Monday, December 08, 2008

Channel-stuffing in a recession

I had meant to write a post speculating that we might see an increase in channel-stuffing as the economy dropped off and some desperate manufacturers looked for ways to make their numbers. Channel-stuffing is always a stupid idea, but even smart people can get really stupid when they panic.

I was basing my thinking on a couple things I had read in which some small to mid-sized retailers indicated that they were being pressured by their vendors to take on more fourth-quarter inventory than they felt they could sell.

Here's an opposing view
, based on something I hadn't considered -- the credit crunch might make the channel impossible to stuff, even if the retailers were willing:
Will there be an increase in the level of channel stuffing that occurs if vendors are under pressure to compensate for softer markets ... ?

I don't think so because stuffing happens when there is credit available. If there is less credit it will be cleaner. Banks and insurance companies will have reduced the credit and so I think you'll start to see the real players emerge that are committed to the business and have their own capital investment.

The people who used to make money in between as the second or third intermediaries will be wiped out by the credit crunch, which will improve the profitability of real customers.

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