In a previous post, I talked about how slime was trending with kids and the lessons FP&A professionals can learn from it. Well, thanks to the clamp-down at my daughters' elementary and middle schools, and the attention span of pre-teen kids, the slime trend has ebbed. Now it is all about fidget spinners. So can FP&A learn from this latest kid craze? Of course.
In case you were not on planet Earth the last few months, fidget spinners started out as occupational therapy toys to help active children quietly fidget and have an outlet for their restless energy while staying in their seats as lessons continue. Now, all the kids want one; my house has four. A new fad is here.
A recent article raised an interesting point about fidget spinners, and extends to Hoverboards, e-cigarettes and other products that sell direct to consumers: the disintermediation of the supply chain has sped products to market without some of the traditional consumer safeguards and checks in the traditional system. Consumers get items quickly and at low prices while consumer protection agencies rush to catch up. This has resulted in cases of exploding cigarettes and toys that catch fire.
This presents a few challenges and implications for FP&A:
First, since manufactures can reach customers without retailers in the middle, there is a new competitor on the market. That competitor does not have marketing or retail costs that burden their product pricing. Businesses that pick up the product and compete on price will need to raise their price in order to get margin, or accept the item as a loss leader. Consider substantiating that higher price with a safety guarantee that the product has been inspected, tested, and approved by appropriate authorities.
Second, demand forecasting is difficult as fads move in successive waves across the industry and crowd existing product lines. Consider how you manage inventory to avoid having too much stock on your shelves when the fad passes, and consider adding a cushion to your financial model for inventory write-down in case you cannot sell all your stock.
Third, there may be risks associated with these new products that literally and metaphorically explode—brand damage due to association with a negative product, product recalls that cost money and divert resources, and potential fines and settlement payments. Businesses may consider establishing a reserve against potential complications, or skipping that fad and catching the next one.
Bryan Lapidus, FP&A, is a contributing consultant and author to the Association for Financial Professionals. Reach him at BLapidus@AllegianceAG.com.For additional insights on FP&A, subscribe to the AFP monthly newsletter,FP&A in Focus.