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Big Box of Horrors

January 13, 2010

Lately I have been working with a US manufacturing company that has been crushed by another large Fortune 500 sized company.   This was a talented manufacturer with a specialty in high-end, high-margin products. 

The owner will tell you today that he knew they were courting trouble by letting one customer become such a huge part of his business.    And he’ll also admit that he got addicted to the revenue and didn’t manage the business properly.  

But the sales took off, every year was bigger and more exciting than the last and every year held the promise of a huge payday.  On and on they went until the music stopped.   And when it did they were left without a chair.    Sales to that #1 customer fell 90% in 10 months.   A severe cash crisis followed and we began working together. 

Every company that sells to the Big Box stores has a story about unauthorized charge-backs, extorted mark-downs and debits that cannot be reversed.    And when things get tight, we find these large companies using every dirty trick in the book to preserve their cashflow.   And they are very good at it.  As an example; Amazon this year paid down $2 Billion in debt by stretching their vendors.

But, there are companies making great money in a bad economy selling to the Big Box stores.  Hoepfully they realize that they may be just a purchasing decision away from a steep decline into insolvency.   

My advice for the new year is to consciously plan your sales distribution.   There are complex models to figuring this all out but a good rule of thumb is to never let a customer become more than 30% to 40% of your business. 

If you would like to discuss more stratgies to managing your Big Box customers, feel free to contact us at   www.DorsetPartners.com