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.
- Through AI, they study a retailer's previous buying, and use that to determine what on their platform is shown on return visits. (Instead of you editing your assortments, they are editing your exposure to products. 🤔)
- Retailers, as the "shoppers", are providing the platform with "user data" that the platform can then use to grow their advantage, and market share.
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!