Will “Just In Time Inventory” Habits Crush Consumer Spending Come Fall 2010?

Red alert! Sorry for this negative trend forecast but:

More and More CPG importers, manufacturers, retailers, retail distributors, and catalog/internet resellers I’m talking to are playing a dangerous game of "just in time"chicken this fall with product inventory orders. Many are telling me they are placing product inventory orders only on firm buyer purchase orders. The risky strategy includes  squeezing their overseas suppler/manufacturers for delayed payment terms or loans and then stretching invoices 60-90 days for payments to all domestic suppliers (i.e. printers, raw materials, fuel, utilities, credit card/travel reimbursements to employees etc). 

Some disturbing inventory trends to watch that will keep consumer spending down this 4^th quarter even if there is an uptick in demand for goods:

·         USA distributor companies don’t have the strong borrowing  lines of credit from their banks like they used to (No inventory to borrow against to satisfy Asset Based Loans) and are trying to use their suppliers as the new credit source to a larger degree.

·         Distributors don’t have orders yet and the catalog/internet site business model requires accurate forecasting and projections of goods from Asia that take 45-90 day to get into their warehouse. Orders are light trying to wait to the last minute before pulling the trigger, Good luck.

·         Supplier manufacturers will be playing “Gatekeeper” and ship the better/bigger customers first, leaving the marginal risky resellers to a sea of back orders or non deliveries.

·         Back-orders and substitutions will rise and discourage consumer enthusiasm to up selling, reorders, add on accessories,  and higher average orders.

Here we sit in early July and most warehouses are empty of products for fall 2010 deliveries, the scramble for inbound products to ship to end consumers will be a major issue this fall. This full court scramble has already started, consider today's blog  your "canary in the mine" warning.

This situation might even make it on the Jim Cramer Mad Money Recap (albeit in September, after the fact, as he always does!).