Why this 2024 BFCM is a Lesson in Inventory, Cash Flow, and Financial Data

Most DTC operators are not preoccupied with Black Friday in late July. It is on their minds, to be sure, but they typically don't start stressing about it until the middle of September. This year, though, Black Friday+Cyber Monday (BFCM) increased ecommerce brands' stress levels earlier than they would have liked – and they have Amazon to thank for it.

In a message published on July 29, the retail giant recommended sellers send Fulfillment by Amazon (FBA) inventory to its facilities in August and September to ensure they have enough products in stock for the holiday season. Amazon also set an Oct. 19 deadline for third-party sellers’ inventory to reach its fulfillment centers – a week earlier than that of last year.

This compressed schedule creates inventory management challenges for many DTC brands. “Usually we start to plan our Black Friday about 10 to 12 weeks out,” Ronak Shah, CEO and co-founder of collagen brand Obvi, told Modern Retail in mid-August. “It was like we had to start planning two weeks ago.”

Black Friday's accelerated timeline isn’t the only variable affecting inventory planning ahead of Q4. A couple of weeks ago, Amazon announced that it will be holding Prime Big Deal Days – a sales event where Prime members get access to early holiday deals – in October, forcing ecommerce brands to make tough inventory decisions.

“It’s harder to adjust your supply chain when Amazon has already said, ‘hey, if you’re going to send in your inventory in November or October, there’s a decent chance you’re going to miss BFCM,'” said Rob Hahn, COO of the e-commerce accelerator Pattern. “If you have an October sale, and it does really well, it’s like, ‘Well, all right, how do I make sure I can replenish that prior to the next large sale?'” ‍

A Ripple Effect on DTC Brands' Financials‍

Facing an urgent need to replenish inventory can create a ripple effect on DTC brands' financials. “I’m used to getting inventory just in time to start selling it with Amazon,” explained Shah, “whereas now I’m going to be sitting on inventory that’s not really going to start selling or make revenue for another few weeks, that creates a little bit of a cash flow consideration.”

Adding to brand operators' cash flow considerations is a new fee that Amazon introduced in March. Known as an inbound placement fee, it penalizes sellers with an additional charge for shipping their inventory to a single Amazon warehouse instead of distributing it across multiple locations.

In the context of BFCM, this could mean an unexpected cash crunch. “Your transportation costs massively increase,” said Hahn, “because you’re sending in five shipments instead of one, and they’re all smaller, so they’re more expensive, and they take longer to get into Amazon.”‍‍

Ecommerce Brands' Blind Spot‍

The challenges posed by Amazon's new policies highlight the urgency of basing cash flow management and inventory planning on real-time financial data. Unfortunately, that remains a blind spot for many ecommerce brands. Often relying on bookkeeping that’s weeks, if not months, old – these businesses are basically trying to navigate a ship without using weather routing services, putting their whole operation in danger.

Let's get more specific. Lacking real-time data or updated tracking of inventory levels, exact costs (per SKU, per warehouse, etc.), and turnover rates may lead to overstocking, which could translate into increased storage costs and products becoming obsolete; understocking, resulting in missed sales opportunities and customer dissatisfaction; and resource misallocation, e.g., investing in the wrong products or failing to capitalize on high-performers.

Similarly, without 100% accurate and real-time visibility into your cash flow, DTC operators face significant roadblocks. For instance, a brand might hesitate to invest in product expansions due to uncertainty about its current available cash, leading to missed growth opportunities. Poor cash visibility can also hinder businesses from securing favorable terms from suppliers or, on the other hand, force them to turn to costly short-term financing solutions.

So why, if the drawbacks of outdated financial data are painfully obvious, do many ecommerce brand founders choose to stay in the dark?

There are several reasons. Some founders and operators cling to traditional practices, overlooking opportunities for enhanced efficiency. Others fret over the perceived complexity of revamping their financial processes, failing to see how convoluted their current methods are. And, as is often the case with change, there's also a lack of awareness of existing real-time financial solutions on the one hand, or the actual costs of your current way of doing things, on the other hand, and the impact both (can) have.

Whatever the reason, it's clear that DTC brands are at a critical juncture. Amazon's new Black Friday policies are a hard-earned lesson that the ecommerce landscape is in constant flux – and those who continue to rely on outdated financial data and rigid, slow, or inaccurate financial processes risk being caught off-guard by inventory challenges and cash flow disruptions. As the holiday season approaches, maybe we should consider this lesson an early gift.