Breaking News: "Disruptive" Is A Good Thing

When most of us were school kids, we could get sent to the principal’s office or worse for being “disruptive.” The label took a variety of forms, but in all cases was frowned upon-“going against the grain” was a bad thing because Americans were convinced the grain was the only way to go-sometimes the only alternative to the highway.

If you watch the iconic TV shows of the 50’s-60’s era, such as The Big Valley, you can definitely see American Moralism on display. Following the rules is good, those who don’t are “outlaws.” The list goes on-Perry Mason, Leave It to Beaver, Father Knows Best. Have we lost our morality? I don’t think so-what I do believe is that, mainly due to technology, we have a scope of possibilities that could not even have been dreamed of in that earlier age. We still have rules, but the game is bigger, and allows for disruptive behavior within the rules.

What is “disruptive” and how is it different from “innovative?” Disruptive is not just a new way to look at or do things- it is a radical change that you make which changes how others do things- or changes the world as we know it. OK, so if I add bacon to a doughnut, that’s innovative. But it hardly is going to change the fate of the rest of the doughnut world if we don’t copy it.  If I am first to figure out how to sell pizza by the slice, that’s disruptive.

Shep Hyken, in an article on Forbes.com entitled, “How Amazon Competes Against Wal-Mart and Every Other Retailer,” points out that Amazon actually doesn’t compete with Wal-Mart; it paves its own way to gain market share by being disruptive. Some examples are Amazon Prime, Amazon Dash, and the millions of emails it sends telling you if you liked that, then how about this?

There are other success stories that are or have the potential to be disruptive. Inditex and Uniqlo are disruptive in totally changing the way you look at fashion and shopping for fashion; they and other retailers like Primark have totally disrupted the world of retail by changing the way consumers view fashion, brand and value. Shirt manufacturer Untuckit took a simple idea of creating a shirt that changes your look by allowing you to wear your shirt outside your pants without looking stupid-actually looking great.  Underwear manufacturer Tommy John noticed the problems with mens underwear today and created a tee shirt that doesn’t leach out as well as underwear bottoms that don’t crawl up. Apple, Facebook, Google are all disruptors. Aren’t these just innovations? I say no, because they force other manufacturers as well as consumers to change behavior or actions-disruptive.

On a global scale, China aims to be disruptive by serious efforts to become a leader, not a follower, in AI and other areas. Shaun Rein predicted it years ago in his book, “The End of Copycat China.” He was prescient; few really saw it until now. This should be scary to us because they have the money and the infrastructure to do it. If they are successful, it will have significant effect on the balance of global economic and political soft power-not to mention creating jobs in a China economy where low-cost manufacturing is not growing. It will expand the middle class, reward those who have gone to university, and grow domestic buying power. By being disruptive.

US companies must embrace disruption as a guiding principle both in their business model and hiring practices. Generally, on the famous bell curve of fashion/trend, small companies are the innovators at the bottom beginning of the curve and the large companies pick up when the trend becomes mass marketable, as it reaches near the top. That doesn’t have to be. In fact, in this rapidly changing world, it better not be- because the time frame of this bell curve has shrunk so much that there is no time to react. Even the word react implies “act again.” Today’s large retailers or brands do not have time or leeway to react- they need to act, first. Proact. Preempt. Disrupt. In fact, large companies can gain the upper hand in the race for disruption because they have the money and resources to do so, much more than startups. IF they embrace change and disruption as a mantra. The alternative to that change of paradigm is not promising.

In hiring, these companies should forget their narrow job descriptions and narrow-minded views of them. Start hiring people, not resumes. I am totally sure that, if they really commit to change, hiring a disruptor with little or no experience in the technical aspects of the job will be more successful than adding another cow to the herd. Disruptors are not loners-people are inspired by and want to follow them. Take Steve Jobs.

