What Major Retailers Need to Reduce Inventory

Retailers know the pain that is tying up large amounts of working capital in inventory. When it comes to online sales though, there can be better options. Endless aisle is a concept used to describe the effect that online stores like Amazon provide: a seemingly bottomless selection.

When it comes to providing endless selection, the only way to fully control the purchasing experience is to do the warehouse yourself. The challenge is that this ties up lots of working capital that could be used for marketing in inventory, with no guarantee that it will sell through.

We’ve been working on some projects to try and change this with our customers. For a major retailer with an established brand, onboarding new online vendors is happening continuously. The challenge for many though is that sometimes who you can onboard is limited by legacy IT systems that require any supplier to be using standard EDI documents.

In our experience, newer suppliers aren’t tooled properly to support EDI and end up having to do the EDI stuff manually while they wholesale their products to the retailer for a discount that they can barely survive on. This doesn’t make sense for either party, but the economics only work for the retailer if they are getting a full 50% off retail discount on the suppliers goods.

We think a better approach would be for the supplier to take a little more margin (on the order of 60-75% of retail) while the major retailer focuses more on the needs of their audience. The ability to put working capital to use in marketing and tech instead of inventory makes the business more capital efficient and reduces their borrowing costs. Likewise, by drop shipping the products, you can eliminate significant fixed costs from the balance sheet as well.

Drop ship should not have to require EDI compliance, and merchandising departments are frustrated with how long it takes suppliers to onboard via EDI. We’re proposing a new alternative that allows suppliers with an existing ecommerce system setup (which very often already integrates with their accounting system and has live inventory and products) to sell to major retailers on a drop ship basis without having to go through an EDI compliance and onboarding process. That to us is the future as more and more suppliers move away from EDI integration.

Have you experienced these frustrations in your own business? Are you a merchandiser who needs a way to onboard interesting new suppliers without having to wait three months for IT? Get in touch with us to learn more about what we’ve been working on.