Good Journalist Hunting, Part 1: Thoughts on American Retail

[Note: if you're here for the unauthorized article on my experience working in Target Corporation's backroom or storage, scroll down to the first photo ("Backroom Economics") and start there.]

San Francisco's Warren Hinckle knew honest journalism required freedom from advertisers or supervisors, whether king, corporation, or benevolent donor. Though nowhere near the quality of Hinckle or his discovery, Hunter S. Thompson, at least I can say I tried. Four years of self-funded travel--no advertisers or donors except a 10,000 USD loan from my parents--have taken me around the globe three and a half times, providing an unexpected appreciation of history. (Who knew only extensive travel could expose connections between post-WWII events and modern-day business practices?) 

I'm lucky to have two immigrant parents who stayed together despite great difficulties and who let me stay in my old room, thereby allowing me to discharge my student loans much earlier. Without their assistance, I would not have been able to travel solo at all. To avoid misunderstandings, my writing below isn't about travel--those posts can be found here. Here, we'll cover four areas, in order from most interesting to least:

1. The future of retail, and why Amazon and Costco are outperforming. (If you're really into retail, you might want to read my March 2017 article first.)

Note: I am *not* affiliated with Target Corporation in any way, shape, or form. All opinions herein represent my own, and I haven't disclosed any information you can't see yourself if you peek through nondescript doors in any large Target store.

2. Insurance companies and the ease of receiving prescriptions of any kind, not just opioids. (But see counterargument here: "As Suicides Rise, Insurers Find Ways..." May 16, 2019, Bloomberg) 

My conclusion: America's mainstream media focuses on opioid addictions because they're a relatively small problem and therefore easy to fix, giving regulators an opportunity to claim success without resolving fundamental issues. USA healthcare is a particularly devilish problem because numerous overlapping and fragmented entities--each with their own accounting and administrative procedures--require cooperation between national, state, and local entities, all of which have competing interests. Additionally, you would not believe how easy (and profitable) it is for a psychiatrist to diagnose someone with a mental health issue, then prescribe drugs on the spot--at least if you didn't realize the scope of USA pharmaceutical lobbying. 

3. I was arrested twice in California. Once you enter an American jail, you'll realize why so many police officers are corrupt and why the system is designed to promote an ever-increasing share of the budget towards law enforcement and courts. UC Davis graduate and public defender Joseph Tully might have said it best: "Judges don’t seem to care about the law, they don’t seem to care about truth, they don’t seem to care about justice."

4. Social media ad dollars no longer seek to capture eyeballs but data in order to use it to justify surge pricing and other demand-driven marketing. Obviously, larger companies have clear advantages in capturing and parsing data, especially when buyers are more reluctant to spend marketing dollars online without more definite ROI. Unfortunately, targeted online marketing comes at the expense of the consumer due to no additional services being offered as well as the tendency of AI and security requirements towards "techopoly." 

Short answer: consumers don't always know what they want, but they know what they don't want, and data is terrible at figuring out what consumers do not like.

I received this in the mail. I do not own a cat. I have never owned a cat.

Backroom Economics

Let's start with Target Corporation. I've worked several retail jobs, including in now-defunct Mervyn's and Montgomery Wards. At Target, I was classified as Flexible Fulfillment, meaning I collected products throughout a three-story building to fulfill customers' online orders (aka OPUs). I also stocked shelves (aka "pushing"), pulled products onto carts (aka u-boats), and retrieved products from the backrooms for guests.

In olden days, the backroom relied on brute force but was simple: trucks would arrive with merchandise around 5am; we'd use a dolly to unload products down the ramp; then we'd position them for a separate team to stock the store's shelves. Working hours were unpredictable 15 years ago because stores didn't have data to indicate which time periods (other than major holidays) required more personnel, so I'd often get calls at 9pm asking if I wanted overtime the next morning. 

Today, everything is recorded, and GPS allows much better tracking of supply and demand. When I pull an item off a shelf in the backroom, I use an electronic device to scan the shelf location, which updates the inventory. Is it a perfect system? Not yet. Sometimes, boxes have incorrect labels or the product has the correct label but the wrong product. Once a mistake enters the system, it compounds until caught and remedied on one of our tricorder-like devices--at least if you're not in a dead spot lacking connectivity. Quite frankly, it's miraculous retailers can keep track of so many different items day in and day out, though the level of defects and breakage vary.

All will be thrown away or donated.

