The Way I See It: Force Majeure Is Not An Excuse For Refusing Orders

The Bottom Line: Many Retailers around the Globe have hidden behind the Force Majeure clause for refusing orders that were finished or in process, and for cancelling orders already placed.

Let’s get the legal stuff out of the way first, then we should discuss how the situation might be handled in a better way.

Force Majeure (French for Superior Force) is a clause that may be inserted into a contract “which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as war, strike, riot, crime, act of God (e.g., flooding, earthquake, volcano), prevents one or both parties from fulfilling their obligations under the contract. However, "force majeure" is not intended to excuse negligence or other malfeasance of a party, as where non-performance is caused by the usual and natural consequences of external forces (e.g., predicted rain stops an outdoor event), or where the intervening circumstances are specifically contemplated.” (Wikipedia)

Force Majeure has been used as a legal reason for cancelling events due to COVID-19. In those cases, the argument is that either legal or medical or both reasons prevented the event from taking place. People could be seriously affected if the event were allowed to go on. So in this case, the event cannot take place, or is prevented from doing so.

So, the way I see it, the difference between an event cancellation due to Force Majeure clause and the refusal or cancellation of orders is that, while the Pandemic was not foreseen, nothing except the bottom line of bad business and overstocks prevented those buyers from taking the orders. They still had the power to take the goods and the shipment did not present a clear and present danger of medical endangerment.

So, in my opinion, Force Majeure is not a legal excuse for refusing or cancelling orders. 

Maybe it is a stretch, but, according to the above definition, you could say that bad business due to Coronavirus is “usual and natural consequences of external forces (e.g., predicted rain stops an outdoor event), or where the intervening circumstances are specifically contemplated.” The usual and natural consequences of a store closing (which, I agree, could not have been prevented) will be a glut of inventory. But, is cutting off your supply chain at the throat citing Force Majeure a legal excuse?

As with any legal point, there can be many sides to this story and many opinions on my question above.

Now let’s get to the Reality of the situation. Force Majeure clauses may or may not be a reason buyers COULD have cancelled or refused orders. Let’s talk for a minute about whether they SHOULD have.

Coronavirus sucks for retailers (to whatever degree they depend on Brick & Mortar for sales- it does NOT affect online sales). Having to close stores for an indefinite period is a serious, and we can see in some cases tragic or fatal, blow.

But let’s take a minute and explore the Ecommerce angle. While people who are losing their jobs are more reluctant to spend, people still are shopping online- Amazon proves that- as are the stocks of businesses that can supply goods online- such as Pizza Hut and Instacart. So what prevented retailers like Macy’s from offering huge discounts on goods online and letting people know that? Maybe I missed something, but I have a Macy’s card and have not received any offers, either in mail or online. Just saying…

Given that this Pandemic sucks for retailers, it sucks more for those factories who have had to eat orders they already paid for, or whose production flow gets cut off at the knees. What is worse, those workers who depend on these jobs for their daily bread are affected almost as badly as if they caught the disease. Starvation and malnutrition is also a cause of sickness and death.

So what might have and could have been done? Here’s how I see it: An order that has been fully or partially made becomes the full responsibility of the buyer; even if they have to reduce or eliminate executive pay or other perks, cut expenses so it does not effect their employees (such as negotiating rent abatements), they should meet their obligations, and Force Majeure is not a legal excuse to avoid them.

What is more, their supply chain partners are just that, partners. That is not how you treat partners. When businesses opens again, what do you say to your partner? Sorry? Never mind? IF your pocketbook is your overriding concern with little or no regard for the welfare of the supply chain that kept you in business before and you hope will do so after the Pandemic has subsided, shouldn’t your suppliers think the same and all raise their prices? Shouldn’t they demand payment in advance? If you were them, wouldn’t you do that?

Surely the suppliers understand the pickle that retailers are in. I believe most of them would not insist that it is business as usual. But, besides abating the greed that motivates them to summarily cancel and refuse orders, buyers should pay for all they are obligated to pay for, and try to work out some agreements for the future, as to when they will start up orders, or what parts of orders can be started in the interim (if you are making white shirts, you will need them sooner or later, so I guess there are ways to work out the problem).

