As the day dawns millions of Americans are stampeding the stores scooping up bargains on what is the Black Friday debacle. It exists as a monument to bad management – a day on which businesses that compete on price, and price alone, demonstrate just how weak their business model is.
According to an article in the Chicago Tribune: “Big chains such as Target, Wal-Mart and Toys R Us said they should be sufficiently stocked, but as of November 1, toy shipments from July to November to the United States were down 2 percent, compared with 2012, according to Panjiva, which tracks the data. That follows an almost 10 percent drop in 2012. ‘Consumers are shopping later and later, and retailers don't want to be stuck with too much inventory,’ said Jim Silver, editor-in-chief of TimetoPlayMag.com, a website that reviews children's toys, videogames and books.”
The big retailers have a couple of problems – no idea how much people will spend over the holidays and a generally pessimistic outlook; and no idea what the money they do spend will be spent on. Of course, in their ignorance of the total cost of ownership – including supply chain and inventory costs – they had to make their bets months ago when they paced their orders on the factories in China and Vietnam.
Retailing is a pretty low margin game to begin with. At Walmart the “Income from continuing operations attributable to Walmart” was a whopping 3.6% of revenues last year. Today they are discounting the daylights out of just about everything to move stuff … and if you stick around until January they will unload all of the wrong horses they bet on at even deeper discounts.
To fully appreciate just how warped the big retailers sense of time versus price really is, there is a line buried deep in article about some Bangladesh factory workers who were so fed up they got together and burned down the sweatshop – I mean factory – they work in. (Just how miserable does a job have to be in order for it to make more sense to burn down the joint and be out of a job, than to show up for work for another day?) At any rate, the factory was torched and “Nur-E-Alam, a senior manager of Standard Group [proud owners of the ash heap that once was a garment factory] said the factory had stored the next six months of its supplies for top global retailers, including Gap and Walmart.”
The next six months? That means the clothes these guys are going to peddle in their stores through next May – June when you take into account the month plus it would have taken to get the stuff from Bangladesh to the United States then through their unwieldy distribution network and into the stores - were already locked in. Anyone who has raised kids knows that teenage fashion can’t be predicted weeks in advance, let alone forecast what the downtrodden masses in Bangladesh should have been stitching up last week to sell next summer. Most of the stuff that went up in flames yesterday would have found itself on a sale rack at 60% off next August when Walmart and Gap were clearing space for the Fall lineup – that probably has been ordered already too.
The idea of having the goods made in the United States, then shipped directly to the stores in two week lead times based on what actually sells – demand pull in the Zara model – scares them to death – isn’t even part of their thinking – for the simple reason that goods produced in the United States would have a higher purchase price. The benefits of time – lower inventory, eliminating the fixed costs of the distribution network, avoiding the fiasco of Back Friday discounts to get people to buy much of anything from them, eliminating Black Friday’s evil twin - ‘Give Stuff Away January’ – are not simply quantified; and if it isn’t simple then accounting doesn’t deal with it.
So the Black Friday frenzy of management that cannot define value in any terms broader than price will go on at its chaotic best today. Retailers who think 3.6% is a good number will sacrifice a big chunk of that pathetic figure just to try to keep it from going below 0%. They will spend millions on Big Data and Big Computers in search of the retailing Holy Grail – the perfect forecast – and chase cheap labor around the planet with no idea that it is their ignorance of time that is killing them and focusing on cycle time is their only salvation. And none of them will show up at lean events because they know deep in their souls that they are different – that lean only works for manufacturing.