Online retailers are facing a tough twelve months. That might sound odd, considering online retail still has a long way to grow, and is still technically in its infancy. It’s just that we’ve been a little spoiled since the whole COVID-thing, and growth wasn’t particularly challenging over the last 12-24 months, writes Paul Waddy, Ecommerce expert and Strategic Advisor at Wayflyer.
Today, however, we find ourselves in an entirely different position, and for the first time in some time, online retailers are feeling the cash crunch.
So, what’s been happening? Well, here’s the lowdown
The RBA has lifted the official cash rate to 1.85 per cent – the highest it’s been in six years, which is also the fourth month in a row that the rate has been lifted.
Why does this matter for online retailers? I’m no economist, however, the lifting of the cash rate is intended to reverse inflation through reduced spending, which forces suppliers to lower prices due to the decreasing demand for products. In short, be prepared for people to spend less and for cash flow to follow suit. Prices have been going up due to high spending, and frankly, the RBA has seen enough of it!
Inflation has played a part in the boom of eCommerce in Australia, so it’s logical that the attempt at deflation will (and is) bring about a slowdown. There is a bit of doom and gloom around, as consumer confidence has dropped to its lowest point since 2009 (outside of the height of the pandemic).
So, how do we, as online retailers, build a war chest and increase cash flow?
1. Be prepared for cash flow ups and downs
Obviously, that sounds clever in hindsight, but readers of my previous articles will recall the recommendation to always hold a buffer of cash in the business – I like 10-12 weeks of free cash
2. Reconsider your channel strategy
This might be controversial, but if you’re a multi-channel retailer, reconsider your wholesale business. As an old wholesaler, the unfavourable margins and payment terms of wholesale business can spell the end for businesses with trouble holding cash. Payment terms are also likely to be pushed by retailers who are also feeling the pinch of slower than anticipated sales. It’s time to focus on the cash-positive channels – your direct-to-consumer online business – a bird in the hand, and so on
3. Revisit your funding strategy
If you’re bootstrapping and have 10-12 weeks of cash in the bank, good luck to you, and well done. If you are using finance, or are perhaps skinny on cash, revenue-based finance options, like Wayflyer, can present clever options to keep that cash buffer while paying it back responsibly (and automatically) out of your daily sales
4. Clear your aged inventory
Never has aged stock been deader than it is now. If you’re holding more than four or five months’ worth of inventory cover, I would suggest liquidating your grade C product immediately – your slow-moving stock that contributes 5% or less to your revenue. Stock can kill a business, so think about this – if you suddenly lost all of your grade C inventory in a fire – you would only lose 5% of your monthly sales – so get rid of it by turning it into cash
5. Cut the spend
I don’t care what business it is; there is always money to be saved. If you’re in eCommerce, you really shouldn’t be spending more than 40 per cent of your revenue on your operating expenses – and if you are, it’s time to get out the chopping block. A good place to start is your marketing. Instead of focusing on how much more you can spend, think about running a test to see how much you can reduce without losing sales. It’s amazing how often a business can chop some marketing spend without losing sales – and unless you’re running the world’s most efficient marketing campaigns, you should be able to trim some fat
There’s no doubt about it; if you’re waiting for the macro environment to change to positively impact your cash flow, then you’re not long for this industry. Grab the bull by the horns, drive more cash into your business, and use the assets you have at your disposal.
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