1% Ownership

One thing that many readers probably dislike about this blog is when I cite a catalog or website that I think is doing a great or lousy job of something, but then I never revisit the comments two or three years later to see what actually happened with that catalog or website.  This is actually a problem of all those books that you read which tell you how to achieve excellence for your company, which cite ten great companies, and then you look at those companies five years later and half of them are in chaos.

But two things came up the other day that encouraged me to revisit this posting from April 2015 called A Catalog Apollo Program. In that posting, I argued that one way that catalogs could improve their profitability, and thus their chances of survival against Amazon, was to band together and have giant fulfillment centers instead of each company maintaining their own.

I’m not going to rehash all my arguments as to why this idea was valid and should be considered – read the original article at the link above. It might not be a timeless masterpiece, but there is some logic to my arguments, even on a small scale of five or six catalogs.

However, I cited the fact that two Boston newspapers – the Boston Globe and the Boston Herald – which are arch rivals and intense competitors had agreed back in 2015 to have the Globe print both newspapers at their plant in Boston. A win-win for both companies, which drove down costs and freed up resources for both.

Then last week I read that the Globe had opened a new printing plant in June, and had not once produced the Herald’s daily edition on-time since the switch, after more than 3 months. The Herald was apologetic to its readers, but was also over a barrel – it could complain to its “business partner” all it wanted, but it was not going to change the situation, unless of course the Globe gave priority to printing the Herald’s paper first each day.

The experience of the Globe and the Herald seems to prove the saying that “the worst ship is a partnership”.  On the other hand, newspapers are not the healthiest industry right now, and neither company is gaining anything from this situation.

The second reason I wanted to revisit this concept was something that occurred that was more favorable to my original argument. My wife and I had to purchase a new oven last week, and we were told it would be delivered in 2 days. The owner of the local appliance store where we bought the oven is also the guy that came to our house to install it. I mentioned I was surprised that he could get the oven in just 2 days, as it was not a common model.

Here is his response: “We are members of a consortium (the New England Appliance and Electronics Group) which is comprised of small private appliance dealers like us in New England. There are 93 members, and we own 1% of a giant warehouse in Franklin, MA. All of the appliances we sell are 100% in-stock all the time, and available within 1 to 2 days. In the past, I had to guess how many of each appliance I would sell just to get the minimums from the manufacturers. So, my costs/unit are way down, I carry no personal inventory for our specific store, I got rid of my warehouse, and the warehouse we own part of is super-efficient. Life is good.”

I know what you’re thinking – this works for appliance stores where geography keeps them from competing with one another. It also works here because all of these stores can share a common inventory – each one can sell Bosch, Maytag, Whirlpool, and GE. But, you’re thinking this could never work in catalogs where everyone is selling something different.

But let’s look at this from a different perspective. One of the first things that happens when one of the catalog conglomerates (Bluestem/Orchard Brands, Cornerstone, Potpourri Group) acquires a new catalog is that the new acquisition’s fulfillment is immediately switched to the conglomerate’s all-in-one distribution center. No new brand gets to make the argument that “only they now how to do fulfillment to their customers”.

Let’s say you had a small catalog consortium of 7 or 8 single-title, non-competitor catalogs. Let’s say you got together once or twice a year to share marketing tips and discuss the state of the catalog industry in general. Wouldn’t it make sense to explore the concept of doing joint fulfillment? The catalog conglomerates have proven that it can be done across many different product categories, mixing apparel, hardgoods, gifts, home furnishings, etc. all under one roof.

Sure, the risk is great, and you already have a warehouse. But you have an old warehouse. You’re still paying Darrell and his brother Darrell to manually pick, pack and ship each order. But what if you could switch to automated fulfillment (you know, those warehouse robots)? What if you did not need to worry about seasonal hiring peaks because your warehouse was super-efficient, and could be located in an area with a ready pool of the few employees you needed, even in this economy?

I know – as I said before, I’m no Stan Fenvessey (who died in the early 1990s), or even Bill Kuipers or Bill Spaide (all well-known fulfillment experts). There are a thousand reasons that you can tell me why this won’t work. But, Amazon is not going to stop or slow down – they are on a mission to destroy all retailers in their way. If you believe enough in your future, would it be worth it for you to explore owning 1% or 10% of an efficient distribution center if it cut your per/order costs by more than half?

The desire to explore this option must come from within the catalog industry. It cannot be vendor driven. Vendors will add a fee/commission that will negate the value to the participating companies. No, this is something you must do on your own, and own it – just as you own your own fulfillment today. It is a concept that must be considered.

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by Bill LaPierre

VP – Business Intelligence and Analytics

Datamann – 800-451-4263 x235