Just about every day I read or hear something that shows that many businesses today are focused on short-term rather than long-term results. With everything about our culture seeming to glorify instant gratification and immediate results, it's no surprise. Short-term thinking (and greed) has been behind some of the biggest corporate scandals we've seen in recent years. Besides just being greedy, these people were focused on doing whatever they could to make the numbers look good for the short-term. For a small business, this can be deadly. Here's a good example:
Several years ago, before one of our companies had its own Wal-Mart vendor number in the mens' department, we partnered with another company that had a couple of open SKUs. We supplied them the goods and they sold them to Wal-Mart on our behalf using their UPCs. We knew going into this that we had a hot item that people were crazy about so we went into it with great expectations. I don't remember exact numbers but I think we booked like 288 units per store in locations throughout the Northeast. We sent the orders over to our partner in the project where they promptly cut all of the orders in half--we were stunned (and angry) but they refused to budge. They shipped all of the revised orders. A couple of weeks later, we reviewed the sales results and saw that most of locations sold everything, with the remainder selling about 75-85% of the goods. The owner of the company told us that he cut the orders in half because he was more concerned about maintaining a good relationship with Wal-Mart than he was about making a quick buck. Had he shipped everything as we sent it, while some of the stores might have still sold nearly everything, other stores would have gotten stuck with a lot of merchandise that would have to be marked down.
He had developed a reputation that he wanted to maintain and protect. They trusted that everything he sold them was going to have a good sell-through and that they would not get stuck with excess merchandise that they'd have to mark-down. He was not going to risk hurting his reputation by possibly overstocking stores with goods. For us, it was disappointing but we also learned a valuable lesson about thinking long-term. When a buyer at Wal-Mart is making a decision about whether or not to renew a vendor agreement with a company, he or she is going to look at how well the firm's goods sell. Companies that have a lousy sell-through with lots of markdowns are going to get cut and those that have a solid track record of selling-through are going to get invited back to do business with Wal-Mart. Now that one of our companies has its own vendor number with Wal-Mart (and other major retailers), we find ourselves routinely slimming down orders in order to preserve our reputation.
It's tempting to take the quick hit and go for the short dollar, but we've found that this is a dangerous strategy that can come back to haunt you and ultimately, hurt or destroy a business.
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