I am probably the last one to write after Amazon’s
blockbuster takeover of Whole Foods. I have no bold predictions, just a lot of
thoughts and what ifs. So please forgive me if the below is not my usual
tightly spun and clear logicJ
It’s not just Whole Foods making the news. Consider
Walmart’s buyout of Bonobos-strange bedfellows, so what’s the logic?
And I just read that Nike has agreed to sell its shoes
through Amazon. How’s that for putting more nails in the brick and mortar traditional
So here are my thoughts and questions:
What does Amazon really want with Whole Foods? It seems
pretty sure that Whole Paycheck as we knew it is going to disappear. Will it be
a showcase for Amazon products other than food? Will it be a $14billion testing
ground for Amazon Go, the automated supermarket service system which has yet to
be perfected? I think, no matter what Amazon does, people will still want to
squeeze the melons-which will have to be bought and delivered fresh and are
highly unlikely to be bought on line. AND require a different kind of category expertise.
And what happens to the traditional supermarkets? According
to one writer, their fatal flaw is that they need and want to make profit,
while Amazon doesn’t. If that is the case, they are going in the wrong
direction, especially if you look at the hundreds of items on the weekly
circular, all competing with each other for the same brand, same product, and
surely losing money just to bring customers into their store to compete with
other traditional supermarkets who are trying just as hard to lose money.
But voila! And nobody has really talked about this- in come
some category specialists like Trader Joe’s (Aldi) that have developed their
own brands to such a degree that they are trusted at higher (but fair) prices.
What is more, they compete (usually well) on a product by product basis while
not needing to compete brand by brand. Just like Zara and Uniqlo in the apparel
world, their stores are interesting and fun (Trader Joe’s treats us to a
California surfer atmosphere even down to the Hawaiian shirts) and clearly well
merchandised to sell what they sell- which is not everything and is category
focused. Easy to shop and easy to like. And customers trust them. How will
Amazon compete with this? Or maybe no need to compete, just buy it.
Amazon is also developing private label in non-foods, and
has been very successful so far. Will these items find their way into Whole
Foods (or whatever it will be called in the future-ie, Amazon Market)? I am not
sure even Jeff Bezos knows-it will be fun to watch. What I do know and I am
sure Mr. Bezos does as well- the return on selling other people’s goods, like
the Nike deal, is sure and sure to grow as more brands decide if you can’t beat
‘em, join ‘em. Which funds these bold experiments.
Let’s jump to Walmart. What could Walmart want with Bonobos?
$70ish custom made shirts has as much relationship to Walmart’s business as
penny candy has to Tiffany, it would seem. I believe this acquisition has
nothing to do with the product-it is the unique system of integrating apparel
retail with brick and mortar which is more interesting. As with other
technology companies recently purchased by Walmart, this is about an integrated
vision of online and offline so Walmart doesn’t lose a sale. The product or
products are collateral damage.
So that is what Amazon and Walmart have in common-they are
paying what they need to pay in hopes of finding the Magic Kingdom of future
retail, and they can afford it.
But if I were to be offered a bet on the future, or buy
stock, I would place my money on the
category experts-like Uniqlo, Inditex/Zara, Trader Joe’s. They have
captured the attention of customers in the best way-with exciting, unique and
proprietary product. And, by the way, they all have web sites so you can order
online as well. But their stores are too much fun to miss. Maybe that’s the
Another question that comes to mind is, I wonder if Amazon
or Walmart has the category experts in house for all the diverse private label
categories they are adding. Recently, I looked at Amazon’s offering in their
dress shirt brand, Buttoned Down. Admitting that
to make any conclusion I really need to see the products up close and
personal-which I didn’t-my viewing as a potential customer and a category
expert showed up some clearly visible points of concern for a $39-49 shirt
(expensive for Amazon). Maybe I am wrong about the shirts, but it gave me
legitimate grounds for wonder about the management of category expertise in new areas in which Amazon seems to expand
It would take some serious mathematical models, guesswork
and clairvoyance to make concrete predictions for the future, of Whole Foods
and the bigger world to come. Too many variables. The final vote will be cast
by the consumer. As said, I bet even Jeff Bezos is not sure-nor should he be.
My bet is that there is still a lot of room for brick and mortar-but not the
way it used to be. The world has changed and keeps changing daily.
What is sure is this: It’s Amazon’s world, and we are just
living in it.
1.Every situation is different; there is no cookie
2.Any solution needs time to show it is working,
even if it looks good at first; that being said, clearly, not working can show
up quickly. Know the signs and don’t throw good money after bad.
