Category Archives: Retail

If You’re Depending on Taft, Then You Are Really Daft!

A recent article in the Supply Chain Management Review that stated the obvious fact that retailers’ supply chains [are] in jeopardy if [the] port strike is not averted noted that the NRF (National Retail Federation) and the RILA (Retail Industry Leaders Association) are calling upon President Obama to engage directly in contract negotiations between the ILA (International Longshoremen’s Association) and the USMA (United States Maritime Alliance) and invoke the Taft Hartley.

Why? The strike, which could take place on December 29, would impact all international trade and commerce at 14 of the nation’s East and Gulf Coast container ports that account for 95% of all containerized shipments offloaded on the Eastern Shipboard.

Should he? I don’t think so. It is Obama’s job to support legislation that opens the borders to free trade and to reach out and begin negotiations with leaders around the world – not to settle labour disputes. It’s not his problem that the West Coast work stoppage in 2002 caused an estimated $15 Billion in losses or that the 8 day work stoppage at the ports of LA and Long Beach last month caused shipping delays for hundreds of millions of dollars of cargo. That is an issue caused by the inability of two sides to reach an agreement, and, to be honest, by the unwillingness of the union to accept that it’s the twenty-first century and adapt appropriately.

As per this article in the LA Times earlier this month, the port strike was part of a bigger fight. The union is not happy with the fact that cargo companies want to cut costs and automate operations to compete with aggressive rival ports in South America and Canada and are fighting tooth and nail to prevent automation to preserve as many of the (extraordinarily) high-paying jobs for their middle-class members as they can. (And these are high paying jobs. An article in the Pittsburgh Post-Gazette back in 2006 noted that the 100,000 members of the two longshoremen unions had an average salary topping $120,000 a year, making them the highest paid blue-collar workers in the U.S. who earned 65% more than an average auto worker at a big three. Source)

While I’m sure the cargo companies and ports are being too aggressive in terms of target cost and job reduction (as transition takes time to be non-disruptive), at this point I’m sure the union is being, at the very least, equally unreasonable. The economy is still in the dumps, the unemployment rate is still close to 8%, and ports North and South of the border are adding enough capacity to take all their business if they don’t smarten up. They average worker is doing a job that could be done by a high school graduate and earning more than I was when I was a Chief Scientist / Chief Architect, that required a PhD. In fact, they earn considerably more than the average software developer or engineer who requires 4-5 years of advanced schooling and 5-10 years of experience to their jobs. I personally think something is wrong with this picture. I’m all about fair pay for fair work, but as they are already getting ridiculous pay for the work they’re doing, relatively speaking, I can’t sympathize with them.

However, while I certainly understand the position of the people calling for the invocation of Taft, I don’t think it’s the President’s job to intervene. If this means a strike is inevitable, then it has to happen. After both sides lose, they’ll come to their senses and strike a reasonable deal.

I know this will probably hurt a number of retailers, but it’s their own fault. Retail, in my view, has been too slow to adopt proactive Risk Management strategies just as they were too slow to adopt e-Sourcing and e-Procurement technology. If a retail chain was actively identifying and managing risk, it’d already be hedging its bets by sending a percentage of its shipments to the closest Canadian, Mexican, or even South American port and then trucking it into the nearest U.S. distribution center so that, should a stoppage (be likely to) occur along the east or west coast, it could just divert all shipments to the Canadian, Mexican, or South American port and not be impacted in the least. To be honest, it’s a shame this isn’t the case for most major Retailers. This is why the ILA and the LWU (International Longshore and Warehouse Union) have so much power. Retailers are not taking appropriate advantage of Northern and Southern FTZs and using foreign ports to mitigate risk. As such, they are depending on TAFT and, in doing so, being really daft. (Especially when, as I pointed out back in September in The Looming Strike Might Cost Billions – But You Don’t Have to Lose a Dime !, Canadian and Mexican east-coast ports are adding capacity hand over fist and ready to take your shipments.)

Best Buy Experience? Still Not At Best Buy But …

… if you were one of the lucky ones, at least this time you got a few free iPads to give to people in need instead of getting nothing or unexpected free porn (as some people did earlier this year, as chronicled in Best Buy Experience? Not at Best Buy! Part I) or, in some cases, getting completely ignored (as chronicled in Best Buy Experience? Not at Best Buy! Part II).

As chronicled by Mark Rush over on Evan Schuman’s StorefrontBacktalk next year, now Best Buy has an iPad Dilemma. Apparently they shipped at least five iPads to at least two customers who had only ordered one. (See a recent article on iTechPost for example.) But at least this time they owned up to the error right away and instead of insisting that the customer ordered five and needs to pay for five, or pay the return and handling fees to return four, they decided to take advantage of the holiday season and find a little holiday spirit. They told the customers to “keep the additional iPads and give them to people in need” and get some valuable good press that they desperately need, ignoring the fact that the U.S. Federal Trade Commission Q&A stated that federal law required that the consumer could keep the extra iPads and not pay for them, referencing laws intended to punish retailers from shipping items to people who didn’t buy them in an attempt to extort them for payment later.

Now, as noted in the article, Best Buy could probably have gotten the issue to court noting that the customer did order one item, but I would have to think in this case that, given the nature and value of the item ordered, the court would reasonably conclude that an end consumer didn’t want more than one and the company should have appropriate checks and balances in place to appropriately manage such valuable inventory. Thus, it is likely this is a case Best Buy wouldn’t win.