Packaging is the most underrated retail skill. Each package, if not perfectly made to fit into various shelves, will either break,

If I'm grabbing 50 items, I'm looking at bar codes, not whether a product is detachable.

leak, or fail to properly display its contents.

Square peg, rectangular box?

If a box is glued too tightly, my fingernail will break trying to open it with my bare hands.

Work hazard: blood under the fingernail.

If a box is too large (I'm looking at you, Pirate's Booty Popcorn), it looks ridiculous and takes up valuable space in the backroom as well as the sales floor. Though my average day involves walking 0.8 miles an hour to pick up different items for guests ("customer" is not the preferred nomenclature), the walking didn't bother me--opening glued boxes did.

9am to 5:30pm

Second bothersome factor? Taking down boxes that shouldn't be on such a high level in the first place.

You're not seeing the first four shelves on the bottom.

I'm 6 feet tall, and there's no way an average male, much less an average female, could reach some of the boxes I picked every day. A full box of wine on an uppermost shelf weighs about 20 pounds, easy to lift if on waist level but hard if you have to prop it on one shoulder while using your other hand for balance. As for ladders, some aisles don't have them, forcing team members to go to a different room to find a free-standing one. Working a blue collar job helped me understand why sexism still exists, though I also wondered why technology hasn't bridged the gap better.

National Geographic, May 2019, on another "blue collar" job's gender disparity.

Of course, other kinds of sexism exist, too. These appear to be exactly the same product, but the women's item costs 20% more. 

(Yes, a machine is available to lift workers to a higher elevation, they're not in every storage room, space is limited, and there's no guarantee someone else won't need the machine at the same time as your 30-minute deadline to fulfill a guest's orders.)

Take me higher?

The failure to use technology to level the retail working field is particularly odd because women spend a lot of money in America. I had to stock the women's health section a few times, and while I don't understand the need for an entire aisle of tampons or pads, I'm certain all of the products have high margins; otherwise, so much differentiation wouldn't exist. In addition, women were more likely to order other products when ordering ones they needed, with beauty items like lipstick being popular add-ons. In my case, having to find specific brands of lipstick colors in a sea of 300+ for online orders was one of the most frustrating parts of my day, especially because I knew most women would be able to do the task much faster. If you want to score in retail, pay attention to expectant and new mothers. They bought so many products from so many different areas of the store, I would get a workout fulfilling each online order. (Long before the COVID19 pandemic, moms knew the wisdom in disinfecting everything.)

What other advice can I give brick-and-mortar retailers? As mentioned above, you will never lose if selling beauty, baby, and/or cleaning supplies. Conversely, it's almost impossible to generate consistent revenue from children's toys and/or books unless you specialize and create seamless online operations tied with unique in-store events. With toys, children muck about and topple the entire section, making your store a de facto temporary daycare. With books, margins are quite good, but unlike fashion, a 30% to 50% profit isn't enough on a base sale of 25 USD when demand is unpredictable and inconsistent while overhead, especially labor costs, is constant.

Two other areas for corporate improvement:

1) Clothes are almost impossible to find, even with RFID-enabled devices. If I have only 30 minutes to find 6 to 10 items, I am going to skip the clothing item if I cannot find it quickly. Only toys were more disorganized than clothing/softlines. It might be time-consuming to find a small beauty product, but at least that section is organized and predictable.

2) Why is the employee discount typically so low? After 6 months of service, I'd favor giving full-time employees 25% off store brands and 20% off everything else. Sure, there's danger in reselling, but stores can limit the amount of total purchases per week. Most likely, HR and IT don't want the hassle of tracking yet another employee program, but that's no reason to under-appreciate employees. 

3) What advice can I give consumers? First, before going to a store, download the store's app. Sometimes, the app has deals not listed on the website, and Target's app is excellent for discounts. Also, while not always accurate, you can check whether a particular store has many or fewer of the items you want. (The failure of 100% accuracy in the backroom muddles the usability of floor numbers.) Second, please put your cart in the right place in the parking lot. If stores keep losing carts or seeing cart damage to vehicles, eventually they'll start charging a nominal, refundable amount to use them. Plus, it's good manners.

By now, you may have an inkling why Amazon is so successful. By the time a "traditional" store figures out the logistics of stray shopping carts, food kiosks, slip and fall insurance, proper staffing levels in each department, the in-store Starbucks, the backroom, the sales floor, and a million other things that ensure you, the customer, are happy and safe, Amazon is already ahead because they've eliminated every non-essential piece of the retailing experience. Though I've never seen an Amazon center, if you work in any brick-and-mortar store's backroom, you will understand any retail organization set up to deliver products directly from your hands to the customer will win. For Amazon, the backroom *is* the retail experience, which makes sense because that's where the action is. All that stuff outside? Fluff and show. Costco knows it, too, which is why they offer free food samples to make your experience in a warehouse seem more interesting.

