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There's an interesting take on the current Amazon fail around their spat with Macmillan over at Making Light. I find it fascinating that Macmillan is taking the hit on this when Amazon is dragging their feet and still, 7 days after pulling them and 5 days after "capitulating", hasn't restored the titles they took down. This whole thing reminds me of the reason I won't ever shop in WalMart. I know that they save a lot of people money, but personally I can't stand them and the retail bullying they represent.

Back in grad school (oh how old I feel at this moment), we ran through a case study on WalMart. The principle they were extolling was the Just In Time method of delivering product to shelves. It seems that WalMart is so good at controlling their ordering, and has so much power over their suppliers, that they don't pay for goods until they sell them.

Think about that for a second.

WalMart has food in their grocery that they promise to pay the grocer for just as soon as someone buys it from them. There is no other retailer in the country that gets to have inventory on their shelf that they don't own, outside of a consignment shop. That's how much power they have. They can force Nabisco, PepsiCo and Coca-cola to give them inventory for free, to hold until it's sold. And if it doesn't sell? They just send it back. That's insane.

And that's what Amazon seems to be aspiring to. This is why I shop at my little retailers whenever I can. We buy meat, veggies and fruit from local farms and try to patronize non-chain stores whenever possible. The loss of the little corner shops just makes me angry. Those places have way more specialized information and incentive than you can get at the big chains. Now I just have to figure out exactly what to do with my Amazon Prime membership.

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That's not precisely accurate regarding Walmart; though the effect is likely the same, the contractual issues aren't.

Also, as regards playing that particular cash cycle game, Amazon is actually better than that. And has been for quite a while. :)

Amazon has for many of its products what's called a negative cash conversion cycle. That means they buy a book from the publisher, with net-sixty payment terms, sell that book and collect your money eight days later, and then have fifty-two days with the money before they have to pay the publisher.

Walmart in many cases also has this sort of payment terms arrangement (so does your local Safeway, Costco, etc). They don't generally have a consignment relationship, but there are a number of stores that do. Walmart is inherently less efficient due to having lots of retail locations and distribution centers; Amazon can centralize in a small handful of very large warehouses... and therefore doesn't need to retain as large an amount of inventory; it's all about how quickly you can turn inventory versus the payment terms you have.

Now, many products have some sort of special handling rules. Books, in general, can be returned to the publisher unsold (and/or destroyed) for a refund. Music CDs, not so much. Perishable goods (or software) almost never. Electronics, not often - except cell phones.

But Barnes and Noble has the same sort of consignment benefit due to their class of goods. And so does any company that operates on a drop-ship basis.


I didn't realize that the practice was as widespread as that. The case study must have been old by the time I read it (no surprise there really). From my point of view, returning something for a refund is different than not paying for it outright. Pushing the supply burden down the chain that far just seems inherently unfair - the risk should be allocated properly, not all dropped on the wholesalers/producers. This has the cumulative effect of reducing the supply community by increasing the cost to get into a business, and that pisses me off. I like diversity of offerings. By definition (geek, female, etc) I'm already in an overlooked minority. I want people who cater to me to be able to REACH me with stuff. I did a happy dance when the local feed shop opened because that means I can go ask them about chickens and they might know something. I really think this extends to all areas and the big box philosophy just undermines it.

Then again, I'm a serious hypocrite because I work for a big box. But they're the only people who can afford my skill set, so bad decisions in my 20s are biting me now. There's just no winning here.

It's like a lot of things - once one major player takes the lead (Walmart), everyone else has to follow to be competitive. Happens at the assembly level too - perhaps even more so, as manufacturers demand just-in-time inventory of parts to build their widgets or helicopters or cars etc.

And an awful lot of dot-coms had their business model as basically just that, though the fancy word that we all used was disintermediation. But it amounts to "We'll be more efficient with better inventory management." (Like no one else could figure THAT out?)

That's a lot of the reason that the distribution part of the value chain is squeezed so much. Walmart and the like buy direct from the manufacturer and handle that themselves. The guys who were previously middlemen between manufacturers, farmers, and the like... are increasingly squashed. I'm not inclined to miss THEM too much, but I agree that there is some distinct benefit to having a local store able to exist and compete without having to be either a tiny convenience store a la 7-11 or a megalith like Walmart.

I'm not sufficiently informed to say why travel agencies and the like are doing any better there, as compared to major consolidation plays in the travel booking space. (I suspect in general they're not, apart from those who basically have become a pet to some large firm.) But I bet you have some idea :)

agree with hallerlake, but also with you. I love the small stores and the small farmers. Our wine shop is like that. I've been buying most of my produce from Spud.com lately. They have a 'local' label that tells you exactly how many miles something travels from production location to Spud.com.

It's not perfect (for manufactured goods, it's a bit silly) but it is nice!

Same goes for my little mini cow place. And I'm gonna check out a newly discovered local butcher this weekend!

It's funny, but even for the manufactured stuff, we're starting to go artisan over big box. We get our woodworking tools from WoodCraft instead of Home Depot and our gardening stuff from the local nurseries. But some of that stuff is mass produced somewhere else, so I guess it's a wash. Just keeping the markup local, I guess.

There's got to be a balance here somewhere. I wish it were easier to find. It just really gets under my skin when something like this happens. Especially because the people getting hurt in the Amazon vs Macmillan fight are the authors, not the corps.

Breadth of selection is often an advantage to the stores that aren't big box (curiously) - it's why to buy tools at Hardwicks and not Home Depot. Home Depot or Lowes will carry three grades of tools in many category lines - cheap and cruddy, hobbyist, and contractor. What if you don't like those options and don't have a local store serving that niche? (My answer is often "Go to Amazon and buy the one you want"...which is, I suspect, a good portion of your point.)

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