3.You are not excused from managing. Your
attention will help to make sure the solution works the way you want it to,
lack of attention will almost certainly make sure it doesn’t.
The Golden Rule: Throughout the process, you need boots on
the ground. Just sending a QC to check production at the end is too late.
Everything that went before leads to that moment.
There is no doubt that having a staff in country who will
handle everything from product development to shipment is the ideal way to
manage. However, many companies cannot afford to have permanent staff in one or
many countries where they source product. So what are the alternatives and
their pros and cons?
1.A Trading Company- This company will sell and
ship the product to you, including their profit in the price. They typically
have staff enough to manage your orders (along with others). Pro: professional
(we assume and hope) staff is included in your price. Con: Trading companies
can take 25% or more for their efforts. Con 2: Trading companies are notorious
for cheating customers to make more money for themselves.
2.An Agent- Agent will manage your production for
a commission. In this case, the factory price should be transparent to you. If
the price including commission is acceptable, then it may be a good
alternative. Pro: Agents are typically specialists in one or more sectors
within a country. They will have staff that knows the product and the
factories. The best agent should be seeing with your eyes (after you thoroughly
train them, of course). Pro: Professional staff for a known cost. Con: Many
agents “double dip,” meaning they will also take commission from the factory,
which not only raises your cost but, most important, divides their loyalty so
they cannot serve you as their only master.
3.A Sourcing Company- There are many of these
which offer a “complete solution.” Just sit back and relax (?) while your order
is processed and delivered. Pro: None, unless you are lazy. Con: You lose
transparency and control of your product. Con 2: As with trading companies, you
never know how much profit they are taking. Considering the size of some of
their offices, it may be a lot.
4.A Surrogate Sourcing Office/Consultant- This type
of company will help you with the entire process for a retainer/fee. Pro: Costs
are known and product cost is net. Pro: There is no question of commitment-
most similar to having your own staff. Con: If you source in more than one
country, you cannot afford to pay this type of consultant in multiple countries
or fly them around the globe. This solution is also difficult to manage in
disparate time zones. Con 2: Some consulting companies are not category
experts, just consultants-not good enough.
Whichever solution is right for you, there are some more
rules that are necessary for success:
train whomever you choose. They need to learn your systems and procedures,
rather than you learn theirs. This means everything from hand feel to quality. If
they are good, they will embrace this and work hard at getting it: if they
resist, get rid of them.
you thoroughly know both the surrogate and their factories. Don’t trust
anyone-only what you see is real. Maybe this means that, in the beginning, one
of your HQ merchants needs to go to the location and live with them for a time,
at least a month.
your HQ merchandising staff is qualified and experienced enough to manage
remote sites. In the best case, they have done the job of the surrogate
before, in the country. If not, experience in working these situations is
critical. Most important: pay what you need to pay to get someone who will
follow up and manage all details with no gaps and no mistakes.
relationships with the factories, not just the surrogate. When you source
directly, the factory has a clear picture of you as the customer and of your
requirements. Using a surrogate, this should be no different. Most important,
in the worst case where the surrogate is not working out, you can avoid
difficult or catastrophic situations with your goods.
No matter how excited you are or how severe the sales pressure, you must first
give them a test order and wait the entire cycle before increasing. Besides
mitigating your risk, it is not fair to the factory or the surrogate to put big
pressure on them before you learn, train, and get things running smoothly. If
you give big orders up front due to sales pressure or get seduced by the price,
you are setting yourself and them up to fail.
overassort your efforts. Many growing companies give in to pressure from
management, buyers, investors, etc. to matriculate their success in one
category into more before they have fully conquered the first one. This will
require more staff or distract your existing staff focus, which is most badly needed
if you are still in building mode. Land one plane at a time.
People design things, people make things, people sell things, people buy
things. Most important, people follow up and manage the entire process. Have an
animate view of all people involved and how they are managing.
It is not just the quality and productivity of your staff work that is needed
for success, but the systems and the process that they use to get it done. If
your process is flawed, your staff work will be, no matter how good they are.
Whatever you do will take time and attention on management’s
part to choose and then set up for success. All above solutions need a lot of
hand holding until they are running smoothly (quality product delivered on time
with no fires to put out).
BTW, maybe restating the obvious, but the above is just the
beginning of the story. The rest of the story depends on right choices, right
execution, and right people.
