Two Tribes Go to War

I read with great interest the story on Fox Business this week about the falling out between Kroger and Visa. It’s a classic example of two parties each believing that they have the upper hand in a dispute, and refusing to budge because they expect their opponent to blink first. But as American author David Drake points out, wars generally start when both sides believe they can win, and more than half of the time they're wrong. In this case, Kroger believes that VISA needs them more than they need the credit card company, while Visa believes the same thing about the supermarket. There’s a chance that both of them are wrong, and an even bigger chance that the dispute will cost both of them more than it ought to…

At the heart of this dispute is the fact that all credit card companies charge merchants a set amount for processing sales made using their cards – that’s how the credit card companies make their money, along with the interest they hope to collect from consumers who happen to be bad at math. For years, American Express had the highest fee structure, which is what led to a number of businesses refusing to take American Express cards. Master Card and Visa have traditionally had some of the lowest transaction fees, but apparently Kroger believes that it should be given a better rate than Visa wants to give them, based on the number of transactions Kroger sends in each day…

Visa, in turn, apparently believes that Kroger should be satisfied with paying the same rate that all of its competitors get. Every business wants to gain some competitive advantage over the other companies in their industry, but Visa does not see any reason why they should make less money per transaction in order to give Kroger a better bottom line. As a result, Kroger is threatening to stop taking credit cards with the Visa logo, and Visa is telling them to go ahead and refuse to accept payment and see what effect that has on their business…

Now, we should probably acknowledge that no business has any obligation to accept any particular form of payment. There are still a number of cash-only businesses operating in every community, and others who won’t take checks, vouchers, or Bitcoins. Kroger is only accepting the various credit cards as a convenience to its customers, and if it has enough loyal customers – or, at least, enough customers with more than one method of payment who still want to shop at Kroger if they can’t use their Visa cards – then this dispute shouldn’t affect them. Likewise, Visa has thousands (or millions) of other merchants who are still accepting their cards and paying their fees. What I think both companies are ignoring in this case is the competition…

The grocery industry normally operates on insanely low margins; food products can have as low as 0.8% margin, which makes it understandable that Kroger would want to save money on their merchant’s fees. Unfortunately, that also means that even a very small number of lost customers will impact their business. Visa doesn’t have the same problem – margin isn’t usually an issue for financial services firms. But Visa makes most of its money from the interest it charges cardholders, which means that the only thing that would be worse for them than not receiving merchant fees for transactions would be if people stop using their Visa cards for transactions on which they will end up paying interest…

It should be interesting to see which company blinks first. From where I’m sitting, each of them needs the other badly enough that they should really stop butting heads and work something out, but once again, I’m not the CEO of a major grocery or financial services company, and I don’t have access to their books anyway. Let’s just hope they figure this out before one or the other company fails and throws thousands of people who want no part of this feud out of work…

What Color Are Your Skies?

There are times when I will read an article online and wonder about the tone of surprise and wonder the author is taking. I don’t mean the “product reviews” that say nice things about products made by companies that advertise heavily on that channel, or travel articles that encourage people to spend money on services provided by companies that do (or might someday) advertise on that channel. Both of those are common (if sleazy) practices that go back to the time of 1970s sitcoms, and it would actually be much more alarming if they didn’t happen. As American humorist Dave Barry points out, what travel site is going to publish an article titled “Uruguay: Don’t Bother” in the first place?

On the other side of the issue, you have people who write in breathless tones about people being rude to servers in restaurants, or flight attendants, as if no one is ever rude, arrogant, or snotty in public just because they are horrible excuses for human beings and the service workers can’t fire back. When that happens, I have to wonder if these writers have ever been to a public venue, let alone worked in a service occupation. I had a similar reaction to the Business Insider article about the top complaints that workers at Trader Joe’s markets have about the customers who patronize their locations. Have they ever been to a supermarket?

Granted that I have spent time in retail, but I’d imagine that everyone has discovered trash left on a shelf or in a shopping cart at least once, and most likely everybody has seen some really gross examples from time to time. A pet peeve of mine was finding frozen products dumped in non-refrigerated parts of the store – it’s generally disgusting, and always a cause of “shrink” (product stolen or destroyed by the public). Mercifully, I never worked in a store with a meat section; finding an ice cream bar that had been left out and was now a bulging wrapper full of rancid liquid was revolting enough. We also didn’t do product samples, but the idea that people would abuse such offers and attempt to graze on them for lunch can’t be that surprising, either…

Anyone who honestly thinks that members of the public aren’t going to be randomly horrible to service and retail employees, however, is either living in a dream world or has no idea how much their local service and retail workers would like to bury them head-first in a dumpster full of cat droppings. Let me recommend, once again, the compilation site of funny and stupid customer behaviors known as Not Always Right.com, where you can find thousands of specific examples of this principle in action. Although I must say that, after having worked in Academia for the last ten years, their affiliate site Not Always Learning.com is just as on-the-money, and possibly even more distressing…

Why does he tell us this? I hear some of you thinking. I don’t imagine that any of my readers (assuming I have readers) are planning careers in retail or service companies and are naïve enough to be unaware of these conditions. And while anyone can have an off day (and do things they would normally find repugnant), anyone who makes a habit of behaving that way is unlikely to recognize themselves in any of these stories or care if they do. I’m calling out writers who have never worked down at the sharp end for a day in their lives for their naivety, for assuming that these stories from the retail and service sectors are somehow alien or exotic. We can’t sentence everyone to work one of these jobs sometime in their lives, nor would I wish that on anyone. But with the service economy growing more important every year I think it may be time for everyone to start thinking of life in retail as being more than the question “Paper or plastic?”

Start Looking Ahead

I was reading the article from Business Insider about the Boyd’s department store in Philadelphia last week and reflecting that the business model that reporter Mary Hanbury describes may have even greater importance to future business operations, and particularly start-ups, than it does to the present company. If you’re not familiar with it, and I wasn’t until I read the linked article, Boyd’s has been in operation on the same site for the last 80 years, and is currently being managed by the grandson and great-grandson of one of the brothers who originally founded the company. It’s a very upscale retailer that features personalized service, custom tailoring, and a great number of value-added services that may have been common in pre-WWII Philadelphia but are considered a specialty strategy today…

We’ve all heard this story before, of course. Consider any of the more outrageous customer service efforts you may have heard about Nordstrom’s, for example (nearly all of which turn out to be true, as it happens), or more specialized retailers like Tiffany and Co. Boyd’s has features like free valet parking, sales associates and personal shoppers who form lasting relationships with repeat customers, and alterations handled for free (with the cost of purchase) by a 39-person tailoring shop on the premises. The salespeople keep in touch with their customers with hand-written notes and updates on new products for sale – the level of service that people who don’t understand retail think they should always receive, but rarely want to pay for…

