Inventory Vs. Cash: Mr Retail

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Higher costs of doing business

By Mr. Retail

As we begin a new year, now is the time to think about an important topic: inventory versus cash.

Let’s start with inventory. The $10,000 question is “Will prices go back down after the pandemic and supply chain issues are over?” Let me just say, based on past history, there is a decent chance that prices will stabilize as opposed to going back down. If they go down, that is a bonus for us, except for one thing; if we have $100,000 of inventory that sees a 10% deflation in value, we lose money, especially if product availability normalizes.

So that leads us to the question of “When would that happen?” and the reality is that no one knows for sure. The Federal Reserve just released a report that says the supply chain issue has peaked, but it doesn’t state when supplies will flow normally. Many industry analysts think the chip shortage will run into 2023, so head units, amplifiers, DSP’s, etc. will still be in short supply for a while. The good news about the products we sell is they aren’t really perishable, so if we have to hold onto them for an extended period of time, they will eventually sell. It is a roll of the dice and I would just caution you against blindly buying all you can of anything, and instead, examine each category on it’s own.

Now lets talk cash. More and more economists think the country is going to go into a recession at the end of this pandemic. And then you read reports about how many families still have their highest savings amount in over a decade. So it can be confusing. Here are some important things to consider:

  1. With the government handouts being over, we won’t see any more “free money clients.”
  2. In many areas of the country, business volume is beginning to normalize, so is it time to lower inventory on some categories?
  3. What will happen to your business if we do go into a recession?
  4. Do you want to start holding cash reserves to help you make it through a recession, assuming one is coming?

I wish I could tell you I had the answers to all the questions above. What I can tell you is that for myself personally, I have slowed down trying to pay off my outstanding debt as fast as possible. I am taking that difference in money and putting it in the bank. I am also delaying any major expenditures until later in the year until I am comfortable with what the backside of the economy will look like. I hope we all have a great 2022 AND 2023.

About Mr Retail
Mr Retail offers opinions and information on car audio retailing for CEoutlook. He wishes to remain anonymous. He has owned a retail store in this country for over 20 years now. Mr Retail loves what he does and loves the 12 volt industry and is happy to share his hard won expertise.

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  1. Great article! There is one simple question you can ask yourself that answers the Inventory vs Cash Question. You ready? Drum roll please……. At this moment in time, is it easier to convert cash into inventory, or inventory into cash? Once you answer, you’ll know what to do (at this moment in time-but keep asking, because times change).

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