therefore essential to understand the nature of the relationship between SMEs and large retailers when the retailer holds the dominant position.

Small and medium-sized enterprises are key economic contributors to aiding innovation and job creation (Kaira & Rześny Cieplińska 2019). In South Africa, SMEs range from formally registered to informal and non-VAT registered organisations (Bureau for Economic Research 2016). In 2016, the number of formal SMEs in South Africa was 68 494 and 17 397, respectively (Small Business Institute 2018). Furthermore, SMEs employ 47% of the South African workforce and contribute a respectable 20% to the country’s gross domestic product (Liedtke 2019).

For purposes of this study, SMEs are classified by the South African National Small Business Amendment Act (26 of 2003) according to the number of employees and the annual revenue of the company (Department of Small Business Development 2019). The Act states that medium-sized businesses in wholesale trade may not exceed 250 employees or a turnover of more than R220 million per annum (Small Business Institute 2019). Small enterprises are defined as having a maximum of 50 employees and in the wholesale trade a maximum turnover of R80m per annum (Department of Small Business Development 2019).

It is commonplace for small and medium-sized suppliers to specialise in specific product lines or supply retailer brands exclusively (Delberghe 2016). With strict competition from major brand manufacturers, market entry for many SMEs is made easier by concentrating on retailer brands (Delberghe 2016). Business-to-business SMEs often overlook the importance of branding and without a powerful own brand, they compete for retail shelf-space (Lin et al. 2019; Von Broembsen 2017). This dependence of SMEs on retailer buyers has therefore increased the relative power of retailers in the supply chain.

As such, SMEs are subjected to control, quality testing and product and packaging demands by retailer buyers (Pepe, Musso & Risso 2010). Other dominant behaviours enforced by retailers include providing cash discounts to themselves, allowing long credit periods (Tsao 2011) and setting of wholesale prices (Jerath, Hoch & Zhang 2007).

Popović, Mihailović and Simonovic (2018) examined unfair trading practices in the food industry and found that retailers abuse their bargaining power by transferring costs to suppliers, asking suppliers for favours without similar reciprocation, making one-sided changes to a contract, retrospective changes to contracts, unfair termination of contracts and unjustified threats to terminate contracts. Schleper, Blome and Wuttke (2017:97) extend the retailers’ dominant power to include ‘pressuring suppliers for price reductions, non-cost related payments or discounts, extended payment terms, warranty periods and questionable appropriation of innovations and intellectual property’.

The concept of power in the supply chain was first discussed from the perspective of inter-firm dominance where five power bases – legitimate, reward, expert, referent and coercive – were identified (Raven & French 1958). In the last few years, buyer dominance was explored in various industries, namely automotive (Khan 2018; Skeete 2019; Wilhelm & Sydow 2018), aviation (He et al. 2014; Schleper et al. 2017; Tang, Zimmerman & Nelson 2009), consumer electronics (Guo et al. 2012; Schleper et al. 2017) and FMCG and retail (Digal 2015; Hingley 2005; Knox 2016; Palpacuer, Gibbon & Thomsen 2005).

In the automotive industry, the concept of open-book pricing by original equipment manufacturers (OEMs) has been viewed as dominant behaviour by suppliers (Skeete 2019). To counteract competition from China, General Motors threatened to outsource production overseas if suppliers did not cut costs (Khan 2018).

Volkswagen (VW) is known, after the start of production, to fuel competition by getting quotes from other suppliers (Wilhelm & Sydow 2018). As dominant manufacturers in the aviation industry, both Boeing and Airbus demand lower costs and greater outputs from their suppliers (He et al. 2014; Schleper et al. 2017). In the supply chain of the Boeing 787 aircraft, the financial risk of development was passed on to their suppliers (Tang et al. 2009).

As the consumer electronic market grows, incidences of domination by powerful electronic brands are more prevalent. Schleper et al. (2017) outline Apple’s supplier squeezing strategies where suppliers risk losing business if they produce non-Apple-related products. Although not a direct result of dominant behaviour, the high-speed production demands of Apple, Dell and Hewlett-Packard have led to many suicides at Chinese electronics supplier Foxconn Technology Group (Guo et al. 2012).

