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Comment: Retailers facing huge liquidity issue

Stuart McClure, co-founder of retail sales aggregator Lovethesales.com, provides insight into how retailers and brands are using marketplaces to accelerate the sale of, and clear, discounted inventory. 

As a marketplace, we work with hundreds of retailers and thousands of brands, which gives us a unique insight into consumer demand and pricing activity. It has most recently allowed us to track how the coronavirus pandemic is impacting businesses.

The most significant impact has been the closure of stores. The obvious result of this is a massive decline in transaction volume. Retailers reacted to this very quickly by offering far more discounts than normal - we saw a 103% increase across our site, year-on-year [when stores closed in March]. This is an understandable response - retailers are looking to drive transaction volume up. They’re also aware of an additional impact that they’ll face as a result of the current scenario - a shortened season in which to sell.

The major concern they have is how discounting will affect their brand in the longer term

McClure, co-founder of retail sales aggregator Lovethesales.com

Covid-19 has impacted the world’s supply chain. Delays in products arriving in-country means retailers were not able to start selling products as early as usual. And now those products have arrived, they have a significantly decreased ability to clear them. This is going to lead to a huge excess inventory issue later in the year, as many retailers have not been able to cancel orders. Again, it is understandable that there has been such an increase in discounts.

The real issue here, though, is the capital tied up in all that stock. Cash is the lifeblood of any business, and retailers are facing a huge issue with liquidity. And if you consider the threat of additional tariffs come Brexit at the end of the year, there’s yet more costs to cover.

Over recent weeks we’ve had many retailers approach us to discuss solutions to this issue. The major concern they have is how discounting will affect their brand in the longer term. While it drives up activity, it damages brand equity and cannibalises full price transactions. It also teaches your consumers to wait for those discounts. Marketplaces provide a discreet channel through which retailers can accelerate the sale of, and clear, discounted inventory. Cashflow is now absolutely business-critical, and so marketplaces that move from monthly to weekly payouts to their retail partners will help with that liquidity.

Whilst there are significant issues to be dealt with, there is opportunity too. The pandemic has brought its own fashion trends with it, and retailers can benefit from spikes in certain categories. For instance, we’ve seen massive surges in consumer demand for loungewear, exercise and beauty categories in the last fortnight. Interestingly, we’ve seen the volume of reductions in these categories decrease as these trends embed themselves - a sign of retailers understanding the ebb and flow they’re now faced with. We’ve also seen a spike in consumer demand for premium brands (85% year-on-year increase) and luxury brands (36% year-on-year increase) in the last fortnight, as documented in our fortnightly Lockdown Economy Report.

There has been an overall decrease in consumer spending in the UK, but the internet has seen a net increase in spend (as consumers are unable to spend in-store). Even after the lockdown ends and stores re-open, the percentage of online sales will still be greater. Retailers and brands will need to continue to use online as a way to sell inventory fast, prevent stock reaching terminal levels and maintain liquidity. Marketplaces will prove to be more vital than ever, especially with the uncertainty of Brexit in 2021. 

Readers' comments (1)

  • Gracious Store

    When retailers offer steep discount to lure in customers, I wonder how they make up for the lost revenue when they were closed

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