When it comes to the economy, no one can say with certainty what will happen in the months ahead. Nevertheless, we all need to allow for the possibility that:
- Gas prices will continue to rise.
- Inflation will continue unabated.
- The economy will suffer as a result.
As dive retailers, we rely on our customers’ discretionary income. Our customers need food, clothing, shelter and medical care. What they don’t need is to go diving.
When everything costs more, consumers have less discretionary income. Even consumers with discretionary income are frequently reluctant to use it if unsure what their financial situation will be in the months ahead. None of these factors are good for dive retailers.
“Be prepared”
If you were in the Boy Scouts as a youngster, you recognize this motto. It’s sound advice for dive retailers facing tough economic times. The better prepared you are, the more likely you are to weather the storm.
For dive retailers, being prepared can involve several steps. These include:
- Cut unnecessary expenses: Trimming $100 in expenses can have the same impact on your bottom line as making $500 to $1,000 in additional sales.
- Ensure adequate margins: When sales are few and far between, making sure you make money on everything you sell becomes more important.
- Have adequate reserves: Do you have enough cash on hand to carry you through the next few months? You may need it.
- Don’t tie money up in unneeded inventory: Few things are worse than having money tied up in inventory that isn’t moving. This is merchandise that you must pay for but which isn’t bringing you any return.
Not all it’s cracked up to be
Many manufacturers offer a program commonly known as booking. You probably know how this works.
- Your rep “helps” you project product sales for the coming year.
- You commit to a schedule of deliveries that correspond to this.
- You also commit to a schedule of payments that (hopefully) corresponds to your cash flow.
It’s a plan from which both manufacturers and dealers are supposed to benefit. But the scales are often tilted in favor of the manufacturer.
A one-sided equation
Dealers who commit to a booking program are supposed to benefit by getting better pricing and smoother cash flow. And should everything work out the way they planned, they might. But have you asked what’s in it for the manufacturer? They are the ones who frequently come out on top. Here’s why:
- With most of their dealers on booking plans, manufacturers can better plan production schedules for the coming year.
- If a manufacturer needs a loan to finance production, having dealers on a booking schedule allows them to show the bank a projected cash flow.
- To save warehouse space, manufacturers can ship product to dealers ahead of schedule. This turns their dealers into free warehouse space.
- By getting dealers to commit to a booking schedule, manufacturers reduce the likelihood that dealers will buy products from competing vendors.
So, what’s the problem?
Booking can work out well for all concerned provided actual sales meet projected sales. But what if they don’t?
If actual sales fall short of the sales rep’s projections, dealers can find themselves stuck with product they can’t move but still must pay for. This is more likely to happen during an economic downturn. More than one dealer has gone out of business because of it.
So, although booking can sound very attractive, it can be very costly, especially during a recession.
What’s the alternative?
Fortunately, not every manufacturer strongarms their dealers into booking programs. Many, such as TUSA, offer dealer pricing based on past performance and not future commitments. And in so doing, they help dealers maintain inventory levels on a “just in time” basis.
For dealers, this frees up cash flow and helps ensure they are not bound to financial commitments they may not be able to keep. In uncertain economic times, this can easily be the better choice.