The life of a direct-to-consumer (DTC) brand is dynamic and exciting, with the potential for accelerating sales volume during events like new product releases and Peak season. As DTC brands gear up to meet these surges in demand, they may also risk significant financial challenges due to stockouts, resulting in the inability to buy enough inventory to meet demand.

As Peak season approaches, we want to discuss common financial hurdles brands may face during Peak, and effective strategies that will help them get ahead of heightened consumer demand.

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

• Cash Flow Constraints

It’s common for DTC brands to find themselves in a cash flow bind as they prepare for Peak season. Most suppliers require a deposit payment in order to begin production, with the remaining balance of the invoice due when the inventory is ready to ship. Purchasing and holding incremental inventory can require substantial upfront capital, leaving businesses with limited funds for other seasonal operating expenses.

• Risk of Over- or Understocking

Striking the right balance between having enough inventory to meet demand and avoiding excess stock is a very real challenge for many DTC brands. When inventory purchases tie up your cash and DTC brands buy too much inventory, there will be a cash gap because dollars are tied up in inventory. Additionally, overstock inventory comes with additional fees (like higher storage fees), and understocking often leads to lost sales and unhappy customers, hampering business growth.

• Uncertain Demand Forecasting

Inventory planning for Peak season is a crucial exercise that DTC brands must perform to balance inventory quantities with unpredictable customer preferences and market trends. Under-forecasting demand may lead to last-minute air shipments—and on average, air shipments are 5x more expensive than ocean freight, meaning this is a potentially major operating expense that could significantly hurt profitability.

Understanding demand planning and forecasting down to a SKU level, and how to get started, helps your business evaluate seasonal fluctuations in demand, identify top-performing products, and stock up on those items ahead of Peak season shopping.

• Supplier Capacity Restraints

The surge in customer demand during Peak season can place immense pressure on supply chains, with suppliers struggling to meet increased order volumes. This scenario can manifest itself in production delays and lengthier lead times, or 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 risk potentially paying for inventory that fails to meet Peak season shipping deadlines.

• 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

• Explore Inventory Financing Options

One differentiator that sets Flexport Capital apart from other Peak season financial solutions is our deep understanding of merchant pain points, seasonal business cycles, and expertise and experience in the freight industry.

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 understand your business’s cash needs, and create a customized inventory financing solution to ensure Peak season goes smoothly.

• Leverage Data Analytics for Demand Forecasting

Accurate demand forecasts are key to 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.

• Collaborate Closely with Suppliers

Flexport will pay 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 like targeted marketing campaigns that will continue driving growth through the busy season.

• 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 raw materials or customer demand for your most popular products.

• Build a Strong Online Presence

There are many benefits of having your own ecommerce store, 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 target customers 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 store—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.