Don’t get me wrong. I agree that the customer of a factory,
foreign or domestic, has the right to evaluate their suppliers.What I believe needs reevaluation is the
attitude and focus of these efforts with the original goal held dear- protect
The practice of social compliance today is a very
sophisticated form of ass covering-especially for major retailers who don’t
want to take any chances of being associated with a factory which engages in
“questionable” labor practices or who suffers some catastrophic event, such as
a fire. There is little thought given to the workers themselves and what is
good for them (such as getting orders).
Same thing, you say. Making the factory adhere to certain
labour and safety standards does protect the workers. The problem is, if the
standards are too over the top by being too many or too complicated or
unattainable, a factory may fail an audit even if they have basic and common
sense standards in place. Let’s take fire, for example. After a catastrophic
fire at a factory in Bangladesh (which never should have been used in the first
place—another problem to be discussed later), Walmart went over the top with
fire protection. One factory I was working with which was two floors high with
a small staircase to the street level was forced to install smoke alarms on a
30 foot ceiling (huh? By the time the smoke gets up there, everybody already
knows what is happening), and a fire alarm bell in each room—like some hero is
going to stand there and ring the bell instead of yelling fire and getting the
hell out himself. Fire marshalls , fire drills, more and more. This all could
be simply solved by making the factory supervisor in that workshop responsible
for safety in case of a fire. Fire extinguishers, exit signs- these are the
basics. And, most of all, basic, common sense fire safety like not putting oily
rags near a heater. I assume the Bangladesh factory passed a social compliance
audit before it was allowed to produce orders, so something else was missing.
Compliance standards get more complicated every year. Which
makes audits more difficult to pass and punishes the workers you are trying to
protect. Very few factories I know can pass an audit cleanly because there are
too many issues and many are not relevant to real life (my favorite is the
Environmental Impact Report-huh? This is an example of the arrogance and lack
of reality-based standards). They need to be simplified to the few things that
really count, and which can be carried through to daily life in the factory-current
ridiculously overcomplicated and unrealistic standards result in the factory
dressing up for the audit day and not taking any of it seriously. Next day,
back to business as usual. But there is much to be taken to heart. The goal of compliance audits should be to
get the factory to understand and embrace a few key and simple cost-effective
common-sense principles in each area- so they understand how it benefits them
and make it part of their daily practice. Today’s reality is far from that
Another main problem with compliance is the arrogance with
which it is approached. Those who create and approve the audit criteria insist
that every factory should be able to meet these standards every day-that
without consideration of the realities of your average low-cost third world factory
today. Those of us who have lived with these factories for years can clearly
see the futility of many of these standards and the overall process. I strongly
suspect that those writing and approving the standards don’t know or don’t
And, when the factory makes the news, such as the shoe factory
in Dongguan who made the news recently due to suspected labour abuse and the
arrests of some activists who tried to surreptiously document these abuses—made
more juicy and newsworthy because it is Ivanka Trump’s shoe factory (no it
isn’t- her shoe line is licensed and she not only never heard of the factory
but surely has no role in which factories are chosen by the licensee) it
becomes “China” not “this factory in China.” So the whole country is implicitly
accused of labour abuses and uninformed readers will believe that is the case.
With all due respect, when the US largest employer (Walmart) is also accused of
labour abuses, should the Chinese people carry this as the impression of
American management and not shop in Walmart China, or should the supplier
refuse to sell to them?
In all of this, one key point is lost. The average worker,
whether they are in China or another country, the same ones who the compliance
regimen is supposedly geared at protecting, those who need to make money every
day to feed their families, are the ones to suffer when compliance standards
cannot be met and their factory cannot get orders. They also suffer because the
good lessons of social compliance are lost in the overcomplicated mess of the
What should be done?
1.As I said before, simplify. Reduce the audit criteria to the few basic, common-sense
principles that will ensure safety and fairness to workers, and which factories
can learn and practice.
2.As a customer, don’t choose factories whose
situation and management attitude guarantees they never will be a safe and
happy place to work-even if their price is seductively low. You know who they
3.This is far fetched and may never happen, but I
think that countries themselves should set basic audit principles and provide
approval grades and ratings (like the health department) which can be viewed
publicly, so that potential customers can see them before they consider placing
orders. Most important, if the nation is taking responsibility for social
compliance (and not letting it fall prey to corruption-that is the tough part),
the retailer or manufacturer’s ass is covered.
The best part of the above scheme is that the millions of
factories making goods for domestic consumption should also be subject to these
rules. That, dear readers, will be a victory for social compliance that we will
never see under the current regimen.