Pimkie, a French fast fashion label for women that opened its first store back in 1971 has developed over five decades into a chain with more than 700 outlets across Europe and offices in Germany, Spain and Italy in addition to the head office at Villeneuve-d’Ascq, near Lille in northern France. The company has over 5,200 employees and reported sales of €563 million last year.
Pimkie’s clothing design comes from centres in three major European cities; Lille, Barcelona and Milan, but its 200-plus suppliers are more diverse. Many are located in China, India, Bangladesh, Turkey and the Maghreb region of north Africa.
The company handles around €230 million in purchasing annually and has just completed the first year of a reverse factoring programme focusing on its key suppliers. “The project got underway in late 2016, when we launched tenders and worked towards developing the best solution and the right tool,” says Pimkie’s group treasury manager Grégory Ambrosio.
The company identified four major benefits that would result from a supply chain finance (SCF) programme:
- Reducing its dependence of letters of credit (LCs), which accounted for half of the company’s purchases and were used most with its Asian suppliers. Typically around 94%-95% of LC documents contained errors.
- Strengthening Pimkie’s relationship with its key suppliers. The programme would initially be offered to 60 suppliers, representing 85% of the company’s purchases and €190 million in eligible invoices. Each of the 60 represents an annual contract of €500,000 minimum.
- Improving both the company’s working capital and payment terms.
- Provide suppliers with an incentive for developing a corporate social responsibility (CSR) programme (aka an environmental, social and governance (ESG) initiative) or for improving a CSR existing programme. Pimkie first introduced CSR policies for its supply chain, including auditing of its suppliers, in 2013.
“Within our industry, it is important to offer visibility to our suppliers and plan for stable, long-term relationships with even greater flexibility,” says Ambrosio. Pimkie wanted a secure, bank-independent solution for the project that enabled it to plan for the future, financing key suppliers based on its own cash surplus through a dynamic discounting programme.
“We decided to work with BNP Paribas as our bank and with Kyriba as platform provider,” he says, adding that the project quickly got the green light from senior management following a four-month analysis phase. Once approved, the treasury team worked with several of the company’s departments including CSR, purchasing, accounting, supply and IT, so that internal processes could be optimised.
“Progress was swift and we signed an agreement with both partners in February 2017 and held a launch meeting the following month.”
The CSR programme rates the performance of each supplier in one of five categories: premium for those observing the highest standards, followed by gold, silver and bronze. An external audit is carried out of the factories producing items for Pimkie and the lowest category – wood – is for suppliers where there is evidence that minimum CSR standards aren’t being met. Suppliers are given the ‘wood’ category where their CSR rating is less than 50%, making the firm ineligible for the reverse factoring programme and any evidence that child labour is being employed means the immediate termination of relationships with that supplier.
Ambrosio says that the company is keen to help its suppliers improve and make progress on the social and environmental criteria that make up the CSE element of the programme, which although still in its early phase has already seen one supplier in India upgraded from silver category to gold.
Before launching the reverse factoring platform with Kyriba and BNP Paribas, the company had previously used a vendor financing programme, which typically took nearly 25 days after shipment to handle discount requests. “We wanted to offer our suppliers an alternative solution while significantly improving funding timeliness,” says Ambrosio.
The new programme has enabled to Pimkie reduce the time taken to pay suppliers by 40% – a 14-day improvement – and improve working capital by €8 million in the first year, which it expects to further increase to between €12 million and €15 million annually. The Kyriba multi-bank platform enables the company’s suppliers to access a secure portal to view all of their approved invoices and select those they wish to pre-finance.
Following the programme’s launch last March, the company used a six-month deployment phase to work closely the company with BNP Paribas Hong Kong and Kyriba in onboarding suppliers. This included a roadshow for suppliers in China, Turkey and France to promote the programme to local suppliers.
Pimkie also needed to secure approval of the new programme from statutory auditors on a commercial debt model, so that trade payables would not be reclassified as financial debt. Pimkie was aware that this could also be a lengthy progress, but got the programme classified by Deloitte last August, towards the end of the deployment phase.
“As of March this year, we’ve onboarded a total of 21 suppliers to the programme, with seven added in February and another four the following month,” says Ambrosio. “Onboarding is a lengthy process and firms need to be convinced to sign the agreement, which involves fairly extensive documentation.”
In the UK, Pimkie sells via the online fashion retailer Asos and the company recently signed a partnership that will enable it to begin selling in eastern Europe. Future plans include extending the reverse factoring programme to the company’s smaller suppliers and introducing it at Pimkie’s sister companies. Its parent group, Association Familiale Mulliez, is the name behind a wide range of familiar retail names in France, from the Auchan hypermarket chain to sporting goods retailer Decathlon.
A paperless invoicing project is also underway at Pimkie that aims to reduce invoice validation times further, enabling participating suppliers to receive payment even earlier. The era of LCs is entering its final phase.