On a personal note-when I was young, I was one of those disruptive individuals who would not take no for an answer-shit disturber. I still am (read some more articles in this blog and you will see what I mean). It makes me very happy to see that my character can now be viewed as an attractive asset.

For companies and the US, it is disrupt or be disrupted. Hire a shit disturber today! The business world will be a better and more exciting place.

China Quality-Good Enough is Not Good Enough

Among the tens of thousands of factories in China, there is a wide variation of quality level, from very good to very bad. Factories who produce for domestic consumption typically have very little concern for quality; export-oriented factories generally need to be more conscious of quality, to meet their customer’s minimum requirement and not have their production rejected at final inspection. It is those factories we will examine here.

On average and in most cases, the customer’s minimum requirement is the sole operative standard; in very rare cases does a China factory have their own internal standard, or even a picture of what they expect their final product to reach. The operative benchmark is: good enough.

Think about it- how many well known China products can you think of that evoke an association in your mind that says, “ Oh yeah-that brand is really good quality.” Very few, and not well known, such as Haier or Huawei. Contrast this with Germany or Japan where most people can easily recite many brands they associate with good quality-and usually a commensurate higher price.

This mindset holds China back from reaching the level of quality that can raise it to a point where prices can be increased to match the higher costs of labour and materials-and be accepted by buyers and consumers for those reasons. A consumer in a store investigating a product finding out it is made in China usually produces eye rolling-what China wants is a smile of recognition. How can China achieve this change of perception?

In fact, the inability to raise quality standards amidst higher costs and market price pressure is having the opposite effect-factories will want to find a way to lower costs so they don’t lose money at lower prices-which usually means quality compromises. This may be conscious, or simply (as is the case most of the time) of rushing the production through the process to deliver on time, without spending time or money to pay attention to the quality standard of the product. Just making it through-sometimes with smoke and mirrors.

What compounds the problem is the cultural peer pressure put on the customer’s staff or representatives, who are almost always Chinese. As quoted before from Jim Mann’s Beijing Jeep, the Chinese are very good at purposely confusing friendship with business, viewing friendship as a relationship where friends “help” each other. Maybe in this case it would be letting them slide on marginal quality. What is more, the race card is often played with these staff- we are Chinese, you are Chinese- the foreigner is the outsider/enemy, even if they pay your salary. They hate me/they like me- very few Chinese can escape this guilt trip and realize that whether your factory likes you or not just does not matter in business. Business is business- not about emotions—just real things you can see.

What needs to happen is:

1.     China factories need to develop their own internal quality standard. This should be a standard that supports the price they are asking for the product, and one they can be proud of.

2.    This standard should not be allowed to vary with the customer’s expectations or the price of the order. By definition, a standard is just that- a set of fixed points that a product should reach.

3.     Customers should clearly communicate their quality standard of excellence in product before any production starts and never, ever compromise for delivery or to be “nice.” Nice is emotion-products are real.

4.    Make it a practice of delighting the customer by exceeding expectations, not just getting by on good enough.  This will go far in getting new orders- and justifying higher prices.

5.     As I have said before, factories must adopt a process-oriented quality system. Each process leading to the final product should have its own internal QC. This will pinpoint process problems early on, and prevent problems from wasting the factory’s money by reaching the final inspection stage.

6.     Factory should perform their own final QC before the customer shows up. Then, problems that do reach the final stage can be rectified before the customer is dissatisfied or rejects the order.

7.     Use the same quality standard for all materials and accessories. Producers cannot expect an excellent final product by addressing  only assembly.

8.    Most important- the antiquated mentality of getting by with what customers will accept-especially foreign customers-has got to change. Mentality that old and entrenched can only be changed if management is convinced it is in their short and long term interest. Good enough is not good enough.

This is not about cost of production. There is no doubt that efficient production costs less than careless muddling. This is about smiles- evoking that smile of recognition that Made in China means quality you can believe in. For China to advance in the world economy as it must, both quality systems and mentality must change. Then perception will also change.