After working in the global sourcing business for many decades, I have made many great business and personal friends. In a pinch such as this, I would treat them as friends, not as an anonymous factory with anonymous people who go to anonymous families with money to buy them food (maybe).

So the real problem here is more than Force Majeure; it is the self-reference criterion, to an ethnocentric degree, of buyers. The factories and the people that depend on them for a living are inferior, and not deserving of the same consideration as your colleagues and friends at home. 

One time a company President spoke to me and said, “every once in a while we can throw the factories a bone.” This chilled me to my bones and is something I will never forget.

CEOs, take some money out of your pockets and pay the factories; next, work out the future with them as EQUALS.

I know there are companies that are doing the right thing with the right attitude. They are the examples we should follow.

That’s my take on the situation.

The Undeniable Reality About Global Sourcing (and Food)

The Undeniable Reality About Global Sourcing

(And Food)

(Author’s note: The following is an excerpt from my upcoming book, “Travels with Mikey- The Global Life of a Business Foodie.” Please watch this blog and LinkedIn for updates on publication)

Chapter: China Wanderer 2012-2017

When returning to China in 2012, after decades focused on the fashion industry, I found myself with no opportunities for sourcing product in that industry. But, the Middle East was thriving, so I focused on the region rather than the product.

That being said, I learned a lot during these years- about myself, and about business as well. Before this time, my entire career had been focused on apparel- Could I function as well in other industries that I knew nothing about? This was a case of fake it until you make it?

During that time, I got involved in, and got orders on some, but learned about all, like 20 different industries. After decades in apparel, I found myself learning about, sourcing product for, and visiting factories in industries like:

• Construction equipment
• Fertilizer
• Chemicals
• Candle Wax
• Bottling
• Pet Products
• Wood products such as doors and panels for furniture and construction
• Bioplastic and plastic utensils
• Tents for refugees and military.

It was for such diverse products and more that I ended up-alone-in some, well, less urbane parts of China. My roles were: 

• manage the entire sourcing process for items where we did get orders;
• Check factories for feasibility of the buyers sourcing items which I was not to be involved in.
• Inspect finished goods for quality and confirm shipments
• Combination of the above.

So how did I get paid for these tasks? That is where I got to doing something I would not have approved if I was on the other side- double dipping- building in a commission from the factories in addition to what buyers were paying (if anything). Survival made me smarter, and a lot less smug.

Specifically, some of the products I touched during that time were:

A Crusher plant for Saudi Arabia which was to crush rocks for railway and dam construction;

Stuffed Pet toys, pet beds, rugs, chews etc. for Brazil;

Wax for candles to be made in Syria;

Wood doors, wall panels and furniture panels for Lebanon.

What did I learn from all of this? Other than a lot about a bunch of different industries that I never dreamed I would be involved in, I learned the most valuable sourcing lesson that anybody could learn:

The product itself is not the primary challenge- the mechanics and specific product details of any industry can be learned (in fact, I learned that every other industry was easier to learn than apparel- usually less moving parts and a lot simpler process); what are the most important elements of Global Sourcing?

1. The Process is basically the same for any product:
1. Find a good and trustworthy factory that can produce a quality product in a timely manner;
2. Be anal about the product details and expectations;
3. Build relationships with not only the customers, but, more important, with the factories;
4. Follow up assiduously;
5. Eat the food.

So here I am, flying all over China by myself with only a minimal command of the language, tasked with acquiring knowledge, placing product, and following up to a successful conclusion on shit I mostly knew nothing about.

I didn’t make much money doing that, but I acquired a wealth of knowledge of my profession that I never could have acquired doing the same shmates again and again as I had done for decades.

Another lesson that I believe was reinforced in me is that people in China, US, anywhere are basically all the same: They have a goal or dream, they have families to support, they like to like and be liked in business, and mostly they love to eat.

I, as always, ate what I was given, but, on the road (home later in this chapter), I did eat some interesting things, such as deep fried insects, to include giant bees and scorpions; donkey pie; Jinhua ham, China’s answer to Pata Negra (damn good stuff on its own), but most important I learned so much about the cultural association with food. So food is not just for eating, it is for sharing and bonding.

