How should E-cig retailers react to the postponement of FDA deeming deadline? On July 28th, news broke that E-cigarette industry obtained a reprieve from the FDA. The PMTA submission deadline in the deeming rule was postponed from 2018 to 2022, allowing E-cigarette retailers and manufacturers a precious space before encountering the final implementation of the deeming rule which will put a grievous financial burden on the industry.
A question to ask…
The foremost question we need to ask in the midst of universal relief and rejoice is, how should E-cig retailers react to such a postponement?
I have analyzed FDA Commissioner Scott Gottlieb’s speech in my last article “FDA Deeming Deadline Postponed To 2022” (click here to read) and by extracting some of his statements concerning the E-cigarette industry, I reached the conclusion that the intention of FDA regarding the restriction of the E-cigarette industry is unclear, though it sounds obscurely favorable in the lengthy and vague speech.
Facing such a pleasant dilemma, how should E-cig retailers react? What should they do? What are the benefits and risks of doing so?
Having immersed myself in the E-cig industry for quite some time, and having consulted several senior experts and analysts in the industry, I hereby venture to offer my humble opinions regarding the above questions which every E-cig retailer care about.
We will not fail to observe a market boom, for a short period at least. Many will note that I implored caution from the point of rationality and long-term development in my former analysis, mainly due to the obscurity of the agency’s real intention. But market does not think long-term, but rather reacts to the slightest change without delay. Its instinctual reaction mechanism is decided by its nature, rendering it impossible to stay cool or aversive to such a favorable change.
With the four-year-postponement, there is no doubt that regained confidence will lead manufacturers to reinvest and expand, driving large distributors also to reinstate their efforts to former vigor. More models will be designed and released; more brands will flourish; vapers will in their joy of liberty further patronize their local E-cig stores—in all, the first two years is a great period to expand business and extend influence. Those who try to do so will not necessarily succeed, as in everything, but those who do not act will certainly be overtaken and left out in the race for growth, and there is no other such opportunity again in the years to come. Even if the final implementation of the deeming rule is again delayed or, not likely, cancelled, those who do not try to expand now will find themselves unequal to enter competition then.
While it is imperative for E-cig retailers to keep up the pace and expand their business accordingly, hasty investment will surely bring a price war in which everyone but the largest distributors loses. Just imagine every E-cig retailer starting buying in and hording the same models or the same brands all at once—the result will be a costly price war and excess inventory because the consumer market is not yet ready to digest the boom created by a sudden burst of over-production from the manufacturers’ side. After all, manufacturers are able to absorb the loss of markdowns or simply reassemble the overstocked merchandises, but what will a retailer do with all the stocks no one is going to buy?
Here again I implore caution, for hasty actions bring quick downfalls.
How to react
To counter the trap of overstock there are some keywords with which to guide your operations.
The fist keyword is estimation. A local E-cig retailer serves a limited area and therefore the number of customers are unlikely to grow indefinitely. With a limited and stable customer base, the best strategy is to know what each customer wants beforehand and procure from distributors accordingly. This will solve the problem of excess inventory—you always clear your stock because you sell exactly what your customers want.
The second keyword is diversification. Do what you can about estimation of customer preference, you are not likely to always procure the right models or the right amount. Spread your purchase over multiple models and multiple brands—even if no one buys them, the loss would be sustainable.
The third keyword is acquisition. It is difficult for a local E-cig retailer to transform into a wholesaler because of the quantity and quality of connections and resources required, but nothing stands in the way of a retailer developing a retail chain. Merging with other retailers close by brings the benefits of an enlarged customer base and further influence in the community. It is those who dominate the field set the price and lead the trend.
The fourth keyword is differentiation. This does not run contrary to diversification, and here is why. For a retailer with multiple E-cig shops, the value of influence in that specific area is lost if each shop provides identical services. Suppose two or three shops will satisfy the basic demands of most customers, and one shop will enter the niche and cater to the special needs of certain customers—what you get is high customer satisfaction and a lucrative niche. By providing what every other competitor is offering, plus what they cannot or could not afford to deliver, a higher ground will be effectively gained.
So much being said, it remains in the discretion of each E-cig retailer to make decisions of expansion and to consider the above points I have most humbly suggested. In the end, I would say again that it is imperative to expand business soon, and it is wise to know where you are going.