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An article in the Retail Dive Brief* on August 5 jumped out at us with some fright. (We’ll get to what concerns us greatly in a moment.) Here's what was shared:
As reported by Max Garland, Amazon Merchants who use Fulfillment By Amazon are advised to send their holiday inventory to Amazon during August and September, to arrive no later than October 19, a week earlier than last year. (And six weeks in advance of Black Friday.)
And Garland cautioned, "Sellers who miss the October inventory receiving deadline may have tough luck finding space at Amazon’s fulfillment centers."
But merchants need not worry. (And this is what concerned us.) Amazon can assure that "sellers will have enough room for six months of inventory on average." 👀
"Six months’ supply of inventory on average?!"
Amazon expects (enables? encourages? allows? insists? demands?) that Amazon Merchants operate at 2 turns?!
That is outrageous! Other than for jewelers and some shoe retailers, 2 turns could be a cash flow killer!
Twelve months divided by 6 months inventory on hand = 2 turns.
But for example, 4 turns = 3 months supply, which would mean half the amount of cash tied up in inventory.
Truism: The higher the turns, the lower the cash tied up in inventory.
Granted, 6 month’s supply of inventory does keep Amazon's expanding network of fulfillment centers filled and collecting fees. But, it surely is not contributing to the financial well-being of most of its Amazon Merchants, whose turns vary considerably.
According to Amazon, this is to "maximize the merchant's sales potential during the holidays." That’s what lots of vendors say to retailers too.
Hmm. We worry about their merchants’ survival potential come 2025. Cash IS king.
“No retailer ever filed bankruptcy because their turns were too high.” —Michael Gould, late CEO, Bloomingdale’s
For more perspective, see the Key Ratios Benchmarks for all retail segments.
Check out the inventory turnover rates for each retail segment.
Spoiler alert: in 2023, only one retail segment had a turn rate below 2.
BTW, these benchmarks are for the median-performing retailers, the middle of the pack. There's also the top quartile, the top 25%, that have even higher turn rates, and likely much better cash flow!
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* "Amazon moves up Black Friday inventory deadline for sellers." Retail Dive Brief, August 5, 2024.
ICYMI. You know, that's the shorthand for In Case You Missed It. And in fact, we had missed this.
As reported by Chain Store Age*, "The Conference Board’s Consumer Confidence Index rose slightly to 107.2 in March, up from 105.7 in February. It was the first time the metric has increased in three months." Wow! Is that ever a stray ray of sunshine! We always look to Consumer Confidence levels as a leading indicator for retailers.
Let's assume your stores have been closed for weeks now.
We recognize how conscientious you are. So, after paying what you can to your employees (and yourself), the next most-worrisome dilemma is your rent.
As you likely have discovered, a common choice for many landlords is to offer to defer your payments. But that means taking on more debt, as those payments are only being postponed to a later point in time. You need a better solution than that.
There’s an awareness, an “Oh wow!” sweeping around the commercial world. It’s stated in a variety of ways, but it’s the same surprise.
Indeed, some respected urban thinkers are suggesting that 50% of the traditional commuters may want to and will be encouraged to continue to work remotely. 50%?! Yikes. That’s quite a redirection of the parade!
Each year at this time, our thoughts turn to turkeys. No, not the ones that will adorn many dining tables on Thursday. But the "turkeys" lurking amidst your inventory. You know; non-selling, distressed, slow-moving, old, unappealing leftovers among your merchandise. But this year, frankly, our worries extend beyond the turkeys. Here are some of the reasons why.
As a result, in this environment, consumers are scaling back their discretionary purchases, and/or choosing to spend on travel, dining out, or other experiences versus retail merchandise. Not an upbeat prospect for retailers, is it?
That headline from Chain Store Age* brings smiles to retailers. Consumer confidence is a key indicator of retail sales, and this increasing confidence as we head into the holiday season is very welcome indeed.
But of course, there is no one-size-fits-all upside here.
Remember thinking that Amazon was the most disruptive force to happen to retailing? (Well, at least since Walmart was the most disruptive....) However, the coronavirus pandemic eclipses them all. No matter where you live or do business, it is not whether, just when, COVID-19 will impact your life. Disruption with a capital D!
Incredible value! 👀
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