Dominant behaviour by retail buyers is widespread (Durocher-Yvon et al. 2019; Schleper et al. 2017). As one of the largest retailers in the world, Amazon has repeatedly dominated supplier efforts by discouraging customers from buying from a certain supplier (Kirkwood 2014) and by infringing on patents, demonstrating unfairness in competition, interfering with contracts and false advertising (Greenfield 2011). PopSockets, a phone accessory supplier accused Amazon of forcing price reductions on their products or risk being replaced (Young 2020). Similarly, Walmart has been accused of forcing contracts, price-fixing, and cost-sharing on its suppliers (Cambero 2020; Layne 2015). To meet financial targets, the United Kingdom’s largest grocer Tesco, often underpaid or late-paid suppliers (Ram 2016).

Spanish fashion retailer Zara is an intellectual property thief, according to independent artists and designers who have not been paid for their designs but found copy-cat designs in Zara clothing and accessory ranges (Mallory Schlossberg 2016). British retailers fair no better; Marks & Spencer has asked its suppliers to contribute millions of pounds for store improvements and advertising (Gordon 2011), whilst Laura Ashley imposed a 10% discount on suppliers (Neville 2013). Amidst the novel Coronavirus Disease (2019-nCoV) pandemic, Australian retailers Kmart and Mosaic Brands informed suppliers that they would not meet financial commitments, asked for discounts and pushed back orders whilst still demanding short order lead times (Black 2020).

Globally, the apparel retail industry is valued at $1467.7 billion with the South African market valued at $9813.5m (Marketline 2020a, 2020b). The market is defined by high sales of womenswear, increased online shopping and more awareness of sustainability by the industry (Bertram & Chi 2018).

The industry is segmented by price controls led by large retailers, brand control by major companies and specialised retailers, and the fashion-sensitive segment which focuses on sustainability (Manuel Xavier et al. 2015). Although offering low barriers to entry, apparel retailers operate in a highly competitive and highly saturated market where buyers demand low prices whilst growth in sales are marginal (Watchravesringkan et al. 2010).

The competitive landscape today is fuelled by direct purchases from manufacturers, pure online stores, global online shopping, custom-made clothing and second-hand purchases (Amed et al. 2019). Mergers and acquisitions are common and low pricing or increased sales are insufficient to remain competitive (Klemz et al. 2008). Maintaining and increasing competitiveness can be successfully achieved through offering a unique brand experience, store experience and customer service experience (McColl & Moore 2013).

The South African market trends are driven by strong growth in mobile e-commerce which has seen retailers adopting a multi-channel approach to remain competitive (Euromonitor International 2020). Other strategies adopted include increasing sales by diversifying product offerings, aggressive pricing methods and complimentary in-store services, such as purchasing of bus tickets or payment of utility bills (Euromonitor International 2020). Steinhoff (Pep stores) and Mr Price, the two largest players in the market, continue to attract budget-conscious customers through their value for money and mass-market strategies (Marketline 2020a).

The South African retail apparel sector is characterised by four major local players of which Steinhoff International Holdings NV (Steinhoff International) commands the largest market share with the Pep, Ackermans, and Dunns brands (Marketline 2020a). The Mr Price Group Ltd (Mr Price) considers itself a fashion-value retailer and is the second-largest player in the market. These two are followed by Truworths International Limited (Truworths International) and Edcon Holdings (Proprietary) Ltd. (Edcon) (Marketline 2020a). The market is further fragmented by other global fashion retailers from Spain, the United Kingdom and Australia (Douglas 2016).

Suppliers to the market are made up of both clothing manufacturers and wholesalers that are locally and internationally based (Kew 2020). The labour-intensive nature of the industry favours low-wage regions, which together with the drive for more secure supply chains and the ability to cope with changes in demand have all decreased supplier power and kept retailers’ switching costs moderate (Marketline 2020a). Driven by the need to secure supply chains and the COVID-19 pandemic, large local retailers are reducing their dependency on Chinese suppliers and are increasingly sourcing from local suppliers (Kew 2020).

Evidence has emerged of unfair business practices in the South African retail sector, but the type and extent of such practices, or their implications for SMEs, have not been researched (Durocher-Yvon et al. 2019; Von Broembsen 2017). A gap therefore exists in the body of knowledge pertaining to such unfair business practices, in particular in the apparel retail supply chain in South Africa.

