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Walmart, Target's Inventory Mistake Contains Message to Main Street

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Philip Radwanski | Lightrocket | Getty Images

The story of retail battles over the past few decades has drawn one of two wars. Amazon and e-commerce are going up against the big brick-and-mortar retailers and the big companies against the smaller entrepreneurs on Main Street. But in the current complex economic environment, with inflation, supply chain bottlenecks, and volatile consumer spending patterns driven by COVID-19 spikes, we’re more optimistic about the benefits of being smaller on Main Street. should be targeted, say small business experts.

The rise in inventory and subsequent price cuts from the biggest retailers, including Walmart and Target, shows that even the best retailers can mislead this consumer economy. , deepening relationships on both the supply and customer sides has the potential to manage a rapidly changing environment with greater agility.

That’s advice from Nada Sanders, Distinguished Professor of Supply Chain Management at Northeastern University. She was “pessimistic” in the past, but optimistic about her street potential in the current economy, she said Wednesday in CNBC’s Small Her Business Playbook Her Virtual Her Summit. I said yes.

“I actually see this as a tremendous opportunity, I really do, especially for small businesses,” Sanders said.

She lists three areas that entrepreneurs should focus on. The first is an area directly related to the predicament of large retailers: forecasting.

“Big companies are really struggling with this,” said Sanders, a forecasting expert. “Obviously we see it in retailers, Walmart and Target.”

Talk directly to customers to understand changes in consumer demand

In her opinion, large companies are relying too much on inventory algorithms to make their data unpredictable, but in a current economy that is rebelling against many historical patterns, “currently, the historical data in this area are really good. It’s not data, it’s not clean data, it’s not indicative of a very volatile future,” she said.

This allows small business owners, who are able to connect directly with their customers, to understand their customers’ needs and gain potential benefits that cannot be calculated by algorithms.

Whether a small business is B2B or B2C, Sanders said direct communication is the current “real answer” in dealing with changing consumer behavior.

“What I see in big companies is they’re trying to hire futurists and they’re trying to figure out how to actually forecast demand. But every time I look at the numbers and the consumer price index and things like We look back,” Sanders said. “The reality is that we are in a very rapidly changing situation and I think we need to be proactive. You need to understand what you need.”

“As a small business owner on a tight budget…you don’t even need a very heavy AI.I think a lot of small business owners are a little nervous…. You can actually get a lot out of a very simple solution,” Sanders said. Added.

Main Street thinks it’s already in recession

It’s a huge leap for many entrepreneurs to arrive at this view. The data shows that current sentiment on Main Street is pessimistic. The latest CNBC|SurveyMonkey small business survey for Q3 2022 showed that small business confidence hit an all-time low, with the highest percentage of small businesses citing inflation as their biggest risk.

A third-quarter survey found an increasing share of small businesses, who, in their view, expect sales to decline over the next 12 months as the economy is already in recession. Weak sales outlook was the biggest factor driving confidence to record lows. Surveys show that small businesses face soaring input, labor, transportation and energy costs that few say now is a good time to communicate price increases to customers (only 13% ).

How to set prices during inflation

But pricing is also an area where small businesses can effectively and directly communicate with customers and find solutions.

Jeffrey Robinson, president and vice president of Rutgers Business School and co-founder of the Center for Urban Entrepreneurship and Economic Development, told the Small Business Playbook Virtual Summit that one of the biggest mistakes business owners make is to make new I said don’t know the price of the business. Product until it’s too late. In times of high inflation, entrepreneurs must base their pricing of new items on a detailed analysis of the costs to produce them. and then see what your competitors are charging when it becomes available is not how you operate in this economy. Inflation requires small business owners to set prices first and foremost by understanding costs.

“Prices across the supply chain are all going up,” Robinson said. “Shipping…anything that has an element of transportation has their cost rising. By doing so, we can set the price, the price at the right level.”

And the hardest part is explaining it to the customer. Robinson says that small businesses building direct relationships with their customers should also be seen as an advantage.

“We are in a relationship. Talk to me,” he said. “Please look into it. You need to explain to them that the cost of these components has gone up. ‘We have to change the price to do this,'” he said.

Helping customers understand the circumstances in which their businesses are placed in relation to supply chain inflation, he said, will help them price in the right way. , said it’s exactly the same as restaurants that always display fish prices on their menu as ‘market prices’. It may be a simplistic example, but it echoes the status quo.

Some restaurants are putting signage up front to make customers more transparent about price changes during the current inflationary period. He said all businesses need to have some form of conversation with their customers and potential customers about the fact that prices from a year ago aren’t going to be prices today. This conversation shows caution, but Robinson says it shouldn’t be.

“I think a lot of consumers understand that, especially when it comes to business-to-consumer business,” he said. “It’s about being transparent…making sure people understand that prices are changing.”

Plan your supply chain with key vendors

Conversations with suppliers are equally important, Sanders said, with data showing that an average of 80% of a company’s spending goes to about 6% of its suppliers. These are the business his partners to focus on, where to pick up calls, make calls and build relationships. “As a small company, this is exactly what’s to come,” Sanders said. “What it takes as a small company is to be able to really map her chain of supply for critical items, talk to vendors and really build partnerships.” ‘ she said.

Sanders said most large companies don’t have enough visibility under their first-tier suppliers, so many items are hard to trace far back in the supply chain, or “fourth and fifth.” She said it was.

Small businesses can plan their supply chains, work with partners to visualize the entire chain, and identify risks. Currently, retail inventory issues may be making small business owners reluctant to stock up on inventory despite the start of the new school year and peak holiday shopping season. Sanders is a firm believer in running a “lean” business, but in the current economy some caveats need to be implemented about what “lean” means.

In some cases, small businesses need to store excess items, critical items with long lead times, and where prices are expected to rise. Consideration should also be given to whether alternatives exist that could lead to operations. Carrying around excess inventory “is a fly in the face of lean,” she said, but “the advantage for small businesses is that they can manage upstream and downstream at the same time and coordinate them,” she added. rice field.

The biggest problem in today’s economy is the mismatch between demand and supply. So Sanders goes back to the issues faced by Walmart and Target and explains why small businesses need to be opportunistic and have a proactive dialogue about both supply and supply. side and end customer side operations.

“Big companies are dinosaurs…they are very heavy and bureaucratic. As a small business, you are very flexible,” she said.

It is important for small business owners not to look either downstream (customers) or upstream (suppliers). “But you look at them at the same time, you really marry them, you look at them, you connect with your customers, you connect with all your vendors,” Sanders said. Small businesses don’t have it, so take advantage of it now.”