Think about Costco's warehouse design. Is it set up like traditional retail, or is it one massive backroom? Those wide aisles within a grid system? Perfect for delivering heavy crates and pallets of products anywhere in the store. Next time visiting Costco, look up--you'll see lots of boxes waiting to be "delivered," but one shelf down, not throughout a two-story building with different-sized shelves. Why boxes? Because taking items out of original packaging takes time (remember my bloody nail?), and it's one reason backroom inventory becomes corrupted. (Is the bar code on a package for one item or the entire set? If you have ten seconds to decide, you're not always going to be right.) Though I met my fulfillment targets at Target, I'm not sure I could do the same at Costco, where much of the lifting is done by skilled drivers and mini-forklift operators. Within Costco's unique system, I can see the benefits of unions for both employees and employers.

So now what? Once employers realized theft resulted primarily from employees, not customers, it was only a matter of time before "backroom economics" and surveillance took over American retail. In some ways, Minneapolis-based Target's dilemma is similar to all of America's: can it adapt and change to stay relevant, or will it be left behind? Personally, I hope to see the familiar red target logo for many more years. If Target Corporation and other anchor tenants fail, the alternative will be a world of Borg-like cube warehouses using RFID and machines to locate, sort, and deliver products while humans look on passively. Will malls be assimilated into our modern-day techopoly? Will AI and GPS capabilities continue to outshine less predictable customer service? It all depends on whether city councils and real estate developers discover more dynamic ways to do business. So far, America's physical and political landscape appear inhospitable to meaningful change, but that is no cause for pessimism; after all, the course of true change ne'er did run smooth.

© Matthew Mehdi Rafat (2020)

Disclosure: at the time of publication, I own mutual funds and ETFs which most likely own shares in several companies mentioned herein, but none of my holdings, including individual stocks, are substantial enough to warrant overt bias. 

Bonus: I neglected to mention one important group: stockers and drivers hired directly by consumer brands. I don't know exact details regarding shelf space in retail stores, but certain brands protect their investment and reputation by sending their own stockers to check and re-stock shelves once a week. These workers were a delight to see, and all of them were professional and helpful. The regional representative for Peet's Coffee even took the time to explain his job to me. (Speaking of coffee, some Targets sell multiple brands of coffee, and if you buy coffee when it is first stocked, you may capture a deep discount without sacrificing quality.)

Retail Therapy: What's Wrong with Brick-and-Mortar Retail?

Payless Shoes appears headed towards bankruptcy. Sears looks like it's on life support.  Does anyone shop at JC Penney anymore?  

It's tempting to say retail is dead and appoint Amazon as its pallbearer, but one look at McDonald's, Costco, H&M, Chick-fil-A, In 'N Out, and Dunkin' Donuts tells you brick-and-mortar can work just fine.  

Target (TGT), which I own, is the odd duck, so I will focus on it.  It used to be Target was retail's darling.  Fans would refer to it as "Tar-jay" (with a French accent) to denote some particularly welcoming stores and its exclusive clothing lines.  At one point, a famous designer, Isaac Mizrahi, created an exclusive fashion line for Target for five years.  The fact that a "discount" retailer was able to carve out a high-end niche, at least in the consumer's mind, is worth further study.  

Recently, however, Target has lost its ability to maintain its brand.  A series of unfortunate events occurred.  In 2013, hackers took advantage of Target's credit card information, a debacle that continued to make headlines through 2015.  It exited Canada, admitting defeat in the country.  Its exclusive fashion collaborations didn't garner as much appeal as in the past.  And it angered fundamentalist conservatives by taking a political stance on unisex bathrooms.  

What is happening to Target, whose stock is at a five-year low?  

1.  As living costs in America have increased, wages haven't kept pace.  It's hard to motivate employees when they see employment with you as a temporary gig.  At least waiters and bartenders have tips to motivate them, so they can't completely slack off.  

2.  Today, the main way to differentiate retail is through outstanding customer service.  Chick-fil-A has great food, but most people will remember its consistent service long after the taste of spicy chicken has been forgotten.  With its relatively low wages, how does Target create consistently excellent customer service?  