The research questions that followed from the literature review and guided the study are listed next:

‘Qualitative research is an approach for exploring and understanding the meaning individuals ascribe to a social or human problem’ (Creswell 2014:4). Owing to the fact that the concept ‘supply chain dominance’ could be foreign to the potential participants, it was necessary to conduct qualitative in-depth interviews to explain the concept and to explore and probe its extent, nature of occurrence and business implications.

Qualitative in-depth interviews were conducted with the suppliers of apparel to the retail industry to collect primary data using a semi-structured questionnaire. The inclusion criteria for the population were any SMEs supplying apparel to the retail sector in Gauteng. There are numerous importers and distributors in South Africa who supply the major retailers (Flanders Investment & Trade 2016). A database of these SMEs does not exist and was therefore created. All those for whom contact details could be sourced from the internet, were included in the database.

Prior to continuing with interviews, it was necessary to determine the relevance of the participants. Six of the seven businesses had been established in the apparel industry for more than 10 years, with one being established for 2 years. The length of time that businesses had been established varied between 2 and 60 years. Four participants had even worked in the apparel industry prior to starting their own business, whilst a further two participants had always worked for the family apparel business. It can be deemed that they had the relevant experience to comment on supply chain dominance in the apparel industry in Gauteng.

All seven participants were SMEs based in Gauteng and sold apparel to major retailers in South Africa. Two of the SMEs stated that they had international suppliers but did not supply their own products abroad. According to the National Small Business Amendment Act’s (26 of 2003) classification of SMEs by number of employees, of the seven participating SMEs, two were medium-sized, two small, one very small and two were micro enterprises (Figure 1). It is not possible to provide more detailed information about each supplier as this would risk the identification of the supplier.

The National Small Business Amendment Act (26 of 2003) also classifies SMEs by annual turnover.

According to the annual turnover classification, of the seven SMEs, two are medium-sized, three are small, one is very small and one is a micro enterprise (Figure 2). All seven participants are classified as SMEs and complied with the inclusive criteria.

The data collection instrument, a semi-structured questionnaire, was self-developed from studying literature on supply chain dominance, incorporating the different forms of supply chain dominance in the questionnaire whilst allowing for participants to add other forms of supply chain dominance experienced. Being a semi-structured questionnaire, it contained quantitative list questions and two Likert-scale question, to guide the probing questions that followed each. The questionnaire has 18 questions divided into four sections:

Additionally:

It was critical to establish a relationship of trust, so that the participants trusted that their information would not reveal their identity. For this reason, pseudonyms are used for the large retailers.

Trustworthiness in qualitative research includes dependability, credibility, transferability and authenticity (Saunders et al. 2019:217). By recording and transcribing the interviews, dependability and credibility are enhanced. As only seven participants were interviewed, the results are not transferable as the sample size is too small. By strictly adhering to the answers and comments of the participants, authenticity is ensured.

The face-to-face in-depth interviews were recorded and transcribed into an MS Word document.

Ethical clearance to conduct this study was obtained from the Department of Transport and Supply Chain Management Ethics Committee, College of Business and Economics, University of Johannesburg (Ethical clearance number: 2018 TSCM-014HN).

At the outset of the research which focuses on a topic with which participants may not be familiar, it is essential to determine their understanding of the concept to ensure that the responses are within an informed context. Five out of the seven participants interviewed understood what dominant behaviour was and could provide examples of dominant behaviour practices. Some examples that were provided include the extension of payment terms: ‘take it or leave it’ meetings where no room for negotiation is awarded, over ordering by retailers who returned goods after 60 days and concerns that ‘retailers dictate all terms’. For the two participants who needed clarification, a definition was given and explained with some practical examples.

Interestingly, one participant whilst familiar with dominant behaviour did not consider or interpret their own similar experiences as dominant behaviour.

As shown in Figure 3, for the seven participants that experienced dominant behaviour, late payment was the most common. A participant stated:

The second highest dominant practice identified by five participants was long payment terms. This included extended payment terms which participants stated as common practice when dealing with retailers. A participant explained:

A further two dominant behaviours experienced were the discount for prompt payments (four participants) and retrospective discounts (one participant). These two forms of dominant behaviour do not seem to have the same financial impact on the business as the first two. The only dominant practice that was not identified by the participants was pay to stay. As the two most prominent dominant behaviour practices are based on the buyer paying the supplier, it is evident that this could have a serious effect on the SMEs long-term sustainability and business survival.

