After a turbulent year, Australian retailers will be looking at the 2021 holiday period as a chance to bring in stable sales and ignite some post-lockdown growth. However, recent warnings about congestion in international supply chains, caused by port closures, freighter scarcity, and further Delta outbreaks, may impede retailers’ ability to source the products they need or ship sales to consumers – both domestically and abroad.
This will challenge the finances of even the most established retailers and consumer brands. In fact, the term “supply chain” has been referenced 3,000 times in the earnings calls of listed companies this year, according to Bloomberg’s transcript analysis reports. If companies like Apple and Costco are concerned, what chance do the smaller fish have? For smaller, pureplay e-commerce companies, supply chain delays could mean the difference between a product being received in time and sold to a customer or mass customer dissatisfaction, and even going under in some extreme cases.
One company that exemplifies this challenge is Vinomofo, an online wine retailer with a network of over 500,000 customers across Australia and Singapore. Vinomofo successfully pivoted its business in the context of mounting supply chain pressures caused by the pandemic. Like many fast-growing online retailers, most of its assets were tied up in stock, meaning that traditional banks wouldn’t lend them the money to invest. Instead, it could tap into a flexible line of credit via a non-bank lender to safeguard its working capital and take advantage of some lucrative market opportunities.
Navigating change with no funding
The wine industry witnessed an accelerated e-commerce shift during the pandemic. The growth that was forecast to take years occurred in just a few months, pushed by consumer demand for high quality products that they were unable to purchase at bricks-and-mortar retailers. At the same time, the sector suffered significant disruption due to new tariffs imposed by China (some as high as 250%) on Australian goods. Wineries and wine producers suddenly lost a key growth market and pivoted to alternative sales channels within Australia.
Vinomofo was in the perfect position to capitalise on this, however with most resources tied up in stock and no other significant assets (e.g., property) to lend against, traditional lenders were unwilling to offer the right finance to help them invest. The business needed flexible finance that would be secured against its healthy cash flow to take advantage of the favourable landscape. It was also important that the funding was available immediately so that Vinomofo could leverage its working capital to secure stock at preferential rates ahead of competitors.
Revamping traditional funding for modern businesses
Funding techniques such as Supply Chain Finance, whereby a customer uses a third-party facility to pay suppliers early and at a discount, and Trade Finance, whereby a customer can pay a supplier in advance of receiving the goods to access better terms, have been around for generations.These techniques are now being taken up by high growth ecommerce companies because they are so suitable for modern businesses.
Using a $2m trade finance facility, Vinomofo could move faster than their competitors to secure exclusive offerings with their suppliers. In doing so, they were able to match consumer demand with exceptional Australian wine before competitors snapped it up. Vinomofo could build strong relations with suppliers by paying them quickly, and because the facility was provided by a third party, (in this case, Octet) Vinomofo’s working capital cycle was not adversely impacted.
Even with lockdowns ending, consumer behaviour is never going to shift entirely back to bricks-and-mortar browsing. Online shopping is too convenient and often more affordable. According to Australia Post, Australians are buying online at unprecedented rates: a record 5.6 million Australians bought something online in August.
Ambitious e-commerce companies may worry that global supply shortages will impede their growth. Businesses that can deploy capital quickly through their supply chain networks can take advantage and ensure they are best placed to ride the consumer-driven recovery.