Tuesday, September 20, 2016

MegaStore Bricks and Mortar/Online Goes Suddenly Bust

There are some lessons from the demise of a one unit megastore/online retail play.
Customers had turned up at Seapets, in Stanway, Colchester, Essex, on Friday, September 2, to find its doors locked and notices in the windows advising them the store had closed down.
Seapets had both the superstore location and an online presence. Its website and Facebook pages have been taken down and the telephone line is unmanned.
No reason was given as to how come.  But, the description of the company had disaster written all over it.

With 11,000 SKUs at say merely a $100 minimum order requirement from suppliers, the store had to well over a million in inventory at cost.   We have negative interest rates on bonds, and cheap interest house loans, but not business loans, for the simple reason ex nihilo credit is exceptionally risky, since people are loose with loose (ex nihilo) credit (or perhaps loose credit makes people loose).

Managing 11,000 SKUs even with computers is a lot of work, someone has to review exception reports.

Some of their inventory was livestock, pets, fish, etc...  that is management intensive.  Apparently the inventory in the megastore was less than the online division.

The article was unclear as to when it opened up its online division, it says both "many years" and 2012, but in any event websites are not marketing channels but self-service check-out.  If the online did not reach people who come to the store anyway, or tried to reach people otherwise, then it is a losing proposition.

A megastore tries to compete on price.  The online division uses paypal, which takes a deep cut.  Narrow margins and high expenses are a bad combination.  The game becomes to try to make up in volume what you lose on each sale.

Te article goes on to say "Jerry", one of he owners, had decades in the business and was a minor celebrity judge, etc, at trade shows.  He and a partner started this company in 2003, in the boom years, and built it up then.  Here we go again, the damage is done in the boom years, the shake-out comes with the bust.

There is a interesting comment that they appointed a new freight handler recently.  The people providing logistics, the truckers bringing gods in and out of a business, are an excellent reference for the health of a business.  Freight shipments don't lie.  Just as the Baltic Dry Index is the best judge on international trade activity, so is a truckers view on any given business they serve.

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