Channel Stuffing
No, we’re talking about an attempt to shop lift a lot of perfume here. (That's Chanel anyway...one "n.") We’re referring to companies trying to skew their earnings for a particular time period. In order to make expectations for a particular period (usually a quarter), a company might push customers to buy a bunch of stuff now and just leave it in inventory for later.
The company books a bunch of sales right away, goosing this quarter's revenue and earnings. All the analysts are happy, and the stock goes up. The problem is: the company just borrowed sales from the future. All the customers that stuffed the channel this quarter won't need to re-up as scheduled next quarter. Eventually, the company has to use other tricks to inflate their numbers or, somewhere down the line, book a really weak quarter. But by that time, maybe the executives in charge have already exercised their stock options and spent their bonus checks. Someone else's problem.
Related or Semi-related Video
Finance: What is work-in-process invento...3 Views
finance- a la shmoop. what is work-in-process inventory? your company
junk in the trunk makes enema kits for Elephants . what they get stopped up too. [tower with "junk in the trunk" written on it]
just need you know big bags. anyway so you've extruded ten thousand bags. you
need ten thousand giant hooks to hang the bags on palm trees and ten thousand
tube thingies for the you know de new mall. they cost you a total of 60 grand
to produce and are not yet packaged. the product isn't finished.
in fact the rubber hosing and so on has to be made of a special material that
takes three months to fully dry. you know that African climate is hell on rubber.
you also have four tons of rubber in blocks sitting around the factory floor [ants crawl across the floor]
with ants singing to it. and you have a mile of wire you'll eventually Bend into
bag hanging hooks it's just sitting in a coil.
alright you paid for the rubber blocks, and the wire already it's just sitting
there so these elements of product are in process. the product isn't finished
completed or ready to ship. so work in process inventory really just consists
of raw materials at various stages of production. and you know generally work
in processes just sitting on the factory floor versus out the door when it then
becomes a finished goods. and just remember that concept for you next time
you're unpacking a pachyderm. [woman in white coat peeks out from behind an elephant]
Up Next
What is inventory? From a financial perspective, inventory usually consists of A) raw materials for manufacturing products, B) products in the mids...
The Federal Trade Commission (FTC) exists to prevent fraudulent or deceptive trade practices. They're all about protecting Joe Sixpack.