This shows how Toys R Us fulfills its web orders. And, yes, that says that over 40% of the web sales were fulfilled from stores. (To put that total in perspective, the company’s revenue last year was $11.8 billion.) (more…)
The contract in question is a slotting allowance. Slotting allowances are paid by food manufacturers to retailers in order to get items onto shelves. The money is paid upfront and often varies with the number of stock keeping units (SKUs) introduced and the number of stores in which the products will be stocked. The term comes from the act of creating a space — i.e., a slot — for an item in a warehouse or on a store shelf. The origin story is that retailers at some point started demanding that vendors compensate them for the costs they incur in helping launch new products (which often fail). The reality is that the money involved is now significantly higher than the cost of rearranging products. In effect, retailers are selling off their real estate.
So are slotting allowances good or bad for markets and customers?
IKEA has big growth plans. According to the Wall Street Journal, it aims to increase its revenue by €50 billion by 2020 — 74% higher than its 2014 revenue (IKEA Can’t Stop Obsessing About Its Packaging, Jun 17). Part of that growth is going to come from expanding into new markets, some may come from new formats, but a lot of it has to come from selling more stuff through existing stores. And that is going to require finding ways to cut prices to move more volume.
That’s where design comes in. IKEA is reviewing products in order to find ways to reduce their production and — importantly — their distribution costs. As this graphic demonstrates, this is pretty much a war on air.
About a year ago, we had a post on Zulily and how they managed their order fulfillment. It featured a nifty graphic from the Wall Street Journal showing just how much longer their delivery times were relative to other interet retailers. Now, the Journal has another story — with a spiffy updated graphic — discussing how their delivery times have gotten even worse (Zulily Nips Business Model in the Bud, Mar 23).
Wal-Mart made waves last month when it announced that it would increase the starting wages of its workers so that all of its associates would make at least $9.00 per hour. That’s not exactly the kind of pay that makes you rich, but it is 24% higher than the federal minimum wage of $7.25 per hour. TJX followed Wal-Mart’s lead and announced a similar wage policy.
But why should these large firms be upping their pay? That is the question examined in a recent Bloomberg article (Why Retailers Are Suddenly Desperate to Keep Their Least-Valuable Workers, Mar 6). As the article notes, it is not clear that firms need to be paying more. Yes, labor markets have been firming up, but the unemployment rate went up last month because a number of workers returned to the labor force. So there are still a good number of workers available. Why then make a move that’s going to increase costs by a billion dollars per year?
The article’s answer to that question? Turnover!
Turnover in the retail sector has been steadily rising and now stands 5 percent a month. At that rate, if Walmart’s workforce were to hold to the national average, over a full year it would be losing 60 percent of its sales staff. Employee churn at fast-food chains is even worse: Almost 6 percent of all fast-food workers left or were laid off in December, according to federal data. An individual worker won’t ever command anything like the salary-bargaining powers of a baseball player, of course, but service economy employers tend to notice a rising tide of worker defections. Plugging all those gaps in the workforce is hugely expensive. Here’s how the math breaks down:
The average retail sales employee in the U.S. earns an annual income of about $21,140, or $10.16 an hour, according to the Bureau of Labor Statistics.
The cost of replacing an employee earning less than $30,000 per year is about 16 percent of that person’s annual wage, according to the Center for American Progress, a left-leaning think tank.
A retail employer would therefore need to spend almost $3,400 every time a worker defects.
That adds up quickly. Walmart has about 500,000 low-wage employees. The cost of replacing each one, using the rough estimate from above, comes to roughly $1 billion—the cost of the just-announced wage increase to $9 per hour.
I cut my academic teeth doing work on supply chain contracting. I consequently found a BBC report on pay-to-stay payments interesting (Premier Foods accused over ‘pay and stay’ practice, Dec 5). The subject of the report is Premier Foods, a large UK manufacturer with several food brands. Premier had the chutzpah to effectively ask its suppliers for bags of cash. Here is what the firm’s CEO wrote.
[Chief Executive Gavin Darby] wrote: “We are aiming to work with a smaller number of strategic suppliers in the future that can better support and invest in our growth ideas.”
He added: “We will now require you to make an investment payment to support our growth.
“I understand that this approach may lead to some questions.
“However, it is important that we take the right steps now to support our future growth.”
But when a supplier raised questions in an email about the annual payments, another member of Premier’s staff replied.
“We are looking to obtain an investment payment from our entire supply base and unfortunately those who do not participate will be nominated for de-list.”
You can contemplate the lovely Britishness of “nominated for de-list” while watching this video on the subject.
I should note that Premier Foods has since backed off its demand after the negative press following this report (see here).