Saturday, December 01, 2007

Externalizing costs

I currently work for a niche retail store of a large retailing corporation as a sales person. I started there as an experiment to see if I could do sales. In the few weeks that I've been there, I've been learning a lot about retail sales. So here is a little bit of my experience.

I decided upon a sales job when I did some research and learned that in my industry - IT - more than half a million jobs will be outsourced to fun and far away places like India, China and Vietnam. And then there's automation. But that's yet another article.

So I'm into sales. I figure that no matter what you make or the service you provide, someone has got to sell it. That's me.

As my first stint in sales, I have an opportunity to see first hand what goes on behind the counter. For example, I have to say to everyone, "Would you like to put that on your company issued credit card, sir?" I know how irritating that is. And then I have to say, "Would you like to open a new revolving credit card at 23% interest, sir?" Get the picture?

So anyway, you may have noticed that I am leaving the name of the company out. That's because I still work there and, I don't like to burn bridges.

I'm learning that I do a lot of standing around and pacing the floor. It's really good exercise. I think I walk several miles in a day of sales.

I also hand out lots of cards to people who are just browsing. They want prices on everything and think that somehow, when they actually make the purchase, they will be making a rational decision. Now I work in the "home entertainment" department. I don't know about you, but buying a TV, a really big one for 1-4 large, is not a logical decision. A big screen TV is right up there with the huge pipe organ at the church for "wow". It stirs the heart.

This particular organization doesn't even know it's inventory. They do have a computer system, and I can use it to see if we have an item in stock. But if I want to sell one, I must go to the "cage" and check to see if the box is actually there. There goes 5-10 minutes that I could be selling on the floor. I've now decided that the first thing I will do when I arrive is go to the cage and make a count.

They have a tiny little computer screen running windows, too. And of course, the computer is so locked down, I can't even change the screen resolution. At this computer, I can check on whether or not we carry an item, what the current status of the item is (i.e., "Discontinued"), check on past transactions and place special orders.

It's an older machine running Windows 2000, with a 17" monitor set for 1024x768 resolution. Not too bad if you're under 40. Now I want reading glasses. This machine takes about 5-10 minutes to boot and to load a user profile after I've logged in. It's ridiculous.

After a week of training and a week of no sales, I learn that they've chopped all the commissions for TVs to 6% instead of the range of 6-12%.

Now on top of doing sales, running back and forth to confirm stock, I also have to do customer service when a customer wants to return an item. Sheesh! Oh, and the manager says that most people who work there just sit around and wait for people to come in. He says "Don't just be an order taker. Prospect!" Aha, so for 6% I get to prospect, hunt for merchandise, provide customer service for returns and exchanges, and do sales. Cute.

So I talk to my sales mentor and learn that most organizations seem to hobble their salespeople. They are trying to cut costs but in reality they are hurting their sales team. This organization seems to be doing everything they can to encourage people to work for ten bucks an hour. See the problem with commission sales for most companies is that the commission keeps pace with inflation.

Huh? Well think about it. The primary advantage of owning a business is that you can raise prices when your costs increase. Employees can't do that. They have to wait for a raise. But commission salespeople see their commissions go up when the price goes up. And the only limitation on their earnings are the physical limitations of making a sale. They can sell all they can every hour. So their earnings keep up with inflation.

But that cuts into the bottom line for the company because as long as employee compensation is set at a fixed cost, they can maintain an advantage over the employee. Not so with commission salespeople. Even if they have to increase compensation for employees here and there, they do it at their convenience not when the employee asks. And most times, the employee will wait for their review.

This is just one of the many examples of how companies externalize their costs onto the general public. Most employees don't see this part of the picture, all they really see is their costs going up while they wait for a raise.

That's why we're going to be full swing into a paradigm shift about sales and work in a matter of 5-10 years. The typical employee will no longer trust employers enough to settle for just an hourly rate. We already see that profit sharing has been adopted by a few companies (though not well publicized). And there is employee ownership. For example, Southwest Airlines is employee owned and has been stable as an airline stock, despite 9/11 and other interruptions to the airline business. They are regarded as a company with a healthy and fun working environment primarily because the employees have a say in how the company functions. And when the company issues a dividend, all employees benefit.

A negative example of externalizing costs is Wal-Mart. Websites about their business practices abound, but the best example is here:

So whenever you look at any business, notice how they externalize costs. And then ask how that affects you.