Recently Synnch GM, Evan Barker, and I have had a number of conversations about a problem that has always existed, but that we are seeing in especially high proportions “post-Covid”. That problem is excess inventory.
As global supply chains tightened through the course of Covid, businesses struggled to make ends meet through a lack of inventory limiting turnover. Unfortunately, as supply chains improved, many overcompensated. Buying huge amounts of raw and finished inventory to support their future needs.
Which would have been fine…
But for inflationary costs stifling the consumer economy, freight costs climbing hugely across Australia (and globally) and ultimately, wholesale and retail business has generally slowed.
This has left businesses holding hundreds of millions in excess inventory with reduced cash flow, or clearing excess inventory on sale for a loss.
We have written this brief article to discuss excess inventory – identifying when too much is too much and discussing different ways to free up cash or build always-on revenue streams for B2B importers and manufacturers.
You might be asking yourself, how does Synnch, an R&D tax compliance management platform fit into all of this?
Innovative companies rely on the R&D tax incentive to fuel their innovation. However, reaching the stage of commercialisation and effectively selling their product or service requires more than just innovative creations. The competition is fierce, demanding these businesses to go beyond their traditional marketing techniques and revolutionise the way they sell. Continuous innovation in sales methodology becomes imperative for their success. That’s where an agency like Swanky comes in.
Picture excess inventory that you need to repackage, re-brand, or, slightly re-calibrate to help differentiate it from your existing product range. Changing flavours, alcohol content, ingredients and ultimately, developing new IP… See where we are going here?
Excess Inventory = Restricted Cash Flow
Excess inventory is a pain. Yes, a different kind of pain to a lack of inventory, though the outcome is similar.
No cash flow.
The more painful reality is, however, if you have already paid for stock, you are sitting on a typically depreciating asset – often an asset that has a fixed shelf life. If you don’t move it quickly enough, it may lose all value. On top of that, the old adage is still true, it takes money to make money. If all of your cash is tied up in inventory, you do not have the flexibility to pursue opportunities when they arise.
Selling on Sale does not build value
“So, you are saying I need to clear inventory and free up cash?”
“Should I just run a sale? Apply a discount at checkout? Send out a clearance newsletter?”
Yes… and No. Selling on sale can sabotage your brand position and while it alleviates a short-term cash imbalance, it can create a long-term problem – misaligning your consumers’ brand perception from your own.
Sometimes, clearing excess inventory into different or new markets can protect your primary business and customer base however, we will look to cover that slightly later in our article.
What are my alternatives?
So, I have excess inventory. I don’t want to sabotage my core business brand position. I need to free up cash. I could run a sale or a series of sales but I do not want to dilute my brand. How else can I move product without taking a significant loss? Can I create an asset from surplus inventory?
Here are a few ideas:
- Build a sub-brand
- Launch inventory onto a digital marketplace
- Sell into a new market – internationalise or find an alternate consumer
Building an e-commerce sub-brand? Is this easy?
Not necessarily, but it has a number of very clear benefits and in the present day and age of SaaS (Software-as-a-Service) based commerce platforms, it is a lot quicker than many people think.
In the case of Swanky, we have designed brands, built minimum viable product websites and launched them online in less than 6 months. In some cases, we can have an initial branded MVP live and selling within 3 months.
So, talk to me about the benefits…
#1 Ability to influence demand
While wholesale activity is very much dependent on sell-through by distributing retailers, digital allows us to ramp up advertising budgets, buying traffic and promoting products to both existing and potential new customers. This not only builds your digital revenue stream – by promoting your products to net new customers, but you are also building future demand for your distributing retailers by increasing brand visibility.
You can also leverage this strategy to expand into new international markets, creating demand before seeking a retail distribution footprint.
#2 Ability to build a valuable asset
Depending on your vertical, building a direct-to-consumer (D2C) or business-to-business (B2B) sub-brand can be extremely valuable.
Firstly, it becomes a saleable asset in its own right. Secondly, it aggregates to increase your group value as the revenue stream diversification makes your business more resilient. Examples of e-commerce businesses leveraging this approach are many, from fashion houses and surfwear groups to FMCG.
#3 Low comparable investment cost
Leveraging ”out of the box” e-commerce platforms, investing in an online D2C store build typically has a lower initial cost of ownership than a retail or wholesale operation starting from scratch.
You can start multiple businesses from a pooled inventory base – allowing multiple sales avenues from one stock base.
And the implementation cost to design, build and launch a brand can cost sub-$100k and year 1 operating costs can sit below $500k. In the case of one of Swanky’s clients, formerly wholesale-only fashion brand Goondiwindi Cotton, they have now built a multi-million dollar direct-to-consumer brand (https://swankyagency.com/outsource-ecommerce-manager-case-study-goondiwindi-cotton/) to compliment their wholesale operation.
Within 2 months of Covid significantly impacting their wholesale business we had transitioned their existing clearance online store to a full-price, retail first storefront. By month 3, they had a 6 figure monthly revenue stream.
#4 Proven process
Brand groups the world over sell and share resources across multiple entities giving them buying power, democratised costs and, once they have a working e-commerce model in place – a replicable playbook that can scale up, and up, and up.
If you would like to explore what this could look like for your business – feel free to reach out to either of Swanky or Synnch – we are here to help!
About our guest contributor
Sean Clanchy is the Managing Director of Swanky Group Limited in Australia. Swanky is an international e-commerce agency that specialises in assisting FMCG brands and wholesale groups to improve their e-commerce operations. We design, build and market products and brands via D2C and B2B online stores on the preeminent e-commerce platform – Shopify Plus.