In a world where more and more department stores are closing, and the handful still in operation, it may seem amazing that Boyd’s not only maintains its operations but is in fact expanding, hoping to increase its sales to female customers by expanding the women’s clothing department. But where the article extols the virtues of Boyd’s as a throwback to a previous century and suggests things that current members of the industry could learn from their example, what struck me was that the company seems to have happened across the concept that will keep them running regardless of the competition from Amazon (or other online retailers) – and those are the lessons we should be examining…

For all that it can be incredibly difficult to execute correctly, let alone profitably, the basic concept of retail has traditionally been to find something people want to buy and put a large selection of it somewhere that those people already do. Firms following a cost leadership strategy will then attempt to gain an advantage by lowering their operating costs, increasing their profit margin and possibly by lowering their prices, while firms following a differentiation strategy will attempt to find reasonably cost-effective ways to add value for the customer. With massive advantages in overhead costs (they don’t have to build or operate a store) and inventory (they can and do have warehouses and distribution centers all over the world), Amazon can out-perform almost any cost-leadership competitor, and it is getting harder to find anything that will add sufficient value to interest retail customers in shopping in the real world…

But what if we came at the problem from the other direction? Just assume that anything we can buy can be sold online for cheaper, and anything we can make will be duplicated by the competition as soon as they can figure out how we do it; what’s left? Can we offer a unique product, custom-made or custom-tailored? Can we offer a service that isn’t possible for a web retailer? Can we offer a level of quality, either in product or in services, which can only be provided through a relationship business, between employees who know their customers? There was a time when a retail business could succeed simply by being the only place in a local area where a specific set of goods or services was available, but those days are gone; can we out-perform not just the competitor across the street but everyone on the Internet?

I’m not suggesting that any of these concepts will be easy to develop, let alone implement. But the more we consider the retail sector, the clearer it becomes that location, inventory control, and competitive prices are no longer enough. Just as the mercantile businesses of the 1800s were replaced by the national brands of the 1900s, this new century is shaping up to be a time where the competition is always present, and always has massive advantages in terms of volume, purchasing power, and breadth of product line. But if the folks running Boyd’s are anything to go on (and they’ve been right for 80 years so far) then retail isn’t going away any time soon. It’s just evolving into yet another new form…

Release the Vultures!

By now you’ve probably heard about Toys-R-Us shutting down, either on the news or by seeing someone standing on a street corner holding one of those black-and-yellow “Store Closing” signs. You may also have seen video footage, online or on the news, about long-service employees, in some cases people who have been with the company for 30 or 40 years, being let go with no severance pay. But if you’ve been tempted to blame the failure of the company on Amazon or Wal-Mart, or showrooming, or any of the other scourges of retail businesses these days, I regret to tell you that the answer is much, much, worse – and far sadder…

You can find any number of stories and files online that go into detail about this, but I thought the article on Boing Boing did a good job of summing up the situation. I don’t have much to add to Cory Doctorow’s excellent reporting, but I thought the point ought to be made (again) about who is responsible for this travesty. Basically, what happened to Toys-R-Us was that a cabal of venture capital firms bought it, used the company’s assets to borrow a huge amount of money, took out a reported $200 million for their personal enrichment, and then defaulted on all of the loans. In addition to announcing that they wouldn’t be honoring the loans, the VC firms also revealed that they wouldn’t be keeping any of the commitments them made to their employees…

If you’re wondering how they got away with this, I regret to tell you that as far as I can tell none of the venture capital firms have broken any laws. It’s possible that one or more of their creditors may choose to sue them for defaulting on their loans, but if they’ve worked this out right there should be enough proceeds from the bankruptcy sales to cover most of it, and the lenders can write off whatever is left on their taxes. It’s also possible that the employees might be able to recover something through their own legal efforts, but in any case all of these are civil matters; no one has been charged with a crime – or is likely to be…

This class of financial banditry is sometimes called “Vulture Capital” and the firms involved are referred to as “Vulture Capitalists,” although I have to say I think that the nickname is unfair to actual vultures, who (as previously noted) never bother anything that is still alive. There are no laws to prevent this sort of thing, partly because it would be difficult to prove the difference between somebody doing this in order to extract money and then crash the company and somebody who just borrowed too much money and then failed in their attempt to run the company. You can’t realistically make it a crime to be bad at management (or finance, one assumes), nor would you want to throw people who were actually trying to do the right thing in jail because they overestimated their abilities…

Unfortunately, that means that people like the vultures in this story can abuse the system for their own ends. The other reason no one has been able to establish a standard for distinguishing vulture capitalists from garden-variety incompetents, or implement a law to stop them, is because (as you might expect) a lot of very wealthy people have spent a lot of time and money to prevent it. It might be possible for more progressive political forces to combat this, assuming that there were any and that anyone in the general public cared about this issue before their employer of thirty years was purchased and carved up by vultures. But until such time as the American people start demanding greater accountability, from their political leaders if not from their business leaders, this sort of thing will probably just keep happening…

So the sad truth is, that the people responsible for this travesty, and all of the others like it, are us…

Personal Shoppers for Whom?

The concept of personal shopper services isn’t a new one; several major retailers have offered such a service for years now. For customers who are either very busy or simply hate shopping in person, and can afford the service charge, being able to call your personal shopper on the telephone and tell him or her to go find you a new suit, matching shoes, and a present for your 12-year-old niece and have all of them in your office by the end of business today is an attractive idea. But I have to admit that while I’m familiar with personal shopper services being offered by a number of premium and super-premium retailers, the story about Wal-Mart launching such a service did catch me by surprise…

You can consult the MSNBC story if you’d like, but the basic idea isn’t that complicated. Wal-Mart has been beta-testing a new personal shopper service, which they call Jetblack, in New York for the last few months. Updating the concept a bit, the Wal-Mart version includes the ability to put in shopping orders by text message, upon which your personal shopper will text back pictures of various options for your consideration. Jetblack service will include messages to the user from their personal shopper regarding special deals, sales, or other opportunities, which could in theory keep you from having to read Wal-Mart advertising or keep track of upcoming sales. The service will also provide access to merchandise from other retailers, with Saks and Pottery Barn listed in the initial wave, and others to come…

