Tuesday, December 30, 2008

Who will be the next economic sacrifice?

The high street has taken a real battering over the last month. Some have gone down deservedly you might say. Woolworths has never really seemed to understand how modern retail works and I'm surprised that they have survived so long really.

MFI had suffered from it's appalling quality and customer service record in the past. Perhaps if they had renamed and re-branded a few years ago they might have been able to survive.

Although I don't grieve the loss of these retailers, who I didn't use anyway, my heart goes out to their staff and the many companies in their supply chain who will all lose out.

During my days in ecommerce I visited many reasonable sized businesses that were in the high street supply chain feeding goods to all of the famous high street names. I remember coming across a significant number of businesses that had one retail chain representing over 80% of it's customer base and, in some cases, 100%.

Most chains work on the 'just in time' stock principal. Which means that the retailer estimates his total supply requirements in advance. After an initial stock up, replenishment is by replacement only and it is up to the supplier to have the stock on hand to provide immediate turn around - with no commitment from the retailer to take the whole consignment if sales are bad, but penalties for you if you can't supply.

I don't know how they slept at night and I said just that to the MDs in question.

When we have a sharp economic downturn that level of reliance puts you on dangerous ground and your business can be wiped out even though your own business management and cash flow are sound.

As small business owners it is always attractive to accept business opportunities that give us 'security' by filling our order book for substantial periods. But it doesn't come without risk. I suspect there are hundreds of small businesses that spent more than 80% of their efforts pandering to MFI and Woolworths who will be left with virtually no business to speak of.

Perhaps our New Years resolution should be to spread our business across more customers and therefore spread the risk?

If you need help with a New Year sales and marketing strategy, particularly using the internet, I'll see if I can help.

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