Does this business model exist?
July 15, 2017 3:42 PM   Subscribe

I've figured out that the area where I can add a lot of value to a retail business is in demand planning and optimal inventory replenishment strategies. Do you think this business model that I have in my head could work? Please see below the fold for more details.

Let's say that I'm interested in doing the demand planning and inventory replenishment decisions for a small retail business like a liquor store. I don't have the capital to buy the whole store and I wouldn't want to manage it on a day-to-day basis anyway, but maybe I could scrape together enough money to buy the inventory for a single category of sku's like, for example, all the vodkas a store would normally carry.

The majority owner would still be on premises responsible for managing the entire store operations, but my share of income from the store would come solely from the vodkas that were sold. Think of it like being a sub-store owner within a bigger store. I would pay my share of rent, labor, and other general store operation costs.

Hopefully, over time, the vodka sales would pay good dividends from the customer sales and I could buy another category like whiskeys from the store owner and so on.

Has a business model like this been done before? Do you think it could work?

Thanks for everyone's insights.
posted by Gosha_Dog to Work & Money (10 answers total)
I don't see why anyone would agree to this, to me it seems like the store owner would be inviting in a competing business and reducing their own inventory.

Though, milk products seems to be stocked like this, there might be a niche you could fit into. You might want to look into troublesome or perishable goods, things stores are unable to stock due to their cumbersome nature. Dangerous goods such as propane or liquid nitrogen would be examples, maybe fish or lobster.
posted by FallowKing at 3:59 PM on July 15 [2 favorites]

Small-ish country clubs tend to have multiple vendors for things, that might be something to look into.
posted by bleep at 4:02 PM on July 15

I guess I was thinking that since sales demand is uncertain which makes cash flows and revenues also uncertain, there might be a deal that could be struck with the store owner to give him a sure thing source of income for the rights to sell a category in his store. I could be wrong though.
posted by Gosha_Dog at 4:13 PM on July 15

If I'm understanding your description you've described vendor-managed inventory, which is a thing that already exists.
posted by winna at 4:15 PM on July 15 [4 favorites]

The business model definitely exists – you've seen it with kiosks in the mall, Verizon stores inside Costco (operated by third party Wireless Advocates), Sephora inside JCPenney, and Magnolia Design Center inside Best Buy (Best Buy did buy Magnolia HiFi, so this is a different arrangement but similar idea).

The theme here is that the company operating the concession provides something unique. And the "host" store thinks that the contracted company can do a much better job at it than they could – so much better that the contract company can turn a profit, plus deliver more profit to the host company than the host had been making before.

In your liquor store example, you'd need to convince the store owner that you'd do such a better job than them at selling Vodka – and not at the expense of the rest of their sales – that they'd be better off contracting with you.

That seems like a tough sell, but you never know. It sounds like the underlying value you can offer is forecasting demand, or quickly responding to changes in inventory. So you could solve two types of problems: "I ordered too much, and my money is tied up in slow-selling inventory" or "I didn't anticipate this demand, my shelf is bare and I'm missing out on Sales."

Those seem like valuable problems to solve, by freeing up money to be spent on the most productive things, or ensuring potential sales aren't missed for lack of stock. You could try the contract approach, but that's a little like getting someone to agree that you can run their business better than they can.

These stores probably have inventory management software. You could find out what it is, and see if it's something you could integrate with and add a lot of value to. Or you could find some way to help them introduce new products that are inherently risky, because they don't yet know what demand would be. Or maybe contract with them on a particular category (e.g. Vodka, which you mentioned) to help that category perform better for them, but instead of owning the whole thing, charge them an agreed-upon percentage of the increase in performance?
posted by reeddavid at 4:25 PM on July 15

I had retail stores and people pitched me with ideas like this but we already had a point of sale system that told us when we were low on something and we had eyes too.
posted by Mr. Yuck at 4:53 PM on July 15 [4 favorites]

You need to convince the owner that you can stock a product category more profitably than they can because of your specialized knowledge, and that said product category is important for bringing new customers into the store. Your vodka example is probably a bad one because the liquor store owner likely gets his vodka from the same sources as the rest of his merch. But you may be able to convince, say, a toy store owner to let you manage an inventory of children's books -- a specialized product category, but one that matches closely with the store's target demo.
posted by Mothlight at 6:43 PM on July 15

you would need to be good at finding categories which were expensive and uncertain enough that the store owner would not want to take a bath in stocking them, and then be very good at promoting them in store.

I haven't lived in the US for a while, but this system is used *heavily* in Hong Kong supermarkets where variety is highly valued but they don't want to carry the stock. Particularly the high end. But then I would hope you would be good at predictions...
posted by frumiousb at 7:53 PM on July 15

I have trouble imagining a good Venn diagram intersection between your curatorial/producer skills, your value to the host enterprise, and your desire to be somewhere else.
The latter assumes customers' delight at the choice delivered and willingness to buy, yet without receiving the opportunity to talk to someone with your skills. You're trying to appeal to a collector or connoisseur market (or it doesn't make sense to the host business) while delivering a (probably) mass market experience limited/influenced by whatever the host business does. Those specialty types of folks want to nerd out about high end/rare vodkas (or whatever) with an expert like you and yuck it up with other aficionados (which is confirmation that they are discerning, very important), not toss an expensive bottle in the cart and hit the check out line. You're going to need to set up tastings and newsletters and tours of distilleries: treat it like a club. Your personality is part of the brand... which probably means an even thinner slice of willing host businesses. Oh and your expansion plan requires you to thread these needles across an entirely new sector with its own set of groupies to coddle.

Alternate thought: this could be an interesting way for the host business owner to finance the sale of the business/planned retirement over time. That might be the way to pitch it.
posted by carmicha at 8:28 PM on July 15 [1 favorite]

As the current owner of a small retail store (not liquor), I'd agree with Mr. Yuck that I have a hard time seeing where someone could add "a lot of value ... in demand planning and optimal inventory replenishment strategies" in just a specific category.

I don't know the liquor business, but I'm guessing that the idea that something like vodka is easily separable from other parts of the business is mistaken. Your typical liquor store almost certainly isn't buying from a bunch of independent vodka producers, but are working with one or a few distributors that they buy vast chunks of their inventory from. The buying may be tied up with other categories because of promotions and other buying agreements.
posted by jimw at 1:50 PM on July 16

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