My friend Bob from the Bloom Group suggested that I blog about the fact that companies that outsource work to countries like China and India are actually not getting such a great deal and that in a lot of cases those jobs should stay here at home.
I think he’s absolutely right about the first point, but I think the biggest threat to jobs is actually right here at home and it has nothing to do with the internet.
It’s vending machines, or as Stephanie Rosenbloom says the new term is “automated retail store” in her article “The New Face of Vending Machines” the machines that used to sell cigarettes, candy, and really bad coffee are now selling just about everything. Even gold. Really.
As yawn-inspiring as vending machines may sound, the underlying rethinking that has gone on about what consumers want, how to manage trust and security, and how to collect more data about consumer behavior is stunning.
People want self-service (86% of us according to Rosenbloom’s article), merchants want higher revenue per square foot, and vending machines deliver a staggering 809%-2,930% more revenue per square foot.
That’s not a typo, eight-hundred and nine per cent is the low end of the range of revenue lift.
And of course with a lot less labor (that’s the outsourcing part), the profits jump even though there is some effort to keep stock levels up, though in the higher end machines from the likes of U*tique, they refer to it as “curating” the machine instead of stocking it, which reminds me of the first time I heard a luxury car called “pre-owned” instead of used, but at the same time there are some pretty big differences in the business models, so I will concede the use of a different word for managing inventory.
So the bummer is that this is likely to eat up more jobs and put some new pressure on retail stores, though it remains to be seen just how quickly this revolution will spread in the US – Japan already has one vending machine for every 23 people according to Rosenbloom’s article, which works out to over 5.5 million machines over there, by the way. That’s a lot of vending machines, I mean automated retail stores.
One of the things that I started to think about was the progression that got us from coins for candy to machines that take credit cards and scan our faces to see if we are wrinkly enough to buy cigarettes or condoms.
The ATM was a major milestone in 1967 when John Shepherd-Barron’s first machine was put in place for Barclay’s bank. The notion of outsourcing the bank teller to the customer was a pretty big move, and the fact that we still to this day just use a four digit code and a plastic card. Seems like lots of better ways to manage security.
Another big move was self-service check-out at stores like grocery stores. This was again a shifting of work, but they also figured out how to do it without having to trust the customer. The reason you have to weigh items when you use self-service checkout is so they can be sure you aren’t buying a ten pound lobster when you say you are buying a box of Cheerios cereal. That really opened the floodgates of what is possible transactionally.
Businesses like Coinstar and Redbox, now owned by the same company were also a bit of a step forward in their own right. Coinstar, which allows you to dump all of your loose change into a bucket and quickly get cash back (for a fee of about 7% depending on how you do it), figured out that people are going to go to the grocery store anyway (unless, of course they use Amazon Fresh) and they have loose change that piles up, let’s offer them a service they want, that also saves the grocery store the trouble of stocking up on the change they have to hand out. Really great idea. Redbox, took the same premise and saved people a trip to the video store (or Netflix) and rents movies for only a dollar. The evolution there is that they have your credit card number so if you don’t return the movie, Redbox has a way to charge you.
Fast forward to today, with so many touch screens that we use, from the self-service check-in at airports to a lot of popular wireless devices like the iPod, people are very familiar with self-service, they are familiar with using their credit card and it makes a ton of sense to see this new wave of vending machines. Of course with this technology, the machines can capture every touch of the screen and not only learn more about what their customers like and want, but also make their machines smarter. Getting real time data about consumer behavior is huge for merchants, and with machines it is so much easier for them to collect, on top of the huge revenue lift, the boost in data they get is enormous.
One piece that Rosenbloom didn’t venture into much is how movable these machines are. There are a lot of businesses that have seasonality to them, even some businesses even depend on the weather. It struck me that it would be easy to have an umbrella vending machine here in Seattle and all I would have to do is watch the weather forecast and based on that, I would put the machines out when rain was in the forecast. It being Seattle, it probably wouldn’t work to just swap out sunscreen in the machines on the days it doesn’t rain (knowing Seattle), but that would probably work in a city like San Francisco.
This is huge rethinking, and I am not at all surprised this made the front page of The New York Times today.
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I think a lot of people have seen this collision coming, where so many people want to express their individuality, but so many of the things we buy are mass-produced – it gets harder and harder in many ways for people to express their individuality without spending a fortune.