The big question, as I see it, isn’t so much whether customers who fit the primary demographics for Wal-Mart will be able to afford $50 per month for a shopping service, or even if they would want such a thing in the first place; Wal-Mart does have some higher-end customers, and they wouldn’t need all that many of them to make a personal shopper service viable. The issue is whether Wal-Mart can develop enough of a presence in high-density population centers to make such a service profitable. The company avoided big cities, and even larger towns, for many years and has had trouble establishing itself in urban areas even when it tried to change that focus. Going into a city means more expensive real estate, higher operating costs, and far more competition than the company has traditionally faced or wanted – but in order to make a personal shopper service work they may have to crash some of those larger markets…

Now, we should probably note that despite all of the jokes made at their expense (see the People of Wal-Mart site if you don’t believe me), Wal-Mart is still the largest retail business in the world, and there isn’t much question that they could enter whatever markets they would need to in order to reach customers for the Jetblack service. It also seems possible that they could offer the service in parts of the country where they don’t actually have any retail store presence – all they really need for this is a warehouse to store their merchandise and a set of delivery personnel (and vehicles) fancy enough to qualify as “white-glove” to their customers. This is essentially the same model that Amazon is using for its real-time home delivery business, and that seems to be working so far. Wal-Mart should probably stay away from delivery drone technology, though…

Wal-Mart could also try to expand their shopping service to include groceries; this would take them into competition with companies like Hello Fresh and Fresh Direct, but it would also give functionality to their service that companies like Nordstrom’s and Macy’s can’t offer. A more interesting question is how they will do against Amazon Prime, which doesn’t (yet) offer as much personalized service, but is about four times cheaper, and has access to even more products than Wal-Mart. The whole business model might seem a bit bizarre to people who are only familiar with Wal-Mart as a small-town retailer frequented mainly by rednecks, but in a world where Amazon is opening brick-and-mortar stores and at least two other companies are selling cars from vending machines, it’s getting harder to say what is surprising anymore…

The Truth

If you’ve been following the last two posts (assuming that anyone is reading any of these posts) you may have been asking why the management failures I’m describing keep happening. How could anyone be daft enough to issue contradictory orders to their employees? For that matter, why would anyone treat all of the customers (without whom we do not have a business) as though they were compulsive thieves who routinely steal everything that isn’t nailed down? I could make any number of nasty, sarcastic remarks at this point, but the truth is that like so many other things, operational management of any public-contact organization is harder than it looks…

Spend any length of time in any large retail store, for example, and you will come upon physical traces of shoplifting, such as the boxes expensive merchandise arrived in that have been emptied when the thief stashed the actual product on their person. If the store carries groceries you will find signs of “grazing” – people walking through the store, eating as they go, and then leaving without paying for any of their meal. Check out the back room and you will probably find evidence of employee fraud – all it takes is opportunity and the ability to rationalize the theft; even need is secondary. The only thing that will prevent either problem is an increased chance of getting caught; countermeasures like video cameras are useless if no one is ever monitoring their pictures, and the severity of the punishment threatened is irrelevant if no one will ever have to face those consequences…

It is possible to offset some of the theft problem with security tags and cameras, but the only fail-safe method is simply raising prices to cover the cost of the losses – and as noted elsewhere on this blog, any shoplifter who believes that the company won’t do this is kidding him or herself, and stealing from the community more than the store. You can beat the customer service contradiction by just accepting that some people are going to try cheating the company at the service desk and telling your supervisors to make the customer happy, no matter how absurd the customer’s demands happen to be. But if you want to combat any of these issues without simply shoveling money out the window, the only other choice is to get busy…

A manager who knows his or her employees can develop their people, promote and reward the good ones and eliminate the completely crooked. A good loss-prevention team can catch the most blatant thieves and fraudsters in the act, and thwart many of the others with simple active countermeasures like careful inventory control and locked displays. A management team that is committed to excellence in customer service can support their front-line personnel, take on the worst cases themselves, and never second-guess the unfortunate line supervisor who got stuck dealing with a “screamer” at some obscene hour of the morning. The problem is that all of these things take effort…

Now, no one who has ever done it would ever suggest that customer service management is easy. The hours are absurd, the conditions are terrible, and as the only exempt personnel in the company, the line managers are the lucky ones who get to deal with every extra detail for which the company does not have overtime hours available. Taking the time to walk the aisles and get to know everybody in the building at any given time is a huge drain on time and resources that you probably don’t have. But as I have noted on a number of occasions, if you study the dominant company in any given field it will probably be the firm with the best customer service, and in many cases it will also be listed as the best place to work. The bottom line is that we can blame lazy, thieving employees and greedy, thieving “customers” all we want to, but the success or failure of any company that makes its living off of direct interactions with the public is up to the management team. It’s on us…

It may be an unpleasant truth. But it is still the truth…

Yours

I was wandering around on the always entertaining Not Always Right site, laughing at some of the obviously stupid events (and stewing over some of the injustice) when I ran across one of the frequent comments about companies siding with customers – including abusive, lying and thieving customers – over loyal employees. Regular readers of this blog (assuming I have any) already know that I’ve been on both sides of this issue over the years. Some of you may recall that my hopscotch career has included stops in Retail and Cable Television, both on the Customer Service side, where I’ve seen most of these issues play out. This is where I developed the contention, often expressed in these posts, that people who want you to do things for their benefit that provide no advantage to the company aren’t really customers, and should be treated accordingly. But when I read the most recent examples on NAR, I was struck by the fact that like all stories, the issue of loyalty to the company versus loyalty to the employees has three sides: Yours, Mine, and the Truth…

Consider, for example, the issues inherent in managing a retail store. In any crew, there will be people who will faithfully serve the company in miserable conditions for minimal reward for decades at a time and adhere to every regulation the company applies. Regrettably, the converse is also true: on every store’s roster you will find people who can’t get through a single 8-hour shift without stealing anything that isn’t nailed down. In fact, there are several authorities who will tell you that more theft and damage is caused by the employees than the customers and the general public put together. That doesn’t even count the assets and merchandise that are lost by careless employees, destroyed by ignorant (or occasionally just stupid) employees, or stolen under the noses of oblivious employees. That isn’t the worst of it, though…

In retail, as in most front-line customer service applications, a single mistake can wipe out all of the progress you have made in the previous twenty-seven successful sales. That is, a sufficiently angry customer will generally tell between twenty-five and thirty (it depends on who you ask) other people about how appalling your service and/or product was. That statistic does include psychopaths who will be outraged by what color the sky is that day, and the easily-offended people who will consider the cashier’s hairstyle to be a vicious cultural insult, but it also includes perfectly normal people who happened to ask an employee an unfortunately annoying question on a particularly difficult day. And while a satisfied customer will tell four people about a positive experience (thus lowering the ratio to a still-horrendous seven-to-one), it can be difficult to generate any particularly positive experiences during a simple interaction like a retail purchase. That isn’t the worst of it, either…