From the late, great Anthony Bourdain:

Food is everything we are. It's an extension of nationalist feeling, ethnic feeling, your personal history, your province, your region, your tribe, your grandma. It's inseparable from those from the get-go. 

(Lots more about the food in the book)

Value Is Everything

(Note to readers: This article was originally published on this blog May 6, 2017. It applies as much today as at that time- This time let's add Personal Value, the Value of People. I was reminded of this article when reading the groundbreaking book "The Value of Everything" by Mariana Mazzucato- Highly Recommended reading for you if you want to think seriously about the future of our economy and capitalism)

Value Is Everything

Value- It is a word we have used hundreds of times. The definition of value (there are several) as it relates to economics:  “a measure of the benefit that may be gained from goods or service” or for marketing: “the difference between a customer’s evaluation of benefits and costs.”

It is significant that both definitions imply some finite mathematical calculation- “difference.” Or “measure.” In some cases this may be immediately quantifiable, in other cases true value can only be known after benefits are given or revealed.

Neither of these finite measurable is the case in the apparel world. Other than the difference of the same item from one store to the next (or one web site to the next), most of value perception in apparel purchase decisions is subjective.  There are a lot of abstract comparisons to be made:

1.     Price of not same but similar item in same shop- 2 pair of jeans, for example. Same content, different price. Based on what do you make purchase decision?

a.     Brand perception

b.     Price

c.      Aesthetics- hand feel, colour, FIT.

d.     Whether this is a need purchase or impulse. If value comparison not clear in your mind, you can choose to do nothing.

2.     Price of similar items in different shops-All of the above, plus the “believability” factor- Do you believe the sale is real, and will the price be reduced 5 minutes after you walk out the door?

3.     Magnitude of discount or comparative price value- IF you felt the original price was a good value, a smaller discount will get your attention. IF you felt the original discount was too high or just a template for further discounts, you will need a higher discount to overcome your price objection.

4.     Function/urgency for the purchase- Interview suit vs. sweatpants. Again, price will be a consideration, but there is much, much more in the decision based solely on PERCEPTION- of the brand, the item itself and how you perceive it makes you look, etc.

So yes, you can calculate the price difference in price between item a and b that you are considering to purchase, but is that the major factor in purchase decisions? It is not. I believe;

1.     The final decision is based on VALUE, not PRICE. Price may figure in the decision, but in almost every case it is not the deal maker or breaker.

2.     There is a complex set of PERCEPTIONS combined with calculations which tips the scale toward purchase. Most especially this is the case because pure mathematics cannot provide the answer. These perceptions are as strongly related to the seller as they are to the item itself.

Value is critical in another area: human resources. If you pay $100,000 per year to an individual that can run an entire business for you (virtually mistake-free), versus paying $50,000 to 3 individuals who do the same job (at that level, expect mistakes and omissions), you are not paying too much- you are creating VALUE.  Now let’s say you populated an entire office with this type of individual, you have the perfect scenario: a. your business is run smoothly and efficiently b. your expense is minimized and c. your fixed cost is insulated for business downturns OR may not need to be increased when business grows.

Not everything takes a village, and, if you operate under the principle of Think Big but Be Small, you have every chance to have a low-cost, sustainable business and a damn good staff (whom, if you keep paying well and empowering to operate as they are capable of, will probably stick around)

All over the world today, companies are guilty of hiring lower-paid staff (maybe due to inexperience rather than incompetence) rather than spend more on someone who can do the job with maturity as well as anticipate or handle problems, thus reducing cost and risk. The consequences are far-reaching, and we see companies get into trouble and even disappear, but nobody changes the way things are done. Why?

The fish stinks from the head. Management is responsible and guilty. What is the main reason for this? As always, fear. Fear of change, fear of risk, fear of changing the way things have been done since forever. Clearly, this fear is brought on by the prospect of holding the bag if change doesn’t work. But, with all due respect, that makes no sense. Why? Because if you do nothing, you are holding a worse-smelling bag than if you tried and it didn’t work out as planned. That being said, if you think it through and hire the right people, simplify and streamline your procedures, there is no reason it shouldn’t work. I have done it repeatedly and it has never failed.