Somewhat of a third vector in this collision is the rise of a term called “crowdsourcing” where people look to the groups of people who buy or use their products (the term is broader than that, but that’s a common focus) for ideas on innovation and product direction. Chaordix is one company in particular that I have gotten familiar with and it is interesting to watch them introduce the term “crowd” into the business lexicon and help organizations understand the need to get in touch with their crowds, however big, or small, they may be.
When I read this article by Amy Wallace in the paper this morning, it put a big smile on my face, that for now at least someone has figured out a way to capitalize on the lower cost labor in Asia to capitalize on this collision. As Wallace describes, Boston-based Blank Label is a company that lets you design every part of a shirt, and they will make it for you in their Shanghai factory for a price that’s about the same as a new shirt off the shelf at Brooks Brothers. As the 22 year-old founder and CEO, Fan Bi, described, he found himself working for an investment bank and at the time
“I felt I’m just one very, very small ant in this massive firm.”
It turns out that’s a big part of why I left Accenture, but that’s a blog for another day.
I think Blank Label is really on to something and I suspect they will be very successful with this model in helping people feel less ant-like, socially and at work.
This is such an extraordinary time we live in when we can custom design clothing to the exact specifications (and if you look at Blank Label, there are a lot of different things to choose from in a shirt beyond color, collar and cuff style) we want. Over the last couple of years I have talked hypothetically of the notion of the customer segment of “me” where people increasingly expect messages and coupons to be tailored to their specific preferences and tastes. Alice.com does a great job of that in the consumer packaged goods arena, but for a clothing maker to do this really takes things to a new level and while low cost labor in Asia is getting more expensive every year, I am not so sure this model will be short lived. By that I mean that I think we will soon see the viability of this model without the need for low cost labor.
With everything computerized at the design level today, from the Dell laptop, now to the personalized logos you can put on M&Ms candy for a surprisingly low price, and now custom shirts, I think we will see more and more of these “crowds of 1″ and I think that’s great because the customer gets what they want and value and the manufacturer manages to get scale where they need it.
I am not suggesting that big crowds are about to be a thing of the past. As long as there are products like Snickers bars, there will always be great big crowds buying them, but I do think it adds an interesting dimension to the innovation world where increasing numbers of businesses and industries can cater to the more individualized tastes of their customers. “How” they do that has some new options today, but we have now seen time, and time again, that that’s “what” a lot of customers want.
Not everyone knows that Nordstrom, mostly famous for their off-the-charts amazing customer service, started as a shoe store here in Seattle, way back in the days when Eddie Bauer still sold shotguns (really).
Fast forward to 2010, and for the first time ever, Nordstrom has a store in Manhattan. Stephanie Rosenbloom recently published a nice piece about it here in The New York Times.
One of the things I really like about this store is that there are some risks for Nordstrom, but from a timing perspective, I think it’s a brilliant move on their part and I, for one, think more established companies need to be taking these kinds of risks in the current economic climate as they rethink what the future holds.
You can read the article, but the gist of it is that instead of opening a traditional Nordstrom that would compete with the higher priced stores like Bergdorf Goodman, Lord & Taylor, and others, for many reasons they opened a Nordstrom Rack instead. The Rack is the much lower priced store that they use to move the items that didn’t sell in the other stores, in addition to some lower priced brands. Part of the decision to open a Rack stemmed from the impossibility and cost of getting the space to open a big Nordstrom (as Rosenbloom says in classic New York Times humor – it’s like finding the “perfect porridge”).
While the Nordstrom brand is well known on the East coast, to enter Manhattan with the Rack store does veer away from their strong customer service brand promise and there is some risk there, but as Rosenbloom points out, they made some specific changes to the model based on the mentality of the Manhattan shopper. Well managed lines and both shoes on the shelf (as opposed to one in other Racks where you had to take it to the counter for its “mate”) are very smart adjustments that sound as though they will serve Nordstrom well. It’s great to see this kind of attention to detail in really getting into the head of the target customer and making some pretty fundamental adjustments. I also think it’s really smart to look across industries (they cited Whole Foods as their inspiration for the line management model) for best practices that also line up with their image.
The other piece of this that I think is very smart is essentially the realization that the reports are real, unemployment will remain high for a long time, and it’s much more in line with demand to have a low priced store, even in Manhattan, than the more full priced store right now. Going to the Rack in Seattle down by the Pike Place Market used to be something of an embarrassment in the 1990s, but now Nordstrom is looking pretty smart having two really strong brands in the marketplace, and it just so happens that the Rack is the right one for right now in New York. I think this is one shoe that fits perfectly.
P.S. I am also old enough to remember the “Nordie” – does anyone else remember those?