For most of the retail managers I’ve worked with, met, interviewed, read about, consulted with, or in recent years taught in the Business College, the worst aspect of running a business that offers insultingly low pay, laughable benefits, miserable working conditions, mind-numbing job duties, and the constant risks and aggravations of working with the general public, is simply the fact that almost no one wants to do the job in the first place. Turnover is a constant problem, with people leaving to take better jobs at their first opportunity, but absenteeism, tardiness, low work performance (or zero work performance), fake worker’s compensation cases, real worker’s compensation cases, disciplinary issues, and abuse of the handful of benefits actually available to the employees makes this one of the most challenging Management roles in any free-market economy. And while the theft issues are not as much of an issue in the Service sector, work avoidance, social loafing, freeriding, and abuse of both company assets and the available benefits are, if anything, even worse…

All things considered, it’s not actually that surprising that the people running the company, who we should remember are responsible for keeping the doors open, the lights on, and the payroll checks from bouncing, might place greater importance on the people who come to their place of business to give them money than they do upon the workers they employ. But this is only Part One of the story…

Take Back the Showroom

Not long ago I was browsing my way through a nearby Meijer hypermarket when I came upon a display of pod-based coffee machines and suddenly realized that this was the perfect item to wrap up my holiday gift list. Unfortunately, there were a bewildering array of sizes, styles, colors and features to choose from, and I didn’t know the first thing about coffee or coffee makers, pod-based or otherwise. Over the years I’ve tried to cultivate a taste for the stuff, but so far I can only drink coffee if you mix a large amount of milk, sweetener, chocolate, and preferably ice into it – at which point even I have to admit that it’s more of a coffee slushy than actual coffee. Finding someone to help me in the middle of a Meijer in the run-up to Christmas week would have been even more impossible than trying to find a sales clerk in any other big box store under the same conditions. But expecting any retailer to tell you that any of their merchandise is anything less than “really super extra superior,” let alone post shelf tags critical of any of their goods, would be even sillier. Clearly, I needed to look somewhere else…

We’ve talked about the concept of “Showrooming” in this space before, but if you’re not familiar with the term it refers to the increasingly common practice of going to a traditional retailer to examine different products and then going home and making one’s actual purchase online. It has had a horrible effect on small businesses, most of which couldn’t possibly compete with an online retailer given the overhead and volume advantages that such operations can realize, but Showrooming had also be problematic for big-box stores and national retailers like Wal-Mart and Best Buy. What I hadn’t considered until that moment was that, in addition to the ability to comparison shop and find the best sale price (and the best deal on shipping, one assumes), shopping from home would also give me access to hundreds, if not millions, of consumer reviews of each one of these products. If only I had some small, portable device on my person that could access those same websites…

Of course, I did have such a device in my pocket. Taking out my smartphone, I quickly surfed over to a couple of product review sites, and then checked the online comments on Amazon, just for good measure. Much of the blame for Showrooming is pinned on Amazon, since they have listings for almost anything imaginable, so it seemed fitting to use them to reverse the process. The price differential between the different models wasn’t much, and none of them were noticeably cheaper online, even before I took into account the cost of shipping. But there were some models that definitely worked better than others, and even a couple that were reputed to leak after a few months in service. In a few moments I had made my selection and started schlepping the machine up to the registers…

Now, I’m not going to claim that this story, or even thousands of others just like it, are going to do anything about the Showrooming problem. Sometimes there are going to be better deals available online, and if you can find free shipping – or get it as part of your Amazon Prime membership – it may even be possible to cover those costs. But I think we should all consider the advantages to actually going to the store and physically selecting and purchasing a product, not least of which is that you don’t have to worry about your merchandise being delayed by weather, train derailments, longshoreman’s strikes, or airport closures since it’s already in your hands. There’s also the fact that you don’t have to worry about the delivery service stealing it, running it over, throwing it into a pond of stagnant water, or leaving it at a vacant house somewhere else along their route – all of which have happened to members of my household before now…

I Believe I Said That…

I picked up a link today that led me to a story about Wal-Mart executives calling the Company’s current stocking problem a “$3 billion opportunity.” I call it to your attention because this may be the most amazing piece of spin I have ever seen, and certainly the best I have seen in years. Anyone reading this quote (or the associated headlines) would most likely get the impression that senior management has identified new methods or policies regarding inventory control, inbound logistics, and internal distribution that will increase sales by as much as $3 billion each year (if not more)! Unfortunately, the truth is the executives running the Company have finally realized that if customers can’t find the product they want to purchase because there isn’t any on the shelves, not only will they not purchase it, but they will (eventually) get mad enough to take their business elsewhere. This might still be cheerful news, except the reason for Wal-Mart’s chronic out-of-stock conditions is the lack of personnel available to load more products onto the shelves – and that is the direct result of senior management attempting to squeeze more money out of each store by refusing to hire enough workers or employ them full-time…

You can pick up the original story on Bloomberg News if you want to; it has a lot of backup financial data and some really interesting quotes from some of the managers involved, but the basic story is clear enough. Over the last five years Wal-Mart has opened about 650 new stores, while at the same time their overall number of employees has dropped by about 20,000. Or, to look at it another way, during this period the total number of stores has increased by about 17% but the total number of people working in the stores has dropped by about 2% - a net loss of staffing that approaches one-sixth of the total hours available to keep a store running. As a result, there aren’t enough people to keep the shelves filled, resulting in an estimated $3 billion in lost sales – unless those numbers are net, rather than gross, in which case the company is actually losing $3 billion a year in revenue…

Now, as bad as that is, it’s still only part of the problem. Almost as serious as a lack of personnel is the issue of your available workers performing badly, and one of the key factors that can lower performance is stress – such as that of being yelled at by irate customers who can’t find the products they want, or of having to cover the responsibilities of multiple workers because management won’t hire enough people to get the job done, or not having the proper training to complete tasks because there’s no time to train people because of the artificially inflated work load, and so on. In fact, anything you do that makes working conditions worse will lower morale, making your existing employees less effective, and making your problems even worse. All of your best people will leave to find better jobs (or at least less awful ones) as soon as possible, resulting in positions that automatically select for the worst possible candidate, and the cycle will continue until you have no one available who can actually do the job, which will in turn result in unions forming, billions of dollars of sales being lost, or frequently both…

Readers of this blog (assuming I have readers) will recall that for years now I have been writing that any human resources policy that degrades working conditions will have a direct negative impact on revenue and profitability through lower employee performance, greater turnover, and a corresponding decline in the quality of the work force. I have never written about what would happen if a company’s hiring policies were so absurd that they did not hire enough people to keep their shelves filled because I could not imagine anyone stupid enough to do such a thing. But apparently somebody was, and it would seem that their idiotic staffing policies have gotten bad enough to where they are costing the company more money each year than 3,000 average people would earn in a lifetime…

I can’t speak for any of Wal-Mart’s stockholders, of course, but if the senior management of a company I owned shares in were trying to pass off a $3 billion blunder as an “opportunity” I might just be tempted to go to that year’s General Meeting and start demanding some answers – or hire a lawyer and start demanding that someone be held accountable for this total incompetence. I’ll keep you posted on this story while we wait to see what management does about the situation – and whether or not it helps…

How Does This Relate?

