The September Ships
KOWHAI, FROM THE MERCHANT'S CHAIR
// THE SETUP
You run Kowhai, fourteen homewares and gifting stores and a year that is made between Labour Weekend and Christmas Eve. Last Christmas the sell-through did not come. You know why: two categories over-bought, the winners under-bought, and NZ$1.1m of it is still in the distribution centre. This year's order book fixes the mix and it is up 22%. You asked the bank to lift the seasonal line from NZ$2.0m to NZ$3.5m before the September orders ship.
The bank's answer came on Monday. It will fund the season, fully and promptly, at NZ$2.6m, which is last year's true peak including the overdraft, with the clean-down covenant intact and the aged stock reducing the core as it clears. The NZ$900k above that, the letter says, is not working capital; it is a merchandising conviction, and convictions are funded by the people who hold them. It offers a second door: if September's confirmed pre-orders from the trade customers convert part of the +22% from belief into demand, the file changes and the facility can change with it.
Your buyer says the mix is right and the suppliers will ship on terms if asked. Your two largest shareholders have not been told yet. The ships leave in three weeks, and the orders are placed but not paid.
The bank funded the season and called the rest a bet. What do you do with the other NZ$900k of buy?
NZ seasonal retailers typically carry under 8% aged stock into the new season. The bank funded the loop that closed last year. The increment is the loop that did not.