US Retail Store Closings-A Good Death?

Almost daily, reports of retail store closings, bankruptcies, and shopping malls becoming ghosts of times past is being greeted with alarm or deep concern for the fate of brick and mortar. Ecommerce, and especially Amazon, is almost always blamed.

It is true and logical that the growth of ecommerce has siphoned sales from traditional retail; further, the growth of mobile shopping makes it even easier to buy without the trip. 20% of ecommerce sales today are estimated to originate from mobile devices. Ecommerce is a gift of technology.

That being said, below I will take the position that 1. Ecommerce is only a small part of the reason for the shuttering of thousands of stores and closing of malls; that 2. There were too many malls in the first place and the shakeup is a good and warranted culling of the herd which will be healthy for traditional retail in the long run; and that 3. Some of the stores that have closed entirely either lost their relevance or failed to compete in a changing world-ecommerce is the catalyst for this, not the reason.

Let’s look at a partial list of the casualties:

1.     Traditional department stores- Macy’s, Sears, Kmart, JC Penney- closing stores by the hundreds if not thousands before we are done.

2.     Specialty Stores- Limited, Wet Seal, Aeropostale, Radio Shack (truthfully, I thought they were gone a while ago). They either failed to update or change with the times, to offer an attractive and competitive product to their customers, or just lost their Mojo

3.     Brands sinking into the sunset- Ralph Lauren just closed their flagship store on 5^th Avenue in New York. Why? As the fast fashion specialty chains seek more and more locations in good urban locations, Ralph Lauren closes. Can only be the brand has lost its mojo. At one time it was a status symbol to wear a Polo polo; now, it makes you look almost embarrassingly antiquated.

At the same time, fast fashion retailers like Inditex/Zara and Fast Retailing/Uniqlo are both closing and opening stores. They are all closing stores in malls where the anchor store and the mall itself is failing, and opening in urban areas where the traffic and relevance is enhanced and their success depends entirely on their product. During the first quarter of 2017, Inditex opened 71 new stores in 31 markets giving them a total of 7,085 stores for all brands.

Please make a note above of the 31 markets. Sad to say that the retail brands that are becoming ubiquitous in US traditional retail are not American brands: Inditex-Spain; Uniqlo-Japan; H&M-Germany; Aldi- Germany; Primark-UK. What they have in common is a comprehensive knowledge of global retailing and the ability to customize their offerings to many markets. No monolithic product arrogance here. This has been the failure of many a traditional retailer- for example, Marks & Spencer recently closed all their stores in China after many years (wait-China? The fastest growing economy in the world?). The main reason is that their product was not managed to suit the market (just my opinion, but it also looked dated and sometimes just plain ugly). I am sure you would have found most or all of it in their stores in UK. That doesn’t work in global retailing-while some product is relevant to multiple markets, most or all of it will never be.

But what about shopping malls? Once an anchor store in a mall closes, that mall’s days are probably numbered.  And why are so many shopping malls becoming ghosts or discount centers? Certainly all three reasons given above related to the store or product are part of the story, but the main part of the story is that there are too many shopping malls in the first place.

Between 1970 and 2015, the number of shopping malls grew twice as fast as the population. Now the US finds itself with 23.5 square feet of GLA (Gross Leasable Area) per capita! This means you can go into any shopping mall, carve out a 20’x20’ space, and claim it as your share of US Mall Retailing.  And so could the rest of our 321million population.

How did this happen? Can’t prove it, but my answer is that the growth of more and more shopping malls, double what was needed based on the population was based on Gordon Gecko’s virtue-Greed. This was a real estate boom and hugely profitable, with no concern or control over the overabundance and concentration of stores. IF a new mall opened, everyone had to be in there, even if it was a stone’s throw from another shopping area with exactly or virtually the same offerings.

So don’t blame ecommerce for closing these stores- say Thank You. The economy will be better off for this adjustment, and hopefully those displaced will get new jobs downtown.

