Company Stores: Toward Solving the Inventory Dilemma (Part I)

Company stores exist to provide immediate access to controlled, branded materials and to parcel these materials out quickly for use to the field. Your company store should include a healthy mixture of both inventoried products and non-inventoried products.

Regarding inventoried products, the main question that I am generally asked first is: Who owns the inventory? Will the vendor finance the inventory? Will we purchase the inventory and have the vendor manage it? “No obligation for inventory purchases” sounds like minimal risk, but beware, both areas are fraught with challenges if not approached with eyes wide open.

Vendor financed inventory has a nice ring: it sounds risk-free. Obviously, a no up-front inventory obligation is nice; it would be all the nicer if there weren't balloon payments or buy-back agreements attached. There is no such think as a "risk-free" company store. There is a calculated element of risk to both types. Following are a few questions to ask yourself and your vendor when it comes to vendor-financed inventory:

What agreement terms should we be aware of if we are sold a “no-risk” store?

Do we have to sign an exclusive purchasing agreement in exchange for vendor-financed inventory?

When a product runs out of stock or is close to running out, who makes the purchasing decision?

What if we dislike the product selection? Who "owns" this part of the process?

What if we see an item that we want in the store but the vendor is reluctant to finance it?

Is the vendor we are working with financially sound enough to finance our inventory?

What if the services we are rendered are not sufficient? What steps would we need to take to claim back our store?

Should we sign over control for our branded product selection to a vendor or should this be a shared responsibility?

Who bears the responsibility for marketing the store? What if this service is performed poorly by our estimation?

What if the vendor discontinues their service to us? Will the inventory be sold back?

Will there be regular reporting or accountability features built in on who gets permission to use the inventory?

The biggest challenge is not one of a financial commitment, but of a repetitive failure: There are few issues involving stores that create more frustration than to partner with someone who promises no-risk and yet commits very few resources to making your store a success. Why wouldn’t a vendor do everything in their power to make your store successful? Because their capital is tied up in what seems like the greatest service they can offer: financing your inventory. This is why vendor-financed inventory stores are rare and why they have a higher failure rate. The puzzling part about vendor-financed inventory is that you, the client, take great pains to ensure brand control yet, because of a perception of no-risk, you abandon controls by allowing someone else to own your branded assets. The most frustrating experience in starting a company store is having to start over. More often than not, vendor selection can be hastily made on a couple of hot-button issues, inventory-financing being one of them. Don’t sacrifice the service your colleagues will demand for short term gain or you could be rebuilding your store within a matter of months. Vendor-owned inventory stores must be approached with caution, just as client-owned inventory, but with client owned inventory you call all the shots and you make the rules.

For the next installment, we will discuss the other option: financing the inventory yourself. Of the two options, it is the most common and we'll discover why.

The material in this post has been taken (and modified) from my Company Store Planning Guide, located here.