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?
I must confess that I have never really been enthralled by Trader Joe’s. I have never lived close by one so it was a convenient option for shopping nor have I ever been desperately loyal to their private label products. But there certainly are people who love Trader Joe’s and their stores can be quite busy. As consequence, the check out lines at some locations can be a special sort of experience. McSweeny’s offers a parody “Trader Joe’s Waiting in Line App” asking user to rate their overall shopping experience on the following scale:
4 stars: Took a while, but got what I needed.
3 stars: Eerily friendly cashier weirded me out; there was hardly any bagged lettuce left.
2 stars: Constant gridlock. Teeth gritted the whole time.
1 star: Anarchy. Like the ending of Lord of the Flies.
Not long ago I was waiting in line at the smaller-than-average and perpetually mobbed Trader Joe’s near Union Square in Manhattan when I noticed the shopper in front of me had come up with a clever, possibly devious solution to the crowd problem. Upon entering the store, she claimed a shopping cart and staked out a spot in the checkout line (which snaked around almost the entire perimeter of the store). She proceeded to do all her shopping from her place in line: picking up produce as the line crept through the produce aisle, frozen goods as it passed by the freezer case, cereal when it neared the cereal section.
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.