The frequency of dominant practices can be linked to the seriousness of its business implications for SMEs.

The more prevalent dominant practices are, the more likely they are to have a serious impact on SMEs. All seven participants had experienced some form of dominant behaviour in their business. It can be deduced that having identified the forms of dominant behaviour, participants were able to recognise the occurrence of these practices in their business even if prior to the interview they were not aware of such practices occurring (Figure 4). Four of the participants had experienced some form of dominant behaviour ‘very often’ (eight or more times per annum), whilst another had experienced it ‘often’ (six to eight times per annum).

The remaining two participants experienced it seldom (three to five times per annum) and rarely (one to two times per annum).

Five of the seven participants indicated that dominant behaviour could be found in contracts with major retailers. Participants were probed to identify dominant practices stipulated in the contract. Participants cited the following examples:

An example provided by the participants of a penalty for late delivery was of 2% credit on value of outstanding goods exceeding 2 days of contractual lead time, thereafter 2% everyday two days up to a maximum of 10%.

Five participants stressed that it is difficult to overcome dominant behaviour in contractual agreements owing to the SME suppliers’ low bargaining power in the market. The supplier market for apparel is highly competitive and, thus, ‘take it or leave it’ scenarios are common. The lack of a supplier voice is also echoed in the reluctance of many suppliers to participate in the interviews. It can be concluded that for many SMEs, the fear of losing business is greater than the will to retaliate against large retailers.

The seven participants all stated that they had been affected by dominant behaviour but to different degrees. To determine the degree and to make an objective comparison, participants were asked to indicate on a 5-point Likert scale. One participant felt ‘extremely’ affected by dominant behaviour, another ‘mostly’ affected and three participants felt ‘affected’. Only two participants felt ‘marginally’ affected by dominant behaviour. When asked in what way they had been affected, they indicated that the dominant practices largely impact the cash flow of the business. This directly relates to the identification of the most commonly used methods of dominance by retailers as identified by the participants, namely late payments and extended payment terms. One participant stated:

Late payment terms make it difficult to pay suppliers on time and decrease cash flow through the business.

Extended payment terms have a similar effect on the business, making it difficult to expand owing to a decrease in available cash flow. SMEs are more financially at risk as they do not have the same cash reserves that large enterprises possess.

Four of the seven participants stated that dominant behaviour by retailers put their business at risk. Participants stated the following:

Financial risk was most prevalent with loss of contracts and market share. Suppliers were often forced to apply for an overdraft or loan money from family members or banks. A participant added:

Supplying large apparel retailers has become a competitive risk as retailers prefer to stock their own brands thus adding pressure on suppliers to be more cost effective. There was evidence of legal risk as expenses and losses were incurred in the settling of disputes.

Participants stressed that continually decreasing their prices to remain competitive decreased their profit margin which in turn affected their operating ability. Year-on-year growth of SMEs was also affected as suppliers were forced to exit some markets owing to unrealistic expectations by retailers. One participant remarked:

Another participant, who had previously worked for a major retailer, stated that whilst he recognised dominant behaviour, it had not negatively affected the business as he had established important relationships during his time as an employee at the retailer.

The extent of time that a supplier and retailer have been in business with one another could play a vital role in determining the strength of such a relationship and the degree of dominance that develops. From a probing question as to the improvement of the supplier–byer relationship over the years, the answers varied. In most cases as the length of time increased, the level of dominance decreased, as relationships were formed and trust grew. An exception is the case of a specific retailer, for whom dominant behaviour increased with an increase in the length of the relationship. The participant noted that the retailer took advantage of the supplier’s dependence and added stricter conditions for delivery and payment terms.

In summary, all SME apparel suppliers interviewed concurred that some form of dominance was used by retailers with varying degrees. Of the list of 18 different retailers supplied by the participating enterprises, three displayed the greatest degree of dominant behaviour, of which the most common form of dominant behaviour was extended payment terms and late payments. It was found that the larger retailers displayed a greater degree of dominant behaviour than the smaller retailers.

Participants were asked to comment on their ability to counteract dominant behaviours. They commented as follows:

In summary, five of the seven participants stated that they were to some extent able to overcome these dominant behaviours by setting lower prices compared to competitors, keeping prices as regular as possible, operating on a smaller scale, selling directly to the public, keeping low stock levels, ensuring quick turnovers and negotiating improved business terms.