Tips for Retail Success

From the Entrepreneur’s Perspective: What to consider when retailers increase/decrease inventory quantities after placing an order

Let’s play out this scenario:

You receive word that your product will be launching at Retailer XYZ. You are told by your buyer that you will be going into 1000 stores. Awesome/congrats.

And, by the way, your PO has not been officially issued. It won’t be issued until approx. 1 month before you must deliver product to retailer’s DCs, but you have to get started on manufacturing otherwise there is no way in heck that you will be able to deliver on time to the retailer (you have to factor in time to get on your manufacture’s schedule, manufacture, import to your DC, and then ship to the retailer’s DCs). Yup, you are operating on a leap of faith. Sucks, huh! That’s how big box/big retail works. There is an upside and downside/risk vs reward. Yes, we may be the “small guy” but if you want to play with the “big guys”, that’s how it goes. This is not about fairness.

Then, sometime later, you are told by your buyer the store count has been changed.

You had planned for the 1000 stores. You ran projections on how many turns per store per week per sku. You may or may not have issued a PO to your manufacturer depending on when you learned of this store count change. You have accounted for the financing needed for the 1000 stores – for the initial fill, back fill and ongoing reorders. You may have even gotten as far as implementing marketing programs in light of this launch.

Scenario 1/Store Count is Decreased

Then, the buyer tells you the store count has changed. It will actually be 500 stores. Well, you have planned for 1000 so your cash flow is likely in a better position because if you were able to finance the 1000 stores you can certainly handle the 500. But, you may have issued a PO to your manufacturer for 1000 stores so now you are heavy on inventory. You can try to sell it to other retailers and/or consumers, including flash sites. If you are stuck with that inventory, then you are going to likely be having a conversation with your buyer. If you have implemented any marketing programs, is that investment fully realized? You may have to shift gears and re-think that marketing program.

Scenario 2/Store Count is Increased.

Then, the buyer tells you the store count has changed. It will actually be 2000 stores. Well, you have planned for 1000 so you may not be in the cash position to finance the full 2000. Is there still time to manufacturer and ship to the retailer on time? Will you have to air freight product to make the deadline (how will this impact your margins)? If you committed to free inventory (like one free unit per store) as part of the initial sell in offer, how much will this impact your margins/can you still afford to proceed as initially negotiated?). Will you be able to invest more into marketing as a result of this increased store count (the increased store count size may or may not necessitate more marketing dollars).

Sometimes more is great. Sometimes less is more.

3 thoughts on “From the Entrepreneur’s Perspective: What to consider when retailers increase/decrease inventory quantities after placing an order

  1. this blog post is so good! DC is distribution center, I take it. Also, what are some factors that would lead to a buyer decreasing or increasing store count?

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  2. Great question, Keisha. Stay tuned for the “Buyer’s Perspective”. Romy’s “Entrepreneur” posts are always followed by my perspective as the Buyer a week later. Make sure you’re subscribed to our blog to get it immediately once published! Thanks for reading!

    Like

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