I always love the idea of Creative Destruction, which finds its roots in the Hindu Trinity: For something to be born, something must die (Hindu: typically Brahma the creator, Vishnu the preserver, and Shiva the destroyer/regenerator- see https://en.wikipedia.org/wiki/Trimurti ) What that means for us, for it is eternally true and we see it in our world and markets in vivid color, anybody or any business that fails to change with the markets or the world cannot be regenerated, thus dies (see: Sears). So the choice is simple: change or die. That is a no brainer for me-you?

Another relevant cliché: lead, follow, or get out of the way.

Amazon’s Market Share is—Declining? Don’t sell the stock!

Amazon and the Future of Ecommerce

A few days ago, the following graphic was published on LinkedIn:

How is that possible, with everyone being at home and relying more than ever on online purchasing?

So, logically speaking, IF this is true, then either:

• Total Online Spending increased dramatically, at ecommerce sites other than Amazon, OR
• Total Online Spending did not increase dramatically, and people found viable alternatives to Amazon.

I tend to think that the first is more likely correct. Why? Because Amazon, pre-Covid-19, was the easy way to shop; people with limited time running to work or to social occasions, events, etc. found it convenient to shop using Amazon’s super effective platform. Now, with more time on their hands, AND with Amazon showing its growing pains, people started to look for alternatives and found them. 

What do I mean by Growing Pains? Everyone knows how quickly Amazon has grown. The numbers look like this: 

By the above graphic, Amazon’s revenue has grown 162% 2015-2019. IF we assume the 20% CAGR that Amazon has achieved, the 2020 revenue number is $336B, which would have effectively tripled revenue since 2015.

During that time, and pre-Covid-19, Amazon still managed to achieve a standard of one-day delivery for most items. Which brings me to question, did Amazon emphasize- no, push- speed over quality?

My recent experience may be a case in point. We ordered a Japanese Donabe (traditional clay cooking) pot from a seller at Amazon, which was fulfilled from the Amazon warehouse. The pot arrived with a crack inside, so was returned; the replacement arrived totally shattered, and its replacement was also cracked and returned. Third time was not a charm, in this case; the fourth time was. Why? Because we found a Japanese specialty store that shipped the pot well packed, and marked Fragile, which resulted in a perfect delivery. After that, guess what? We bought a second one, which also arrived in perfect condition. Above and beyond the money the freight and returns cost Amazon, they lost a customer permanently for this sort of merchandise. You cannot blame the courier, because they treat all merchandise the same, and any idiot knows that you better protect your goods from that.

So, for us, several hundred dollars of spending resulted in a negative net result for Amazon, and a big positive for the specialty seller. 

The question is, Does Amazon Know or Care? My answer would default to yes for both, if not only because Jeff Bezos, since the beginning in 1994, has been and is, the most customer-oriented business leader that I have ever seen.

That being said, it may take some time for them to make the changes that will reduce the frequency of eventualities like this. IF they don’t, then we can watch the decline. 

BUT, in the meanwhile, take a look at the following: 

and this:

(Once you have Alexa, they pretty much own you for most of your purchases)

And this:

And this:

Looking at the total forecast  of E-Retail: 

the total growth in million USD from 2019 to 2020 is $54,672. Yet earlier, we said that, if Amazon maintained its 20% CAGR from 2019-2020 it would grow by $56 billion. 

So what is the most likely truth? EITHER the forecast for ecommerce growth is way understated, OR Amazon will comprise the entire growth (even though it is somewhere between 33 and 50% of online spending), OR the forecast is correct and Amazon’s growth will slow dramatically.  (I recognize that the first number includes AWS, Amazon Media, etc. but that is not a major % of their business-yet)

What is my prediction- never afraid to give one of those and my track record is pretty good? And I am not taking the chicken way out here:

