Financial Blizzards in February

Posted on: 20.12.2010    11:38:26

As snow continues to fall over much of the UK the picturesque consequences of today will potentially be followed by a financial blizzard in February.

For many sectors Christmas trading can represent up to 40% of annual turnover and is therefore crucial often involving “guessitmates” of likely demand with the buying in of raw materials and packaging that are converted into stock in anticipation of strong orders having been received by today  – the start of the last and crucial week of Christmas trading.

With the on line route to market having been hit by the weather as well there are bottlenecks throughout the supply chain that can’t be switched off by a flick of a switch.

It needs to be remembered that the strain of stock planning is forced down the line by the supermarkets who will simply turn off orders if retail sales are not being achieved whatever the moral obligations to at least risk share.

Much of supplier’s stock might well have been financed on short term borrowings or by discounting invoices through factoring but there will be many producers now looking at excessive stock positions that might well cover normal manufacturing needs covering the first couple of months of next year.

Yes, they can “dump” the temporary labour that is usually employed to meet Christmas demand but this is going to translate into both extended Christmas close downs and short time working in the New Year which will have a ripple through to their suppliers in due course and a shortage of orders.

Very little of today’s lost sales will be recovered in the New Year. After a challenging 2010 the tendency to afford Christmas treats , the discretionary spend items of the family meal, the indulgence of the extra present will be overtaken by the resolve in the New Year to cut costs. OK there might be record sales from Boxing Day to the New Year if the weather improves but this will be at rock bottom prices funded by the producers and not the retailers as a means of converting inventory to cash.

Expect early 2011 not only to see the pub trade posting the keys back through the landlords letter boxes after the collection of Christmas and New Year cash but also a high number of businesses simply running out of cash as debts fall due before they can convert stock into cash at a reasonable cost. In turn this will bring job losses and reduce the cash being spent as people tighten their belts.

Enjoy Christmas but enter 2011 with your eyes open – it is going to be tough. Ask yourself this question – how good are your debtors – watch the slow payers like a hawk and be prepared for the financial blizzard ahead..

 

Author: Chris Slay

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