In a great economy, people rush out to buy the latest gadget, new cars, great fashion or spend time in the trendiest restaurants. Mainly retailers are the storefronts open for customer access to these products. The manufacturer operates in the shadows, collecting once retailers have collected directly from the customer. When these monies do not change hands and retailers close, the closing of retail stores creates a huge risk for manufacturers.
Closing of retail stores creates a huge risk for manufacturers in any industry. Manufacturers and retailers are feeling the squeeze of low to no spending due to unprecedented factors lowering financial movement inside the economy. It is difficult to recover the cost of raw materials and the physical effort of producing items when money moves too slowly or when no payment is received.
In an age of financial change, businesses are challenged with the job of collecting past due revenues. The inability to collect these monies hurts retailers and manufacturers. The inability to collect money owed can affect the bottom line of retail outlets and manufacturing entities. The collection of money or lack of it, determines the debt ratio of a company, defining if it will, or will not remain solvent.
When retail stores are unable to present merchandise purchased from manufacturers to the public for sale, this slows income for retail and manufacturing groups. Businesses can earn if merchandise is purchased on credit when retailers can pay their bills. However, the closing of the retailer affects the manufacturer’s profits when they fail to meet financial commitments.
If the merchandise is obtained through consignment, or through other credit arrangements, the chance of future purchases or the return of consigned merchandise does not improve the position of the manufacturers. Therefore, the closing of retail stores creates a huge risk for manufacturers.
Why Business Close?
When retailers cannot stay viable, there is less business for manufacturers and fewer jobs for people employed by this group. If manufacturers have an excess of inventory or too little inventory, maintaining a profit level is put at risk.
The extension of credit to businesses can hurt a manufacturer when there is a delay in product shipment- When businesses are unable to obtain the things needed to operate a business. This might send customers to other sources seeking what they need. This may result in customers never coming back.
-Low demand- The political climate in a market dictates the demand with the public. A closed beach will limit the purchase of bathing suits or beach toys.
-Low profits- Each business requires a certain amount of profit in order to sustain activities. People working for the business require salaries, and there is overhead consideration.
-Lack of Innovation- Companies that have changed with trends have experienced less friction with sales. Those giving themselves an online presence by offering customers the chance to conveniently order online have fared better while continuing to accommodate walk-in customers.
-Heavy debt- Businesses with heavy overhead and those with little chance of reaching the public are hardest hit by a lack of customer participation in stores.
-Inadequate Funds- Money on hand is important. When a company opens, manufacturers have no way of knowing if the business can sustain itself. If a manufacturer becomes dependent upon orders from these retailers, the closing places manufacturers at risk.
The manufacturer has an extremely thin margin of profit. Therefore, invoices not paid can easily send the strongest manufacturing entity struggling for survival. The average profit margin is below 19%.
-Tough competition- Many businesses have failed due to an inability to compete with similar businesses. Some have a healthy rivalry, each being equally innovative. However, some fail to step up to the challenge.
Warning of Closings:
A manufacturer does not get a notice from its buyers that they are in financial distress or a warning of closing. This provides no time for the supplier to adjust inventory before falling into financial disparity. Also, manufacturers have employees to consider.
Without income continuously flowing from retailers, these businesses are unable to support staff and other things required to operate a supply chain. Every manufacturer depends upon some form of retail outlet, refineries, food distribution, machinery, and other groups. Everyone makes money by reaching customer access.
If a business closes by growing too quickly, this might spike overstocking. If the business flow stops to a trickle, a manufacturer is left without sales from the business, and the business itself may face closing, placing the manufacturer in a tough situation.
Manufacturers are placed at risk from business closing when retailers do not have a clear understanding of their chosen market. Businesses make dozens of mistakes that might put a supplier at risk, so a manufacturer needs to install fail-safes to protect itself.