Regional Fashion Chain
A regional fashion chain installed a new computer system designed to more closely track inventory sales from its distribution center into the store level and finally into the customer’s hands. The company simultaneously had also just made a large purchase of Seasonal goods designed to sell through in a 30-day promotional period.
Unfortunately, the software proved to be defective showing that there was a flow through to the customer that simply did not happen. This resulted in the company’s DCs being overstuffed with unsold inventory that had missed its spring time frame leaving no room for incoming summer stock.
After exhausting a number of options, the largest recovery it could develop was a cash liquidation amount of approximately 29% of what it had paid for the inventory. Being a publicly-traded company, they did not want to report what would be a substantial write-off. The retailer decided on a Trade Credit strategy that would pay the company its full investment in the promotional inventory.
Although a large advertiser, the company chose to utilize its Trade Credits in several budgeted, non-media expenditures. This diversification allowed for a broad array of usage areas such as corrugated, logistics, office supplies, security services, racking/shelving and displays all of which were purchased within a competitive purchasing negotiation with suppliers motivated to differentiate themselves from the competition by temporarily accepting a payment form change from 100% cash to a combination of cash and Trade Credit.
Within an 18 month period, the company was able to repair the damage, avoid negative accounting issues, and reduced the amount of cash needed to make those purchases by more than $4M.