Digital Commerce Favors Brands With Inventory and Flexible Sales Channels

What's the most important factor in eCommerce? To me, it's inventory. Everything else is details. ;-)

If you have the right inventory to promise, you have a shot. If you have the wrong inventory, you are taking a bath.

The last 20 years have seen a continued rise in ways for retailers to hedge their inventory risk.

* Dropship programs that allow retailers to push inventory risk to brands, but allowing the retailer to keep the top-revenue.

* Marketplace programs that allow retailers to act like software companies, taking only a percentage of the sales revenue.

* Additional low and high-margin service revenue from digital advertising programs (retail media, DSP, promotions) which match, traditional brick and mortar slotting fees, co-op marketing, and other programs that have been offline

Last year, what did retailers learn?

* That container of inventory could be on the water a long time.

* The next container will cost more than the last container.

This year, most retailers have been whipsawed. Inventory container costs generally declining with transit normalizing - not to historical lows but, better.

The lesson retailers learned is to "over-order". This led brands to over-order, and when Q1 2022 rolls around and the economic environment changes quickly, this is what creates the situation we find ourselves in today.

Forget about retailers - we know they have too much inventory, most brands have now too much inventory. There is a huge dilemma about what to do with it if you don't have a 3P or a DTC business.

Amazon 1P, for all its benefits, you are at the mercy of Amazon's vendor managers -- which if they are telling you that you have CRaP (Can't Realize a Profit) products, your options are limited.

With Amazon 3P, you have more control. And DTC you have virtually all the control. No one is saying to abandon Amazon 1P, but in an unstable retail inventory environment, being dependent on another party for your entire livelihood is hugely risky.

Just look at how Amazon manages its own business. 1P keeps them price competitive and 3P keeps them with a reliable selection in a broader set of items without taking unnecessary risk.

As a brand manufacturer, you don't have that luxury of not taking inventory risk. But you can still gain a greater measure of control over your own destiny with DTC (full control) and third-party marketplaces (which is kind of a half DTC approach).