The Market Giveth...

If you haven't found your seatbelt, do so quickly. The ride is about to get very turbulent.

Those of us who work for Brands that derive most of their sales from retailers (even if we own the stores) are entering into a Twilight Zone few if any can recall. Retail demand, to be charitable, sucks. We hear horror stories of 20%, 25%, even 30% drops in year-to-year sales. It's a mess, and will get worse before it gets better.

For the Special Markets function, it will create two distinct environments--one helping, the other hurting. It's coming--forewarned is forearmed. Here's how it goes:

The Market Giveth

A tsunami is approaching us--a wall of inventory the likes of which none of us can remember. Slack demand at retail coupled with forecasted purchases will create warehouses bursting at the seams with stuff. Special Markets managers will be able to offer clients outstanding quantity and value at attractive pricing because our retailers cannot or will not buy everything that was forecasted.

Remember that for most companies that source offshore, the product arriving today was ordered 90-120 days ago, before the financial meltdown in September. More product will arrive in December and even January, product forecasted before the market went South and before we could stop production. That, added to the product that didn't get taken over the summer equals Big Inventories, and Big Opportunities for "one-off" sales to our clients.

The Market Taketh

But every company is now slashing future orders. Raw materials will not be stockpiled, so the ability to respond will be limited. Until/unless retail demand increases, Brands will sell the stuff already in the warehouse now and bring in only what is absolutely needed, and forecasts will be cut dramatically to ensure that inventories are in line with the New Realities.

When retail demand recovers, Special Markets clients are in Big Trouble. The warehouse will be leaner, without the "slop" in the production forecast to help us leverage opportunities. What inventory does exist will go to retail clients to help them take advantage of the recovering demand. Refilling the pipeline will be at least 120 days because we'll have fewer raw materials lying around with which to ramp up production.

The Market Screweth

And looming behind all this is the already-here-but-not-top-of-mind-yet Credit Crisis. Smaller suppliers that use lines of credit to finance inventories will find it harder to access capital. Manufacturers that bought raw materials "on the come" will not do that as often, and ongoing issues in China (labor costs, currency fluctuations, etc.) will cause many manufacturers to close or change their model.

And our clients will have trouble paying for their goods. Investigating clients' credit will require Sherlock Holmes-like interpretation, as previously solvent clients will be buffeted by the storm and lose their ability to pay. Risk will be averted whenever possible. Deposits will be required in many cases, and the client may not be able to post funds up front.


What to do? Take a lesson from the "bottom feeders"--their phones are ringing off the hook with suppliers desperate to turn inventory into cash. They buy at rock-bottom prices, then store it somewhere waiting for demand to turn. When it does, THEY become the sole supply until the Brands ramp up production again, and they can turn a tidy profit.

I'm not advocating everyone store nuts for the winter (unless they're Samsonite nuts, then I highly recommend it), but the next 6-8 months will be prime buying time for overstock merchandise. But come the summer of 2009 things are going to get difficult, and finding product to sell for "one-off" programs will become much more challenging. Having a "hole card" or two will be useful.

For the Special Markets world it's gonna be great, then crappy. Anyone who thinks we'll have lots of stuff lying around after the Big Sell-Off is delusional. Fasten that seat belt--there's rough air ahead....


Pete

SHRIIIIIIEEEEEEK!!!

Yesterday was Halloween, and in between the popcorn balls and too-old revelers dressing up like Barack Obama and Sarah Palin, I was thinking (always a dangerous concept) about how our market loves to be scared.

We come up with new and exciting ways to be scared, to worry, and more importantly to rise up in righteous anger at an enemy of our own creation.

Think about it--eight years ago there was wailing and moaning about Debit Cards--that they would visit ruination on the Incentive Business. "It's just cash!", went the cry. "We must save the market!", went another.

Then the Sharp Pencils at our clients started doing the math and realized that $1.00 of buying power was costing them $1.25 and the Debit Cards waned. Crisis averted.

Next, it was the Gift Cards--The Antichrist. Apocalypse Now. "It's just cash!", went the cry. "We must save the market!", went another.

Then, the clients realized that while impactful in some applications, there remained a need for an actual gift with actual Trophy Value. And the Gift Cards are facing new challenges (albeit not quite "waning"). Crisis Averted (or at least diverted).

Today, it's Amazon. The Death Knell of the merchandise business. "It's worse than cash!", went the cry. "It's going to eat us alive!", went another. "We must save the market!", said a third.

Notice a pattern? The Naysayers concoct a Bogeyman for us to rally against. We get all exercised and decry the fate of the business. Then, we examine the Bogeyman a little more closely and realize the fangs are not quite so sharp, the threat not so ominous. The Market shrugs, and we all get on with our lives.

When I saw Alien all those years ago I was genuinely scared--until later, when I saw a model of the Creature. We never got a good look at it during the movie, and once I saw it I was amused at how non-scary it appeared.

Why? Because skillful editing only allowed me to see a glimpse of it onscreen, and my brain did the rest--making up what I couldn't see into a much more threatening entity. After closer examination I realized I was much more afraid than I needed to be.

And so it is with Amazon, and whatever else comes to the market. Evolution of delivery systems (like Debit/Gift Cards, and Amazon) do not change the essential foundation of our business--that we need to find out what our clients want to do and how much they can spend to reward and recognize their key performers. If we allow the delivery system to overshadow the achievement we get what we deserve.

Gotta go now--popcorn balls are terrible after a couple of days on the shelf...


Pete