In theory a manufacturer "channel stuffs ", by sending more units of an item than requested to retailers and wholesalers, in critical quarters (usually the Q4 or Christmas quarter). By doing so the manufacturer can claim that bolster the appearance of their product's demand and sales . The tactic potentially would have limited effectiveness, as retailers may opt to send back unsold units or merely buy less in the following quarter to compensate. The would be channel stuffer may not care as many manufacturers, especially those of consumer products, are largely judged by the market at large by their perceived performance in the Christmas season. A sales miss in Q1 may be viewed by the market as less noteworthy.
An investor who wishes to investigate whether a company channel stuffs should check the accounts receivable of the suspected company. If the accounts receivable jumps suddenly in one quarter, it may indicate that the company is channel stuffing.
Some debate as to the prevalence of channel stuffing or whether it even exists. An example of industry where accusations abound would be the videogame console manufacturers. Sony and Microsoft are routinely accused by conspiracy theorists and some in the videogame media of channel stuffing.
Recent Mentions on Fool.com
- Rivals Give Harley-Davidson Inc. a Case of Earnings Road Rash
- Harley-Davidson Inc. Earnings: The 1 Number That Should Worry Investors
- Read This Before Buying Radio Shack Stock
- Why Even Scarlett Johansson Couldn't Save SodaStream
- Ford Motor Company's European Sales Result Offers a Bright Side
- This Week's 5 Dumbest Stock Moves