Chasing trends can be disastrous in business. It's kind of like timing in the stock market. If you're not in at the bottom, you might, say, buy a lot of trendy inventory at high price points, only to unload it at a discount. And, as you know, buying high, then selling low is a quick way to get run out of business.
There are some instances, however, in which tapping into trends can be very profitable, especially if you are in an industry or category like fashion, entertainment or food where eventually, what was old becomes new again.
You can get an idea of how these demand cycles are created by looking at how large companies reposition and repurpose what many of us would consider old stock or old brands. Take for example, Pabst Blue Ribbon beer being marketed to young hipsters or Nike Air Jordan shoes repositioned for a generation born after Michael Jordan ruled the court.
It's important to know what you need in place to ride the wave of a cyclical trend to make it profitable for you.
One good example of this in our own network is Shiner Ltd., a U.K.-based distributor of action sports goods that saw opportunity in a skateboarding and scooter boom in the U.K. Shiner is not new to the market. In fact, the company was part of the mid-70's skateboard era.
When roller discos started to make a comeback, the company was literally in a been-there-done-that situation -- already having a great idea what its potential for growth could be with good vendor relationships and a strategy to take advantage of the opportunity.
Here are three keys to successfully taking advantage of cyclical trends:
- The trend is in line with the core of your business. This may seem obvious, but you'd be surprised how many companies will jump categories or engage in diversification -- what I like to call "di-worse-ification" -- to chase dollars that simply aren't there. In Shiner's case, the company had experience in the market and knew what buyers would want and need to be part of the trend.
- Keep costs low and margins high. This is the opposite of buying high and selling low, and allows for great profit margins.
This is especially true when there is exclusivity and a high demand for products or services. Think: special edition Air Jordans.
Being able to source products or offer services from a low cost base will allow you to ride the trend profitably so you can position yourself to reinvest profits or continue to profit even after prices start declining, signaling the end of the cycle.
For Shiner, this meant that a 10 percent increase in sales had the potential to double their profits for the year.
- Know up-front it won't last forever. All trends come to an end. Be prepared with an eye on additional opportunities or offerings that may appeal to your customer base. For example, this could be premium coffees and specialty coffees for the trendy doughnut shop. It could be hookah or electronic cigarettes for the trendy cigar shop.
To steal a phrase: Get in. Get out. Don't linger. There's no upside to the downside of a cyclical trend, unless you are buying up excess inventory for pennies on the dollar that you can flip to dollars in a secondary market.
Bottom-line: Don't go running after every shiny object you see as the next big thing. Instead, get to know your industry, its history, and what could be repurposed or repositioned to catch or create the next cycle of interest.
The author is an Entrepreneur contributor. The opinions expressed are those of the writer.