1. As I have said in previous articles, I believe online shopping (not including omnichannel) will become the DEFAULT activity for most people worldwide;
2. Therefore, the percentage of ecommerce to total retail sales will jump dramatically to 35-40% of total.
3. Amazon will be the first port of entry for almost everything, but become a Generalist- like for Toilet Paper, Cereal, Basic Medicine, etc.; at the same time, we will see dramatic growth of specialists who can serve Everything Else.
4. Brick and Mortar sales will shift from large Department Stores, to nimble Specialty retailers where there are not so many crowds and service can be found; longing for fulfillment and not anonymity, the Customer Experience will be paramount; those Specialty retailers will also be able to fulfill ecommerce needs. 
5. Regarding the specifics of food retailing, staple items will default to stores like Amazon and Walmart; shopping trips to brick and mortar will be relegated to fresh food. Eventually, as fresh food delivery improves, and Amazon gives up the $35 threshold, that may also shift to ecommerce. This all presents an opportunity for specialty food retailers like meat stores, fish stores, produce markets, etc. A throwback to when I was growing up and that is all there was. Again, the customer experience is paramount.

So, Amazon will be fine, and should be happy that the scenario I have just laid out relieves them from being all things to all people. The growth of the main part of Amazon will slow percentage-wise, both because the base is getting bigger and bigger and because there will be alternatives. But still healthy, in double digits.

Amazon stock is $2410/share today; $3000 is within reach. How high it goes after that depends on how Amazon handles the next few years evolution and growth. My money is on Jeff Bezos, unless he has an epiphanic episode that reduces his adoration of the Customer.

Politico Magazine Report: Coronavirus Will Change the World Permanently. Here’s How. AKA “The Big Hug”

In my recent articles, I have been insisting that the world will never be the same after the Coronavirus all clear is sounded. From a business standpoint, I have been insisting that online shopping, especially Amazon, will be the default method (currently ecommerce only occupies around 15% of retail sales in the US); this will extend itself to areas where it was previously not a major factor, such as grocery/food.

I also have been saying that people will change, not only in themselves, but in how, where and when they relate to other people. What I call “The Big Hug” will be people cherishing the benefits of the social contact from which they are all but banned now. How will this manifest itself?

This past March Politico Magazine, in a report entitled, “Coronavirus Will Change the World Permanently. Here’s How.” received some opinions from experts around the country regarding different elements, those being: 

Community

Tech

Health / Science

Government

Elections

The Global Economy

Lifestyle

Remembering the comments, theirs and mine, are just opinions, this article will focus on the Community and Lifestyle areas. Let’s look at some of their comments and then I will add my own two cents:

The personal becomes dangerous.

Deborah Tannen is a professor of linguistics at Georgetown and author, most recently, of You’re the Only One I Can Tell: Inside the Language of Women’s Friendships.

Quotes:

This loss of innocence, or complacency, is a new way of being-in-the-world that we can expect to change our doing-in-the-world. We know now that touching things, being with other people and breathing the air in an enclosed space can be risky. How quickly that awareness recedes will be different for different people, but it can never vanish completely for anyone who lived through this year. It could become second nature to recoil from shaking hands or touching our faces—and we might all find we can’t stop washing our hands.

My comment:

Yes- we will never be the same and we will bifurcate our approach to meeting and being near people into those we know and those we don’t.

The comfort of being in the presence of others might be replaced by a greater comfort with absence, especially with those we don’t know intimately. Instead of asking, “Is there a reason to do this online?” we’ll be asking, “Is there any good reason to do this in person?”—and might need to be reminded and convinced that there is. Unfortunately, if unintendedly, those without easy access to broadband will be further disadvantaged. The paradox of online communication will be ratcheted up: It creates more distance, yes, but also more connection, as we communicate more often with people who are physically farther and farther away—and who feel safer to us because of that distance.

My comment:

What I said, Amazon, et. al. that we can trust online will become the default. Distance will be the norm, closeness the luxury and the exception, or the less frequent.

A hunger for diversion.

Mary Frances Berry is professor of American social thought, history and Africana Studies at the University of Pennsylvania.

Quotes:

After the disastrous 1918-19 Spanish flu and the end of World War I, many Americans sought carefree entertainment, which the introduction of cars and the radio facilitated. Young women newly able to vote under the 19th Amendment bobbed their hair, frequented speakeasies and danced the Charleston. The economy quickly rebounded and flourished for about 10 years, until irrational investment tilted the United States and the world into the Great Depression. Probably, given past behavior, when this pandemic is over, human beings will respond with the same sense of relief and a search for community, relief from stress and pleasure.