Imagine for a moment that you are the owner of a successful business, and you want to expand your operations. There are a number of ways to go about this directly, such as opening new markets, moving into new customer demographics, or trying to take business away from your competition. Alternately, you could move into closely related products or services – if your company currently makes hammers, for example, you could move into screwdrivers or files, or other products that are made from similar ingredients (tool-steel) and marketed to similar customers (hand-tool users). This will increase your potential revenue, and will also provide some protection against disturbances in the market – if the market for hammers drops off, the market for screwdrivers may not. This type of strategy is referred to as related diversification; it’s distinct from unrelated diversification, which would be expansion into completely unrelated industries. For example, if we own a company that makes hammers and we decide to open a flower shop. Or, perhaps, if we own a company that makes and sells men’s clothing and we decide to open a restaurant…

Whether you consider unrelated diversification a valid strategy or not is a matter of personal preference, but you may want to watch how Brooks Brothers does with their steakhouse before you make your final decision on that point. A story in last week’s New York Post claims that the famous retailer is planning to repurpose a large retail space around the corner from its New York flagship store into an upscale steakhouse sometime during the 2014 calendar year. There are no details yet, but New York City is already home to a number of premium steak restaurants, and it seems obvious that anyone attempting to break into that market will require more than name recognition and a clever stunt to get the public’s attention. If the company can somehow come up with an absolutely top-grade steakhouse operation they might be able to compete on either cost or value or both, and if they can use their name recognition to get people to come in and try the place, they might have a chance…

How likely any of that is remains to be seen. Clearly the company has a well-established brand image that goes back to 1818 and conveys the impression of superior quality and workmanship, if not the most competitive price. And this is hardly the first attempt to use an unrelated brand and/or reputation to develop a food service operation. In recent years we have seen a number of companies not normally associated with food open (or license someone else to open) branded restaurants using their name and logo, notably including cable television network ESPN and motorcycle manufacturer Harley Davidson. And while the company does not appear to have any significant experience in food service, they are very well known for both superior customer service and world-wide product distribution. With over 300 retail locations in place and a number of possible ways to cross-promote products, this idea may not be so odd after all…

I can’t help wondering how many other companies might be contemplating similar moves – or would if they saw Brooks Brothers pull this off. Would we next encounter McDonald’s sportswear? Apple coffee houses? Starbuck’s health and beauty products? The one constant I have noticed in my years as a business teacher and a management consultant is that no idea is too outlandish that someone somewhere hasn’t considered turning it into a consumer business – and if bacon-flavored salt, vodka and personal lubricant can all be winners, what’s wrong with a super-premium retailer branching out into a super-premium restaurant?

This isn’t to suggest that the new venture will be easy, if it isn’t just a publicity stunt in the first place. I’m just noting that it won’t be the strangest thing we’ve seen this week, let alone this decade…

Should Have Known Better

By now you have probably caught at least some of the news reports about the Abercrombie situation - the video interview where their CEO basically told everyone who doesn't look like a fashion model that he does not want their business or even their unsightly presence in his stores. It's not clear from the interview how much of this was a publicity stunt - along the "any exposure is good exposure" lines - and how much of it was a considered articulation of the company's policy and mission, but whatever effect the CEO was going for he doesn't appear to have gotten it...

An article off the Brand Index web site indicates that ever since the interview went viral the popularity of the Abercrombie & Fitch brand with consumers in the coveted 18-34 demographic has been plummeting – based largely on the buying preferences of the Millennial generation, who don’t appear to have taken the whole thing well. Whether or not this die-off in the brand’s popularity includes the “beautiful people” who were the original target of the Abercrombie advertising remains to be seen, but even if the loss in sales and corresponding loss of revenue are the result of people who do not fit that image becoming offended and taking their business elsewhere, this seems like an unusually stupid example of management arrogance…

Now, we should probably acknowledge that Abercrombie is hardly the first company, even within the fashion industry, to attempt to create an image of exclusivity around its product line. In general, the idea that a product is intended not just for anyone, but specifically for your demographic group is appealing to a large percentage of consumers, and since clothing can be said to have specific age, body type, activity and financial restrictions on appropriate consumption, it lends itself very well to such a marketing strategy. By the same token, only an idiot would go around telling potential customers that their money is not welcome, and that they should take their business somewhere else. Especially considering that this is not the first such gaff committed in recent years…

Consider, for example, the infamous case of Gerald Ratner, who was once CEO of the family’s chain of jewelry stores – until one day in 1991 when someone asked him how his company managed to sell a specific product for such an absurdly low price. Ratner replied “Because it’s total crap” – apparently failing to understand that, like several other industries we have discussed in this space, jewelry stores make sales based on image, salesmanship, and occasionally craftsmanship, rather than the absolute value of the goods being sold. As a result, his company’s stock lost somewhere on the order of $1 billion USD in value in less than a week, Ratner was forced out of the CEO’s position in a business his family had owned for three generations, the company became such a laughingstock that they had to change the name of their corporation and re-brand all of their stores, and to this day a major act of management idiocy is still called “Doing a Ratner” in the United Kingdom…

Will this kind of mistake come to be known as “Doing an Abercrombie” in the U.S.? Or perhaps, “Doing a Jeffries” in honor of the CEO himself? Will the company survive, or will it finally lose the gut-fight it was in with American Eagle and H&M and disappear from the scene? Will Abercrombie’s ownership group demand action, possibly including Jeffries’ resignation and a complete spin control/brand recovery effort? It’s really too early to say what the final outcome will be, but I think we are justified in saying that the CEO at Abercrombie and Fitch really should have known better…

Black Guns and Red Ink

From time to time people will ask me why a given business did something that was it its own best interest, but not necessarily that of the community, the state, the country or the world. After all, between public relations, the desire and need to be good corporate citizens, stakeholder theory, and the fact that managers have to live in the same world as everybody else, you would expect the company to want to always do the right thing. Unfortunately, this expectation fails to consider what mangers are being paid to do in the first place: manage the company on behalf of the owners. With the exception of some very special cases (such as non-profit corporations), most companies are not in the business of trying to change the world, legislate new regulations, or govern the lives of their customers, let alone the rest of the community. And we will not have to go very far in order to find examples of companies coming to grief when they try to do anything beyond the business they were created to do…

