Click-and-mortar?

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This is yet another in the series about the two growing firms where I am serving as financial manager.   I already wrote about the concerns of monitoring the daily operations (KPI) and the costs of expansion.

In one of the cases, expansion’s biggest factor is the inventory carrying costs.  Because we need between $200K and $400K in inventory for each location.  (Of course, the actual required inventory volume is seasonally dependent.)

What a lot of folks don’t realize is that making a profit does not mean you have ready cash to invest.  For example, let’s consider a firm that has generated profits so far this year of $ 475K.  But, since sales have been increasing by a factor of 3, the old inventory level of $ 125K is insufficient to meet the demands of our customers- who expect us to ship about the same day they place their order.  So, now, we need an inventory level of about $ 350K.  Which has swallowed up $ 225K ($350-$125) of that profit.

And, we have more material handling equipment which costs us about $50K, so we can get our larger order volumes handled efficiently.  So, there went another $ 50K of cash, leaving us with $200k on hand.  Just barely enough to stock that new facility- which also assumes we don’t have to provide a rental deposit, need new software, etc.  (By the way, we do…)

But, our next facility is not another warehouse, but a click-and-mortar operation.  One where customers can come in and see our merchandise.  Or, order on-line the way they’ve been doing for a few years.

But, this location will be where a great deal of volume should be generated.  And, instead of using the services of FedEx and UPS, we will deliver directly to our customers on our own vans- or they can come pick up the product themselves.  This will save us a bundle of costs- and save our customers plenty, too, since freight is charged for small orders.

It will also give us a chance to better educate our customers.  Now, they can come in and speak to a trained professional, who will let them sample some of our wares and insure that what they  buy is exactly what they want. Because while the internet is a fine venue for most customers, a significant minority appreciate being able to browse, feel, touch, and taste.

We expect the bulk of our sales nationally will still use the website.  But, for a few locations, where there is a potentially great geographically concentrated customer base, our click and mortar operations will greatly enhance our market penetration.

What about you?  Are you going to meld e-tailing and retailing, too?

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4 thoughts on “Click-and-mortar?”

  1. My business has been in the middle of e-tailing and retailing. We sell online and wholesaled to other bricks and mortar stores. I know all too well how profits can so easily get eaten up by growing inventory. Such a balancing act!
    Suerae Stein recently posted..Kicking Mid-Life’s Ass…

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