We often caution that many vendors are so much better trained at selling than retailers are trained at buying. In their eagerness to grow sales, and the associated promise of thereby growing profits, it is all too easy for retailers to become overbought. Instead of higher profits, they can find themselves in a cash flow crunch. And that was in Before Times, before the pandemics. Throughout 2020 and continuing now, vendors and retailers alike have increased their online capabilities. Ordering online brought new challenges to buyers and sales reps, but also saved time and improved access.
We have applauded these advances in technology, but...
Here's our concern: 2020 accelerated the growth and impact of well-financed and very high tech online wholesale marketplaces. These platforms offer many advantages to independent retailers – shipping, invoicing, time savings – plus exposure to an array of Makers and products that previously might have been under the radar. All available online, 24/7. In other words, an even more abundant and appealing all-you-can-eat buffet for retail buyers. And it's all happening as retailers eagerly embrace re-opening, with their ever-present optimism about pent-up shopping demand. But, we urge you to contain your enthusiasm. First, it is not yet clear how, where and when shoppers will be willing to spend post-pandemic. Moreover, these platforms are whizzes at using Artificial Intelligence (AI) and sophisticated data tracking. And they apply it in ways that first and foremost contribute to the growth of their own platform.
But, here's where we really have some concerns. You know the financial incentives that sellers always have deployed: "The more you buy, the more you save." "Buy now, pay later." These are now being matched by the marketplace (and its algorithms.) Even some merchant cash advances are offered (under whatever name), that are repaid via "off the top" deductions from your sales receipts. Talk about losing control of your cash flow. These appealing ways to showcase products, stimulate demand, and ease access to credit means it is easier than ever for some retailers to be overbought. The descent down that slippery slope has been accelerated. For some, it is a cash flow crisis waiting to happen. Of course, savvy retailers are still able to manage all these temptations. Much like showing restraint when the dessert tray comes by, a buying budget (AKA an Open-to-Buy plan) can provide the boundaries a retailer needs to manage and control their inventory, and their cash flow. Absolutely, take advantage of the benefits of these new wholesale marketplaces. Just remember your Owner's hat. And Buyers Beware!
There is much enthusiasm coming out of the buying trade shows, and why not? Attendance levels have been near to or better than 2019. Energy levels are high, and very contagious. A sense of urgency persists, due to past supply chain issues, emboldening the pressures from the vendors to "Buy now!" Especially in today's environment, FOMO - the Fear Of Missing Out – can be a compelling sales pitch. How to deal with this pressure, especially given all the headlines about a coming recession, or drops in consumer spending, or cautions about the need to control expenses, improve profits, maintain cash? Here are two tactics to help you manage this. One helps monitor and control "How much to buy?" The other helps decide "What to buy?"
That's a sign of the times, isn't it? While retailers are more accustomed than most folks to cope with change, 2020's unrelenting flexibility tests have been a challenge. Forget about five years. Retailers have to be ready for the next five months! It's back-to-school and then Holiday. The only certainty about the next five months is that they will probably feel like the past five months. Yet you still must run a retail business. And that means you still must buy and sell merchandise. The opportunities – and the pressures – are mounting.
Many Americans who can afford to save money – thanks to reduced spending on eating out, vacations, and consumer goods – are playing it safe and hoarding their cash, according to recent research by Gallup/Franklin Templeton.* And those who currently are saving at least a little money largely plan to keep saving rather than spending in the near term.
Isn't it great? Headlines and the media world seem to be in unison; the dastardly COVID pandemic is being arrested. And, if we can believe the pundits, pent-up shoppers are about to buy all sorts of products and services with abandon. But, will they? Given this exuberance, many retailers could be building up excess inventory. Retailers once again need to be true merchants. That is, the #1 responsibility of retail senior managements must always be to control inventory. (It's the only thing that makes money, but it soaks up cash.)
About a year ago, as the pandemics were beginning to hit their stride, we introduced a framework for retailers to "rethink your merchandise mix."
As depicted in the chart above, we cautioned that once the lockdown was over, as customers resumed shopping, retailers should be prepared for (1) reduced sales totals overall; (2) significantly re-balanced merchandise mixes, initially dominated by "basics/never-outs."
Further, we anticipated that the merchandise mix would continue to change as we re-emerge from the effects of the pandemics. And we urged retailers to take this overall construct and adapt it to their own situation; to develop their own customized strategic response.*
Now, one year later, here's how this can become "news you can use" to quickly produce your Big Picture buying plan. Especially in the spring of 2021, some practical answers to "What to buy?" , "How much?" and "When?" are likely to be very welcome.
You likely are aware of buy-now, pay-later (BNPL) programs, from Afterpay, Affirm, and Klarna, among others. It gained a foothold in online retail – "the hottest trend in e-commerce"– and has been especially popular in the UK and Australia. Now its availability to many more retailers may be accelerated with the proposed acquisition by Square of Afterpay. It is a trend we all need to watch carefully. Here's the deal. Once again, the retailer is the pickle in the middle. The benefits of increasing sales (and average transaction value) which are very attractive, must be weighed against the potential increases in hassle factors, particularly for your most valuable asset: your front line staff.
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