Consider the example of Dick’s Sporting Goods, a company which attempted to do the right thing and joined in a voluntary ban of the so-called “black guns” – semi-automatics that look vaguely like the AR-15 rifle used in the Newtown shootings and other outrages in recent years. Keep in mind that these products are completely legal, and Dick’s has all of the state and Federal permissions they need to carry such weapons. We should also note that despite calls from the gun control advocates (and most left-of-center politicians in general) to outlaw these guns, not only have no such laws been passed but sales have been at an all-time high for months amid fears that the Federal government will attempt to confiscate these (or possibly all) firearms. This does not sound like an auspicious time to be refusing to carry such products – a supposition borne out by the recent performance of the Dick’s company and its stock…

The story on Guns.com insists that the company’s financial troubles trace directly back to the black gun ban; the somewhat less pro-gun version available off of the Reuters.com site also gives credit to the backlash against Livestrong branded products follow the fall of Lance Armstrong from the public’s good graces, but acknowledges that the voluntary gun ban is not helping, and that the company’s performance is significantly below predictions. And while it would be overstating the case to say that these figures (gun-related or not) pose a threat to the company’s survival, it is only fair to say that disappointing financial performance in the fourth quarter (the critical one for retail operators!) is not a good thing, especially when at least part of the cause appears to be putting the good of the public ahead of the good of the company…

Now, no one is saying that a company should put the pursuit of profit ahead of the welfare of the community; that kind of reasoning is what leads to explosions in chemical factories that kill tens of thousands of residents downwind. But Dick’s isn’t responsible for gun safety, gun legislation or gun-related crime in America, or even in the communities in which they operate. They’re a retail business selling completely legal products to people who want to purchase those products, and until such time as the state or national governments tell them to stop, they should probably concentrate on making a living and leave the debate over gun control to somebody else…

Amazon Invades

Previously in this space we have discussed the ethical issues associated with Amazon, and specifically in the harm they can do to local businesses and the stakeholders associated with those companies. No reasonable person is going to argue that a successful business model should be suppressed just because it gives its inventor a competitive advantage – that’s the whole point of having a business strategy in the first place – but any business that destroys other employers, bankrupts potential customers, and eventually eradicates entire population centers in which it has no operations of its own is not a sound business model. Even if there are no government sanctions or consumer boycotts taken against such a company, eventually it will eliminate enough potential customers to destroy itself, and who’s even mentioned monopoly effects yet?

Several factors have helped to prevent Amazon from reaching that critical mass, the most important one being the tendency of people to wait until the last moment to purchase things. Even with overnight shipping it is still faster to go to a real-world retail outlet to make a purchase, and you also avoid the issues of breakage during shipping and the shipping costs themselves. But what would happen if Amazon expanded its network of distribution centers, purchased its own fleet of trucks, and started offering delivery straight to your door on the same day – and at rates comparable to what you would spend at a brick-and-mortar retailer for the same product?

A number of online news sources have been reporting recently on Amazon’s plans to open new distribution centers and/or expand existing facilities in Texas, California, Virginia, and New Jersey, and increase the number of delivery vehicles available in each of these locations. With the right logistic arrangements and a modern mechanized warehouse system those four locations alone would given them the ability to deliver to anywhere in the Philadelphia – New York Corridor, anywhere from Baltimore through the Carolinas, any of the major Texas population centers, and anywhere from San Francisco to San Diego in the same business day. The only remaining questions would appear to be whether Amazon can operate such a system efficiently enough to remain competitive with existing real-world retailers, and whether we feel that this type of operation is any more ethical than their existing business model…

Employing their own distribution center workers, truck drivers, maintenance people (mechanized warehouses and fleets of trucks both require lots of maintenance) and support units will require Amazon to employ hundreds (or thousands; depends on who you ask) of local people, and purchasing electricity, diesel fuel, food and drink, and anything else they have to get locally will make Amazon part of your local economy, and those profit centers will contribute to the local tax base. Having an Amazon delivery center in your community shouldn’t be any different from having a Wal-Mart distribution center or any other kind of major warehouse operation there, and at least some of the benefit will remain there instead of going off to some corporate headquarters many hours away. But, as is the case with Wal-Mart, Target, or any other large retailer, we still have the issue of how this will affect local businesses…

Having your employer go under because Amazon built a real-world delivery center nearby isn’t functionally different from having it succumb to Wal-Mart or CostCo, or simply implode under the rotten economy; either way you’re still unemployed, angry, and unable to purchase anything even if you wanted to. Having local distribution centers will not change the fact that Amazon is still wiping out small businesses; if anything, being faster and more convenient will only make Amazon’s inherent menace that much more dangerous. All of which leads me to believe that we will be revisiting this issue again soon if Amazon goes through with these plans…

Whether we want to or not…

Idiots in Bliss

I was reading a story on the Consumerist website today about a store that sells DVDs and other electronic media, and the problem they keep having with people demanding that they adhere to the Wal-Mart returns policy – or more accurately, what the people believe Wal-Mart’s policy on returns is (e.g. take back any product whether they sell it or not, without a receipt, without a time limit or any other restriction). This causes problems for their company on two different dimensions: first, since they aren’t part of Wal-Mart, they don’t adhere to Wal-Mart policy; and second, even if Wal-Mart would give you a “refund” for something that you didn’t buy from them and that they do not, in fact, even sell, even Wal-Mart would have you thrown out of the store (or perhaps arrested) if you walked to the middle of the check-out counters and started screaming about racism and fraud. I was immediately transported back to another time, in another place…

I was standing behind the counter at the Manager’s Desk at the drugstore at Third and Fairfax in Los Angeles one afternoon in the fall, many years ago, when a woman in her 60’s came in with a large bag of things she wanted to return for cash. The company’s return policy was a bit loose at the time, with a great deal of discretion given to the general manager of each store; in general corporate headquarters didn’t care what happened at a local level so long as the store made more money each year. Our general manager held to the policy of “do whatever resolves the situation quickly and cheaply” – which generally meant doing returns of anything that could be returned and trying not to upset the other customers. But I could tell from the moment she walked in that this case was going to mean trouble…

Sure enough, our “customer” began by disputing the price that came up when I scanned her first item, insisting that she has paid more for it than the amount listed in the store’s computer. I pulled up the list of pricing on that item (the system store the last dozen or so price levels), showing that while it had never been sold for more than it was just then, it had often been on sale for less. That took some of the wind out of her sails; she tried to rally until I mentioned that corporate policy required me to assume that she had bought the product on sale, and give her the (even lower) price for it – unless she could show me the receipt…

It goes without saying that she didn’t have one, doesn’t it?

