Waking Up In a Cold Sweat
I woke up in a cold sweat last night thinking about recent developments. Early in the week I lost business from a retailer partner to one of my suppliers. Two days later I was asked to participate in a line review but forgot to focus on the innovation in my product and its associated brand. Yesterday, I spent hours educating a retail partner about a new product line and how its flawed marketing strategy lead to an overall sales decline for my partner’s company and mine.
All around, they were lose-lose situations for our retail partners and us. But they didn’t have to be. Retailers that recognize the challenges suppliers face can improve their businesses if they work closely with suppliers to help us change for the better.
The greatest threat to most traditional suppliers is the direct sourcing of product by retailers. More and more of my retailer partners now have offices in China that purchase from the same factories we use. Underlying this change is a belief among retailers that they can generate more profit by cutting us out of the supply chain. This might look good on paper, but the risks and costs increase when you add in factors like inventory management, branding and product innovation. A failure to deal with these dynamics can erode profitability because lead times to correct inventory shortages can be longer, overseas manufacturers traditionally can’t offer innovation and house brands generally can’t command a premium retail price.