Note that Costco pays higher wages than the industry norm, which it considers to be part of its competitive advantage because higher wages can reduce employee turnover.  American retailers in trouble have failed to adapt to higher living costs while complying with Wall Street's general antipathy to higher wages for unskilled labor.  

Canada's Tim Horton's has adapted by hiring foreign-born Filipinas--who have a reputation for excellent customer service--to staff its stores.  Obviously it needs its government to be on the same page when it comes to immigration to do this, but Canada, as usual, succeeds where others have failed because of its greater tolerance and dedication to doing what works. 

Dunkin' Donuts has adapted by reducing the size of its stores, lowering its overhead and need for additional staff.  I'll never forget ordering a sandwich in a Chicago public transportation hub and trying to figure out how Dunkin' fit an entire kitchen in what appeared to be the size of a rich housewife's shoe closet.  (Maybe the new retail paradigm is this: can your store fit into an airport or public transportation hub and still succeed?  Hopefully not, though I notice bookstores seem to be doing well in airports and nowhere else.) 

3.  Does anyone think the majority of employees at Payless are experts on the perfect shoe fit or style? Of course not.  That's why it's cheap to shop there.  In contrast, Asics in Tokyo has a machine to measure your foot and print out data--yours to keep--that helps the Asics employee identify your best shoe choice.  After the helpful employee spends all that time with you, you really do want to buy whatever shoe s/he recommends.  After all, who am I to doubt science? 

As far as I know, Target has no individually-tailored services outside its photo department. 

4.  Partnerships are an excellent way to keep your brand in the spotlight but difficult to find and even harder to maintain.  I knew Olympic Gold medalist Jordan Burroughs would be a superstar long before he became a household name in some circles and abroad, even in Iran.  (As proof I'm no bandwagon fan, I donated to his gold medal fund *before* he won the gold. Besides, how could anyone not like his family? http://ftw.usatoday.com/2013/10/olympic-wrestler-gets-married-bride-wears-his-signature-shoes-down-the-aisle) 

Corporate partnerships are hard.  Jordan Burroughs made some comments against excessive police force that could have made him unpopular, but most people appreciated his measured criticism.  Meanwhile, Nike dropped the great Manny Pacquiao, and Colin Kaepernick is unemployed.  

In Target's case, it's just not getting enough mileage out of its "exclusive" partnerships because consumers figured out if they miss one offering, another will soon appear.  The lesson is simple: companies that mislead consumers, even if indirectly, will suffer, because consumers have become smarter about seeing through advertising gimmicks.  Target appears to suffer from a case of "MBA-itis"--short-term profits over long-term credibility.  

In Asics' case, it not only managed to scoop up the brightest star in a growing sport, it also cultivated a mutually-beneficial relationship with the sport's most respected coach for decades.  Is that why they were able to identify and sign Jordan Burroughs before other apparel companies?  Maybe not, but it couldn't hurt. 

5.  Consistency matters.  McDonald's might not always provide good customer service, but its coffee will taste the same everywhere in the world.  Its only adaptations are specific to local tastes, like adding guacamole to its Mexican burgers or using the term "liberty" in its advertising in Guantanamo Bay (the irony isn't lost on me).  When you consider the TSA can't even manage to be consistent in its own country, you'll see achieving consistency isn't easy but key to maintaining your brand's reputation.  

In Australia, I eagerly visited a Target store near Chinatown to see how my Target investment was doing.  I almost sold my shares the next day.  With Australia's affluent customers, you'd think Target would make the country a priority. Yet, the store was not clean and not even organized well.  I didn't want to buy a single thing.  Even the lighting made me sad. 

Perhaps Australia's relatively high currency and higher labor costs make it harder to invest there, but why open a store that will damage your brand's reputation?  How hard can it be for the Board's and executive team's spouses and children to travel a few times a year--on their own dime--to international locations and give objective feedback to their family?  One visit was all I needed to realize Target lacks the expertise or ability to expand overseas. 

[Correction and Update from Wikipedia: "Despite the similar logo, name and type of outlets, Target Australia [founded as Lindsays] carries no corporate connection or relation to the US discount retailer, Minneapolis, MN-based Target Corporation."] 

Conclusion: Target has many problems that justify its current low stock price and will need to think long-term to stay relevant.  Its issues expanding internationally need to be addressed immediately. 

© Matthew Mehdi Rafat (2017)

Disclosure: I own Target shares and other retailer company shares as part of mutual funds and/or ETFs, but my positions may change at any time.  You are responsible for your due diligence.  Nothing herein is intended to be investment advice.