The rest of the items went much the same way; I’d scan it, she’d dispute the price, I’d look it up on the price history, and she’d back down from whatever she was claiming the price was. The real problems didn’t start until I found a product that we had never carried; there was no record of that item, or even of the company that had produced it, in the history of our store. The “customer” refused to believe me, and insisted she had purchased the item (and all of the others in her bag) from us that very week…

I turned the product over, revealing the price sticker from “Pick & Save” (the fore-runner of Big Lots) still stuck to the back. “No ma’am,” I replied. “You didn’t get this here.”

“Oh! That one must have fallen into the bag!” she exclaimed. “I had some items to return there, too.”

“That could be difficult,” I said, as kindly as I could. “Since the last Pick & Save in this part of California closed three years ago.” I started pulling out of the rest of her returns, and sure enough, all of them carried price stickers from Pick & Save, the 99 Cents Only store, the 98 Cents Only store (a competitor of the 99 Cents Only people, who where always trying to upstage them), and even cheaper places. Some were so old that the packaging had yellowed, the plastic blister packs were cracked, or the product inside had dried into powder…

Eventually we reached an understanding. I’d “refund” her money on anything we actually carried and had any chance of re-selling; she’d take all of her dollar-store merchandise back to where she got it (assuming that the relevant store still existed), and we’d throw away all of the opened packages and spoiled products before the Board of Health came to arrest both of us. I gave her the money and her remaining returns, and she left, presumably to go try her luck in some other retail store. I still couldn’t get our general manager to start requiring a receipt for refund – at least, not until the baby formula scam started up and we really were facing arrest for receiving stolen (fraudulently obtained) merchandise…

But that’s a story for another day…

There’s Still Time

I read in the Los Angeles Times today that the company that owns Sears and K-Mart is going to shut down 120 locations this coming year in order to save money. It seems that their holiday-season performance was disappointing, and they’re trying to eliminate the stores that are losing money. This trend is disturbing to a lot of people associated with the company, not least of all because that’s what happened to Circuit City and Borders over the last few years, and both companies just entered a death spiral that wiped them out completely. But while it’s hard to deny that Sears has image problems with both their brick-and-mortar stores and their online services, I can’t help thinking that my recent experience with them shows they still have time to pull back from the brink…

A few weeks ago I went online looking for a new piece of exercise equipment. There aren’t that many sporting goods stores in East Lansing, and none of them had the model I wanted, so I turned to Amazon to see what they could do for me. Sure enough, Amazon had the product I wanted, and even with shipping could match the best price anyone locally could order it for. I went ahead with the purchase, and a week or two later the product showed up at my house – except that what arrived was not the product I’d ordered. I had purchased a Schwinn recumbent bicycle; what they took off the truck was a Nautilus treadmill. We refused delivery of the product (since it wasn’t what we had ordered), and I called Amazon to find out what was going on…

The Amazon telephone rep was polite and competent; there was no problem finding my order, and he said I was correct in refusing the delivery. Unfortunately, he couldn’t tell me where my purchase had gone. I asked him to just send us another unit, and after a longish delay, he came back and told me that they couldn’t. The machine I wanted was backordered, and would not be available until the end of February – more than three months away at that point. He couldn’t tell me if mine had been the last one in the warehouse, or if their website had failed to tell me that the item was backordered, or what the failure might have been, but there was nothing he could do about it. He also made no effort to resolve the situation (beyond a rather lame apology); he said there was nothing he could do at his level, and on consideration I believe him. But that still left me without the merchandise I wanted, or any way to get it…

I told Amazon to cancel my order and went on the Sears website, where I found the same machine in less than a minute of searching. The list cost was similar, and while Sears normally charges more for delivery, they were having a special that made the whole purchase comparable (if not as cheap). Sears has not had a good reputation lately, especially in terms of their online service, but I took a chance on them anyway; it would be hard to do any worse than sending me the wrong product and not doing anything to correct the problem. Surprisingly enough, they had the product in sale, set up the delivery correctly (and on time), and were willing to carry the product downstairs to the room we wanted it in (which the delivery people from the air freight company Amazon uses were not)…

Now, I’m not saying that every online competitor is going to lie down and let Sears run right over them the way Amazon did in this story. I’m not even suggesting that Sears doesn’t have problems; their stores are run-down and out-of-date, and their customer service and online ordering have been less than stellar. What I’m saying is that no one out there seems to be providing what I would call first-rate service on large items purchased online – which means that if Sears can do so reliably, there is still a place for them in retail, and there is still a market segment they can not only compete in, but dominate…

If they bother to try, of course. Time will tell…

Retail is Imploding

Some time ago I wrote about the retail sector (in America and elsewhere) being on fire – and unfortunately, the people running it didn’t seem to grasp that fact. For the record, I don’t believe that the retail sector will ever fully go away until we reach a post-scarcity economy or invent Star Trek-type “replicators” – not that there’s much of a difference between those scenarios. No matter how universal acceptance of e-commerce becomes, there are always going to be those people who want to physically pick up and examine a product before they buy it, and those products that cannot be shipped from a centralized warehouse without raising their price too high to include a profit margin. But just because the industry itself isn’t likely to fold any time soon, that doesn’t mean that individual retailers won’t go under in the meanwhile – and if they actually start charging people just to try out merchandise, it’s likely to be sooner rather than later…

You can check out the original story from Adelaide Now online if you want to, but apparently retailers of specialty merchandise in South Australia are getting fed up with people trying on clothing, testing out high-end camera equipment, getting fitted for wetsuits, and so on – and then leaving without making a purchase because they can get better deals online. Some of these merchants are talking about charging a “fitting fee” or assistance fee of some kind to make up for the lost time and effort, and possibly to replace some of the sales they’re losing to the online competition. The difficulty I foresee with this strategy is that if you start charging people who never intended to buy anything from you in the first place for assistance in figuring out what size, type, features or other characteristics they want, it will not make them any more likely to purchase anything from you…

Now, one could quite reasonably argue that the retailers in this story are effectively being taken advantage of by these online shoppers. After all, the retail stores have to pay their employees to assist these freeloading comparison shoppers, which means that the online shoppers are effectively getting a service for which they are not paying. This is especially true in cases like the wetsuit customers, who will require up to 30 minutes of assistance in order to find the correct specifications, or people who are actually trying out digital cameras, who can take even longer. But while I agree that this is a definite drain on the finances of the retailers, my point here is that imposing this type of fine will not encourage this type of shopper to either purchase anything from your store or pay you your assistance fee; it will only encourage them to find some other way of gaming the system. Meanwhile, this type of fee will almost certainly cause existing customers to stop shopping in real life and start looking for their needs online…

