Because we are the product owner as well as the merchant of record, we work closely with the
client to plan sales and promotional activities. Under the Retail model, depending upon the product category and sales characteristics, we may require the client to provide product price protection as well as product purchase payment terms, right of
return, and obsolescence protection appropriate to the product sales profile. Since we purchase and own the inventory and accounts receivable, this business model generally requires significant working capital requirements for which we have credit
available either through credit terms provided by our clients or under senior credit facilities.
The costs of all standard
PFSweb services normally billed on a transaction basis under the Enablement model, as well as certain credit risks, may be covered by the selling margin under the Retail model arrangement. The bottom line financial results for our client should be
similar to the financial benefits from the retail channel, although unlike the traditional retail channel, our clients generally control the presentation and branding of the web site and owns all the customer data from the eCommerce activities.
We currently provide the Retail model for a portion of our Procter & Gamble engagement for DTC sales through the
P&G eStore. In addition, we use our Retail model to enable our Supplies Distributors subsidiary to serve as a global master distributor of printer supplies for Ricoh Infoprint Solutions Company (IPS) a wholly-owned subsidiary of
Ricoh Company Ltd. (Ricoh). In this model, the product revenues are reported in our Business and Retail Connect segment.
INDUSTRY INFORMATION AND COMPETITIVE LANDSCAPE
Business activities in the public and private sectors
continue to operate in an environment of rapid technological advancement, increasing competition and continuous pressure to improve operating and supply chain efficiency while decreasing costs. We currently see the following trends within the
Manufacturers strive to restructure their supply chains to maximize efficiency and reduce costs in both B2B and DTC markets, and to create a
variable-cost supply chain able to support the multiple, unique needs of each of their initiatives, including traditional and electronic commerce.
Companies in a variety of industries seek outsourcing as a method to address one or more business functions that are not within their core business
competencies, to reduce operating costs or to improve the speed or cost of implementation.
Supply Chain Management Trend
As companies maintain focus on improving their businesses and balance sheet financial ratios, significant efforts and
investments continue to be made identifying ways to maximize supply chain efficiency and extend supply chain processes. Working capital financing, vendor managed inventory, supply chain visibility software solutions, distribution channel skipping,
direct to consumer eCommerce sales initiatives, and complex upstream supply chain collaborative technology are products that manufacturers seek to help them achieve greater supply chain efficiency.
A key business challenge facing many manufacturers and retailers as they evaluate their supply chain efficiency is in determining how the
trend toward increased direct-to-customer business activity will impact their traditional B2B and DTC commerce business models. Order management and small package fulfillment and distribution capabilities are becoming increasingly important
processes as this trend evolves. We believe manufacturers will look to outsource their non-core competency functions to support this modified business model. We believe companies will continue to strategically plan for the impact that eCommerce and
other new technology advancements will have on their traditional commerce business models and their existing technology and infrastructure capabilities.