My comment:

The question here is what will “community” mean and which circumstances will provide less stress and more pleasure and which the opposite. Again, the bifurcation of “those we know” and “those we don’t.” Not saying parties and dances won’t happen- but attendance won’t be second nature anymore.

Less communal dining—but maybe more cooking.

Paul Freedman is a history professor at Yale and author, most recently, of American Cuisine: And How It Got This Way.

Quotes:

For the past few years, Americans have spent more money on food prepared outside the home than on buying and making their meals. But, now, with restaurants mostly closed and as isolation increases, many people will learn or relearn how to cook over the next weeks. Maybe they will fall back in love with cooking, though I won’t hold my breath, or perhaps delivery will triumph over everything else. Sit-down restaurants also could close permanently as people frequent them less; it is likely there will be many fewer sit-down restaurants in Europe and the United States. We will be less communal at least for a while.

My Comments:

This is a big one. First, I agree that sit down restaurants will lose business to people wanting to cook and, for those who can’t or won’t, prepared food or restaurant delivery; restaurants need to adjust to this lifestyle change and maybe even provide their own boxed meals. But I can see dinner parties and pot lucks becoming the rage.

Even more- The supply chain will have to adjust dramatically. What percent of  grocery inventory are idiot proof meals in a can or frozen, for microwave, etc.? Will people either cook their own or go for Uber Eats? I think so.

A revival of parks.

Alexandra Lange is the architecture critic at Curbed.

Quotes:

Urban parks—in which most major cities have made significant investments over the past decade—are big enough to accommodate both crowds and social distancing. It helps that it is spring in the northern hemisphere.

Society might come out of the pandemic valuing these big spaces even more, not only as the backdrop to major events and active uses, but as an opportunity to be together visually.

After this is all over, I would love to see more public investment in open, accessible, all-weather places to gather, even after we no longer need to stay six feet apart.

My Comments: 

I like the recommendation here. More parks is good for urban dwellers, Coronavirus or not. Parks and outdoor venues with ample space will tolerate more people with less social stress.

The tyranny of habit no more.

Virginia Heffernan is author of Magic and Loss: The Internet as Art.

Quotes:

This current plague time might see a recharged commitment to a closer-to-the-bone worldview that recognizes we have a short time on earth, the Doomsday Clock is a minute from midnight, and living peacefully and meaningfully together is going to take much more than bed-making and canny investments. The Power of No Habits.

My Comments: 

So, we have a terrible reality check on the preciousness and brevity of life. “No Habits” to me means get out of your routines and Live in The Moment- with Others.

A healthier digital lifestyle.

Sherry Turkle is professor of the social studies of science and technology at MIT, founding director of the MIT Initiative on Technology and Self, and author, most recently, of Reclaiming Conversation: The Power of Talk in a Digital Age.

Quotes:

Perhaps we can use our time with our devices to rethink the kinds of community we can create through them. In the earliest days of our coronavirus social distancing, we have seen inspirational first examples. Cello master Yo-Yo Ma posts a daily live concert of a song that sustains him. Broadway diva Laura Benanti invites performers from high school musicals who are not going to put on those shows to send their performances to her. She’ll be watching; Lin-Manuel Miranda joins the campaign and promises to watch as well. Entrepreneurs offer time to listen to pitches. Master yoga instructors teach free classes. This is a different life on the screen from disappearing into a video game or polishing one’s avatar. This is breaking open a medium with human generosity and empathy. This is looking within and asking: “What can I authentically offer? I have a life, a history. What do people need?” If, moving forward, we apply our most human instincts to our devices, that will have been a powerful COVID-19 legacy. Not only alone together, but together alone.

My Comments: 

Not only alone together, but together alone. That is the most insightful and thought-provoking comment of all that have been made about Post-Corona- including mine. Think about it: If we see being alone in the same light as we previously saw being together, that changes everything.

IF she is right, the message for brands is: the Internet has become a source of personal identification and empathy for people, so lose the underfed and blank-faced models and let’s see YOU.

Which, in summary, is my point. Everything changes, but how? We really don’t know for sure. I feel pretty sure that the digital world will become the Default, but in what ways and how, especially when it regards personal interaction, is yet to be seen.

So, who will you hug first after the all clear sounds?