Reading through this story, the thought that came to my mind is that the retailers who are considering this strategy seem to be missing the point – which is to say, they seem to be basing their approach on the assumption that online retailers are some sort of historical aberration, and if the online stores would just go away, everything would be grand once again. At the risk of stating the very obvious, online retail isn’t going anywhere, any more than human greed and self-interest are; if real-world retailers want to succeed in this electronic age, they have to base their competitive strategies on the conditions that exist, not the ones that they wish existed. This can mean moving online themselves, lowering costs to compete with the online retailers, offering services that an e-business can’t, or concentrating on the immediate gratification of taking something home the moment you buy it – which won’t be possible with an online purchase until teleportation devices or the aforementioned replicators become available…

It might even be possible for a real-world retailer to reverse the concept of a “fitting fee” and start offering customers an actual real-world shopping service – come in and we’ll show you all of the features and options available, and even hook you up with the best place to purchase what you want. But just trying to block people from using you to get better deals online will just make things worse…

Going to Extremes

I was reading another story online the other day about the so-called “Extreme Couponing” trend when I got to thinking about the ethics of the situation. If you’re not familiar with the concept, Extreme Couponing is a show on the TLC cable network about people using bushels of manufacturer’s coupons and the occasional store coupon to get absurd savings on large quantities of products; some proponents of this activity claim that you can obtain your groceries for virtually no money if you clip enough coupons and are willing to go to the extremes needed to cash all of them in. The show and its attendant publicity appear to have touched off a national obsession with coupon clipping, and shoppers are turning out with ever larger numbers of coupons and demanding every larger discounts – resulting in an almost inevitable backlash…

You can pick up the original MSNBC story, which contains links to some of the other recent news items about the situation, but the basic idea is that more and more retailers are refusing to accept the dozens or hundreds of coupons that “extreme” couponers insist on redeeming for each purchase, and a fair number of companies are complaining about couponers demanding discounts for items similar to the ones on their coupons, or using multiple coupons for a single item when both the store policy and the coupon itself say “one per purchase” – and getting ugly when denied. It seems clear that cases like these are wrong, and possibly illegal, while a shopper trying to redeem a few coupons and save a few dollars each week is just using a promotional offer to save money while improving the company’s sales – exactly as he or she is supposed to. But where do we draw the line? What constitutes a reasonable use of coupons, and what represents an intentional gaming of the system? And, perhaps most difficult of all, who gets to make that decision?

In past posts, I have noted that anyone who wants you to destroy your company in order to benefit themselves is not really a customer, and you should not consider that you owe them any of the same responsibilities you might have to an actual customer. In the case of extreme couponers, if the store can turn in the coupons it collects to the manufacturers who issued them and recover the cost of the discounts, then it seems reasonable to do so. But if the store can’t recover the costs – if the issuer will not cover the discount the store is being forced to offer, or if there are other operating costs involved – then the store may be losing money on each item sold, and will eventually go out of business. This is especially problematic on food items, where the profit margin is already less than 2% (frequently much less). Such transactions may benefit the shopper, but only in the short run. If your local supermarket goes out of business not only will you have to travel further to purchase your groceries (which costs money), but your community will also lose jobs (at the store and at all of the companies that once supplied it), tax revenue, property value, and sales to adjacent businesses. If this goes on long enough, it will eventually have a negative effect on everyone, including the extreme couponers themselves…

I don’t have any easy answers regarding the extreme couponing movement, but I will note that losing customers who don’t actually bring you any profits will not harm most businesses, and that if every market starts issuing strict rules about how many coupons may be redeemed by each household on each day, the worst offenders may have to find another way to get food and other products for free. I would not place any bets on their failing to do so, however – or that whatever they try next won’t be even worse for the retailers in their sights…

The Ethics of Amazon Revisited

Over the four years or so that I’ve been keeping this blog, my most-viewed post remains the one on the Ethics of Amazon, which still accounts for a almost 10% of all of the traffic I get. It probably helps that it’s one of the early hits if you try a Google search that includes “Amazon” and “ethics” in the keywords, but it does seem to keep catching imaginations, considering that there was a comment on this post just last week. Mostly what people ask me about this post is why Amazon (or any other successful company, for that matter) should care about what becomes of its competition. After all, in a capitalist system, aren’t we trying to destroy the competition and take their market share? It made me think we should take a closer look…

First off, no one is saying that Amazon shouldn’t make a lot of money. But expanding your sales and revenue is more than just a zero-sum game (e.g. one where every dollar of sales you make is one more that someone else doesn’t make). In particular, every Internet retailer whom Amazon puts out of business represents a certain number of people who will lose their jobs and therefore not be able to buy anything from Amazon, or anyone else. It’s also possible that the investors who put up capital to start those e-commerce sites will be wiped out, too, which would not only eliminate more customers, but lower the overall supply of capital available in America, raising interest rates and creating new barriers to entry for anyone trying to start a new company. But that’s just the beginning…

If this effect cascades into the companies that used to supply those sites, they may be unable to continue in business as well, knocking more customers out of the workforce and potentially limiting the products that Amazon can obtain for sale. Even worse, the communities in which those suppliers are based will be negatively impacted, resulting in all of the services, utilities, transportation companies, energy companies and government agencies in those communities being driven out of work, as well. Commerce has always been an interconnected whole, and this is more true now in the Internet Age than it has ever been before. If Amazon’s dominance is sufficiently complete, they could end up being the only surviving retailer, Internet or real-world, left in America – and then go bankrupt since there will be no one left to do business with them…

In business school we call this the “Stakeholder” concept, and it’s a key idea in strategic management. The success or failure of your company doesn’t just impact your investors and stockholders; it also affects your employees, your competitors, the people who will be impacted by the environmental and economic results of your operation, your competition, and even the government. The fact is that while most people think the ideal condition for any company is to corner the market and have a complete monopoly over the goods and/or services they sell, the historical record indicates that such companies are bad for business – and not only other people’s business, but ultimately their own. And the wider the reach of their operations becomes, the more problematic their domination of the marketplace is going to become…

I’m still not saying that Amazon shouldn’t make absurd amounts of money, or even that there is anything wrong with their domination of some aspects of Internet commerce. I am however suggesting that their long-term strategy may not be quite as solid as it looks – and that, once again, this is harder than it looks…