My conclusion? They weren’t being generous and simply making the right decision to circumvent the PR nightmare that would have inevitably resulted had they handled it any other way and they still need to fix their systems. I could be wrong, but Amazon does a lot more shipping and seems to make considerably fewer screw-ups, or at least deals with them better as I haven’t seen nearly as many articles about Amazon screwing up compared to Best Buy in the past year.

Walmart is Supposed to have been the Retail Leader since at least 2002

… when it was listed for the first time as America’s largest corporation on the Fortune 500 list, and it’s only now understanding that if you want a sustainability initiative to take hold, you have to focus on the people and give them the right incentives.

As per this recent piece over on Bloomberg which notes that Wal-Mart’s Green Performance Reviews Could Change Retail for Good, Walmart’s efforts to green its supply chain are about to get much more effective because sustainability will now play a role in its merchants’ performance reviews, which help determine pay raises and potential for future promotion.

If you really want to be green, you have to put your money where your mouth is and pay for it. You have to give buyers incentive to consider sustainability, suppliers incentive to be sustainable, and everyone incentive to encourage sustainability. And, as SI has written many times, while their might be some up front costs to switch to sustainable sources, over time, sustainability will generate double-digit ROI any way you look at it.

True Cost Reduction Doesn’t Increase Risk

While reading a recent article over on the Inbound Logistics site on Serving up the Perfect Meal, I came across the following quote from a general manager for C.H. Robinson that worried me:

“One thing all restaurants are doing is managing labor farther up the supply chain, and pushing inventory levels back to suppliers to manage, thereby controlling costs, keeping inventory fresh, and allowing menu planning variability.”

Can you see why? While managing labour considerations further up the supply chain is a great idea, as it forces you to have good supply chain visibility, and keeping inventory fresh will give you an edge in the food service industry, pushing inventory levels back to suppliers to manage is a disaster waiting to happen unless:

  • they are at least as competent as you in inventory management,
  • they have deep insight into your expected demand requirements over time (at least six months into the future), and
  • they have a basic understanding of the market volatility and the ability to handle unplanned demand surges.

If any one of these assumptions are false, at some point in time, your supplier is going to be out of inventory when you need it most, and you’re either going to have to spot-buy elsewhere, at considerably higher prices, or, even worse, go out of stock and have to slash profitable menu items for the duration of the shortage.

You should only let your supplier manage your inventory if you have deep visibility into the supply chain and collaborate with them to make sure they have all of the data they need to predict your needs as well as you can. And you need this visibility, given that quality, safety, and traceability are critical to a food service provider’s supply chain, especially given the recent introduction of the Food Safety Modernization Act.

Sears’ Deadly Sins

By now, everyone knows the story of K-Mart, and its bankruptcy that was well chronicled in Marcia Layton Turner’s book on Kmart’s Ten Deadly Sins: How Incompetence Tainted an American Icon, which was summarized in a recent article by Vivek Sehgal on why Business Strategy Should Design and Determine Supply Chains over on the Supply Chain Management Review this spring.

But not everyone knows that Sears, part of the Sears Holding Company, may not have learned the lessons K-Mart failed to learn and may be going down the same path, at least North of the Border. Consider the following sins in particular:

  • Brand Management
  • Underestimating Walmart
  • Ignoring Store Appearance
  • Supply Chain Disonnect
  • Repeating the Same Mistakes

Let’s take them one by one. It hasn’t made a top 100 brand list in 3 years, since it made the virtue 100 in 2009, and 24/7 Wall St (.com) predicted it would vanish this year. It’s still around, but it’s not a household name. In fact, the only good rankings it is getting are for its mobile site, but we all know how limited mobile sales still are, and one has to wonder how long it is going to fare well in the online world now that you can get most of its products through Amazon Supply. There was a time when Sears was a household name, and would always be in the top 50 brands. Not anymore, although Lands End was recently recognized, but Lands End is not Sears. Just an apparel line.

Like every other big average consumer retailer, Sears underestimated, and North of the Border, continues to underestimate Walmart in my estimation. In the Great White North, Walmart is expanding like mad while Sears is barely holding the few locations it has in many places. While many of you are likely aware that Target is about to expand rapidly into Canada through its acquisition of the leasehold interests of over 125 stores from Zellers Inc., what many of you do not know is that many of the remaining stores that are (in the process of) being closed are being scooped up by Walmart. the doctor can’t remember the last time a Sears location opened in his province.

While Sears store appearance generally isn’t that bad, it generally isn’t that good. While Walmart stores are kept new, clean, and shiny, some of the Sears stores the doctor has been in lately are starting to look run-down, dusty, and drab. And many of the displays, which may have been attractive in the 80’s and 90’s, are looking dated. What’s going to happen when Target bursts onto the scene?

And the Supply Chain Disconnect is still there. Consider the fact, as reported in the SCMR article, that in 2010, four years after the merger, only 4 distribution centres out of 39 were shared between Sears and Kmart, while others continue to serve Sears or Kmart stores exclusively. Walmart is going to eat Sears alive!

Sears is repeating the same mistakes that Kmart made, and focussing in the wrong areas. Brands (like Lands End) are not going to save it. A good mobile site is not going to save it. The only thing that is going to save it is a renewed focus on supply chain (to get its operational costs in line with Walmart’s) and a focus on brand rebuilding. It has to be a household name again. Otherwise, it may not make it’s 200th anniversary, which is a mere 8 years away! I hope I’m wrong, but we’re in an age where billion dollar enterprises can go bankrupt almost overnight.