Facing the Music Doesn’t Need to be Such a Challenge for Dealers: How MI Retailers Can Stay Competitive in an Increasingly Online World

by Chad Lyon, managing director, Wells Fargo Commercial Distribution Finance • in
  • Issue Articles
• Created: November 8, 2017

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Since the music industry is still recovering from the recession, Wells Fargo Distribution Finance (CDF) understands the unique challenges facing music retailers.

Common disruptors include low-cost imports, shifts in consumer purchasing behaviors, the inception of electronic instruments, direct-to-consumer sales, and – the biggest challenge – growth in online sales.

According to Bloomberg, traditional brick and mortar stores are closing doors at a record pace due to the rise of online retailers. Consumers are relying on sites such as eBay and Amazon for many purchases, including musical instruments, causing lower sales and shrinking margins for MI retailers.

To combat the challenges, dealers need to focus on providing customers with the right product, a competitive price, and an outstanding in-person buying experience.

First, take stock of your business’ operations by answering the following questions:

• Are you losing customers because you don’t have right items in stock?

• Are you paying for products before they are sold?

• Is your cash flow inconsistent and unpredictable due to seasonal sales?

• Are inventory payment terms not matching inventory turns?

If you answered “yes” to any of the above questions, you may be at a disadvantage.

Right Product in Stock

Today’s diverse retail landscape has created a culture of instant gratification. Over the years, the balance of power has shifted in favor of the consumer as a result of market globalization, comparison shopping, and price wars. To address this, dealers need to meet customer expectations on price, quality, availability, and selection.

Stocking the wrong products or not having the right ones available can result in fewer sales, diminished loyalty, tarnished brand perception, and customer attrition. This commonly occurs when a business does not have access to cash in order to replenish inventory. In this instance, inventory financing can be a great option to improve cash flow and help restock shelves.

Competitive Pricing

Cashflow is a key factor in determining a company’s long-term. For example, Wells Fargo CDF’s activity ratio calculator allows you to track and optimize cashflow trends by simply entering a few of your businesses’ annual data points. Ideally, a business should aim to reduce inventory levels and payment terms, and accelerate collection times.

You can further strengthen your operational performance by reducing your business’ reliance on debt or other external forms of financing. To start that process, analyze your business’ ability to convert inventory and account receivables into cash. CDF has developed a GMROII calculator to determine the success of each of your product lines.

Customer Experience

Online sellers continue to make the shopping experience more convenient – making it harder for brick and mortar dealers to attract customers. Customers who visit a shop in person want to physically see, feel, and “test-drive” the product before buying the same product online at a lower price. Providing a great in-store experience is critical to combating this growing trend. By focusing on quality in-store customer service, businesses are creating an advantage by embracing something online retailers can’t replicate.

When a customer interacts with knowledgeable, informed, and seemingly trustworthy team members in store, the price often becomes significantly less relevant. Customers who have a positive in-store experience are also more likely to return.

While the music industry is facing challenges, working with industry resources, like Wells Fargo CDF, can help retailers stay ahead of the competition. In addition to inventory financing CDFconnect, a program for CDF customers, delivers learning opportunities and best practices sharing to help businesses grow.

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