Inventory Maturity Model Will Determine a Brand's Commerce Survival

The more eCommerce businesses I see, the more patterns I see. Lately the pattern has been about inventory and cash. But more specifically, it's about survival.

How you use cash and turn inventory is changing in eCommerce and rapidly. The game used to be about distribution. Getting inventory close to the customer and then figuring out how to sell it. That works for extremely high-demand products. Very few can execute this. For everyone else, we must adjust.

Just to go allllll the way back to the beginning of the PC revolution. 40 years ago.

Dell was founded in 1984 in a dorm room in Austin, TX on a simple idea: Keep inventory nearby but don't own it. Instead, assemble to order and ship it direct only once after assembly, right to the consumer.

In 2024, eCommerce is going to the same simple idea: Keep raw materials nearby, but don't use them until there is demand. Instead, manufacture as few pieces as possible for the actual demand, right to the consumer.

If this model works in your category, your category will go there. Margins will demand it.

The below buckets are not "all or nothing" so you will need to discover where each apply in your product line.

Every merchant must find pockets to operate in Option 1 and 2, and get out of Tier 4 unless they have extremely high margins. Retail (Option 3 here) still has a place, but you better have low inventory commitments and high traffic or be able to sell into partners who have the same.

Otherwise if you are in Option 4, one of these other models will outcompete you.

Option 1: Consumer to Manufacture

Start with a network of manufacturers who take low MOQs.

Use demand signals on your website and advertising funnel to gain insight into customer preferences.

Use those preferences to manufacture the smallest MOQs possible.

Ship directly to the consumer from as close to the factory as possible.

Does not (yet) work for heavy products.

Option 2: Marketplace Model

Own nothing. You generate the demand, someone else fulfills it. Retail is only the vehicle.

High-margin services like advertising, subscriptions, fulfillment, and insurance are your revenue model.

Option 3: High-Traffic Retail

Good retail is still valuable. Consumers need help making decisions and value experience and great service. You better have brand names, or be able to develop your own brand names. You better have low inventory levels and be able to reorder quickly, or use one of these other Option 1 or Option 2 models to manufacture in small batches.

If you can't create the foot traffic, however, you are dead.

Option 4: Buy and Pray DTC

You guess what the consumer might want.

You guess how many to manufacture.

You put the product on a boat.

You store it locally.

Pray you can create enough demand

In this option, your gross merchandise margins better start with an 8.

Otherwise, no amount of AI-based forecasting will help you.