Friday 2 November 2012

Jumpy suppliers leave Comet on brink?

Press reports that jumpy suppliers are somehow to blame for Comet's business issues are missing some fundamental aspects of the supplier-retailer relationship.

What a supplier contributes:
  • With daily deliveries of some SKUs, often at zero-defect service level, a retailer can run the business on two weeks stock, or less
  • With an average retail margin of 25% and store running costs of 15% the retailer is left with 10% to cover head office costs and profit, with a potential net margin of 5%
  • With up to 45 days of free credit, and a shopper paying cash the retailer, allowing 5 days to to turn cash around, the retailer is left with 40 days money to place on deposit, or more creatively build new stores
  • With suppliers contributing up to 15% of their sales in trade funding, most of the promotional risk is being carried by the supplier
  • With suppliers carrying most of the innovation and brand development risk, the retailer simply has to make it available to consumers
  • A buyer's mistakes can be sent back sale-or-return, a supplier puts theirs on prime time TV
Comet's mistake 
Comet failed to anticipate the inevitable impact of online and Amazon on white-goods and home entertainment categories and were unable to re-engineer their business model fast enough to compete, in unprecedented times.
Developing an online offering means having to compete directly with Amazon's 1-click convenience, zero-defect service level and 'no quibbles' returns policy. There is no halfway alternative.

Amazon is growing at 26% CAGR, not via incremental business (they have not even started yet!), but by siphoning business from traditional retail, via pricing, convenience and great fulfillment. Again their 1-click process optimises almost every impulse urge of the consumer, never missing  a trick because of lack of availability...
But essentially they are simply another competitor in a free market.....and no government is going to legislate to make it any different.

Meanwhile, suppliers making 5% net profit on their Comet business, need incremental sales of £3m for every £150k that is is owed, to cover the cost of the inevitable...

Jumpy?  I can think of better words....

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