The life of a Direct-to-Consumer (DTC) brand is dynamic and exciting, with the potential for skyrocketing sales during events like new product releases and peak season. As DTC brands gear up to meet these surges in demand, they often face significant financial challenges in looming stockouts due to the inability to buy enough inventory to meet demand.

As peak season ‘23 fast approaches, we wanted to take the opportunity to talk about some common financial hurdles DTC brands encounter this time of year, and explore several effective strategies to help conquer them.

5 Challenges Faced by DTC Brands in Financing Peak Season Inventory:

1. Cash Flow Constraints

DTC brands often find themselves in a cash flow bind as they prepare to stock up for peak season. Most suppliers require a deposit payment in order to begin production, and the remaining balance of the invoice is due when the inventory is ready to ship. Purchasing and holding regular inventory require substantial upfront capital, leaving limited funds for other seasonal operating expenses.

1. Risk of Over- or Understocking

As the pandemic years proved, striking the right balance between having enough inventory to meet demand and avoiding excess stock is a very real and delicate hurdle, especially for smaller brands. Overstocking ties up funds and storage space, while understocking leads to lost sales and dissatisfied customers.

1. Uncertain Demand Forecasting

Peak season demand is notoriously fickle, never more so than in recent years. DTC brands must cope with the pressure of balancing inventory quantities with unpredictable customer preferences and market trends. Under-forecasting demand may lead to last minute air shipments—and since air shipments average 5x more expensive than ocean freight this is a potentially major operating expense that could significantly hurt profitability.

1. Supplier Capacity Restraints

The surge in customer demand during peak season can place immense pressure on the supply chain, like suppliers struggling to meet increased order volumes. This scenario can manifest in various ways, from production delays and lengthier lead times to potential shortages of raw materials or finished products. If a DTC brand is forced to make large last minute purchase orders to accommodate an increase in sales, they are risking potentially paying for inventory that fails to meet the peak season deadline because it could not be fulfilled in time.

1. Limited Access to Financing

Importers face challenges funding inventory purchases and supplier deposits. For fast-growing small-to-medium sized businesses (SMBs) in particular, there are few appealing options available to address these shortfalls. Banks might hesitate to provide financing to these brands due to their relatively short operational history and lack of accounts receivable—while merchant cash advance providers charge high interest rates and equity investors dilute existing shareholder and business owner stakes.

Overcoming These Challenges with Flexport Capital

1. Explore Inventory Financing Options

One differentiator that sets Flexport Capital apart from other lenders is our deep understanding of merchant pain points and highly seasonal sales cycles that comes with our expertise and experience in the freight industry. Products that are considered gift friendly and holiday appropriate typically bring in a majority of DTC revenue in Q4 so finding lenders who understand that and can work in sync with a business’s seasonality is crucial.

For example, one of the biggest pain points DTC brands identified was the gap between placing POs and when peak season sales pick up. Flexport Capital is tied into this critical piece of the supply chain, so we can analyze the necessary data to stay in sync with the company's cash needs and create a customized inventory financing solution to ensure peak season goes smoothly.

1. Leverage Data Analytics for Demand Forecasting

Accurate demand forecasts are key in optimizing inventory levels and minimizing the risk of overstocking or understocking. Flexport Capital has first hand visibility and access to the data required to learn your demand trends. We understand, at a glance, how your trends move and can provide the capital you need to bridge any funding gaps—knowing exactly when you’ll have the cash flow again.

1. Collaborate Closely with Suppliers

Flexport will pay your suppliers on your behalf so you don’t have to pay for inventory until it’s on your shelves. By extending this payment window, you can reinvest cash into initiatives that will continue driving growth through the busy season like targeted marketing ads and campaigns.

1. Implement Just-In-Case Inventory Management

Adopt a just-in-case (JIC) inventory strategy to prioritize having safety stock on hand to reduce the potential impact of supply chain disruptions or spikes in either the price of a raw material or customer demand for a product.

1. Build a Strong Online Presence

There are many benefits of having your own ecommerce website, and with all-in-one DTC fulfillment options being so simple and easy to set up, there’s no excuse to not have one. Take your time, build with your customer in mind, and never stop testing or asking for feedback—it’s the key to growth. To help, we’ve put together a simple 10-step guide to launching your own ecommerce website—from picking a name to understanding your shipping options.

See How Flexport Capital Can Unlock Growth for Your Business

Peak season is a crucial time of year for DTC ecommerce retailers and maintaining the runway needed to expand sales channels that depend on available inventory—without breaking the bank—is crucial. Every cash flow cycle has natural gaps, however, it’s incumbent on businesses to be able to cover invoices, POs, and ongoing operating costs while waiting for the demand spike of peak season to bring fresh infusions of capital.

For many businesses right now, margins are just too thin to make that work, so they find themselves looking for a financial partner to bridge the gap. If that sounds like you, reach out to Flexport Capital to see how we may be able to help.

The contents of this blog are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. We do not guarantee, represent, or warrant the accuracy or reliability of any of the contents of this blog because they are based on Flexport’s current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This blog has been prepared to the best of Flexport’s knowledge and research; however, the information presented in this blog herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this blog.