What about ecommerce? It must be eating so many sales that it is directly causing the retail failures, right? Especially Amazon, right? Wrong. First, if someone is buying clothing on Amazon rather than at Wet Seal (maybe not the same someone), is that Amazon’s fault or Wet Seal’s? You know the answer.

But, in general, while ecommerce is growing strongly and steadily, it is not growing as massively as we generally imagine, nor is it yet making enough of a dent in traditional retail so as to cause economic disruption. Here are the facts, courtesy of the US Department of Commerce : In the first quarter of 2017, Ecommerce total sales were $105.7 billion, a growth rate of  4.1% from the 4^th quarter of 2016. Traditional retail sales were $1,250 billion and increased 1% from the previous quarter (a much more mature sector). So the share of total retail for ecommerce is still only 8.5% of adjusted total. Or, conversely, traditional retail still holds 91.5% share of market.

Now here’s the most amazing part. Everyone has a web site these days, but of the $105.7 billion, Amazon’s first quarter 2017 (global) sales were reported at $35.71 billion. Revenue grew from $29.1 billion the previous year. If not for Amazon, ecommerce share of market would be truly wimpy. So ecommerce is not growing handily-Amazon is. So Amazon is the main reason ecommerce is growing so rapidly, but it is not  the main reason traditional retaliers are closing stores.

Retail spending continues to grow steadily. A growing portion is going to dining, entertaining, and resort areas. Apparel is either not growing or declining. So what does that tell you? It tells me clothes just aren’t interesting enough.

As far as I know, nobody is complaining that there are not enough Macy’s or Sears or Kmarts to go to now. This is because-there are still plenty-if not too many-of them left.

I would suggest to these retailers that they start thinking about their store presentation, merchandise assortments, and general relevance to what the public wants (this starts with buyers who are merchants and can find this relevance-not with spreadsheet keepers).

There are about 1250 shopping malls in the US, predicted to shrink to 900. Given the fact that there seem to be twice as many as needed, this culling of the herd is not a sign of apocalypse, but a needed adjustment-a good death.

More Big Problems From Little Ones-The Story Continues

To begin, please know that the examples given here, and in the previous article on this blog entitled "How to Make Big Problems Out of Little Ones," are real events that have taken place very recently.

The story continues-

The trim for a large order in China, made for a huge customer in US, is delivered to factory in China. The players: The company’s Hong Kong office, the Hong Kong-based manufacturer of the trims, and the factory itself. About two weeks later, when packing is started, it is discovered that some portion of the trims are defective. Now, the factory needs to go through all the trims and make sure to cull out the defective ones. It is unknown how many are defective and if there will be enough good ones to complete packing.

How could this have been avoided?

1.     The factory should have checked the trims when received, not when packing is started.

2.     The company’s Hong Kong office, who ordered the trims, should have checked by, say, having a random carton shipped to their office.

3.     The factory that produced the trims should have their own QC to check before shipping.

Three chances to check and none taken. If even one of three was done, the chances of the current problem could have been minimized or even avoided.

Another example is that of printed ties which are found at the final inspection (by the customer) to have some prints out of registration. Think about that…if someone checked the printed fabric carefully, either at the printer or the tie factory when received, the cost of this problem would have been greatly minimized as opposed to discovering it when the ties are manufactured and packed.

So again, a small problem or one for which damage control could have been done earlier, becomes a big problem. Why does this happen and how could it be avoided?

1.     The obvious is that factories and suppliers, while constantly under pressure for delivery, must take the time to do proper quality control, or it will cost them more time later.

2.     Factories must institute a process by process quality control to prevent small problems from becoming big ones later. For example, a socks factory is found to have some items which must be rejected at final inspection, after having been finished and packed, due to knitting problems. Think about how much money is thrown away by spending all the labour cost to put a product which is defective at the first process through the rest of the processes; worse, what will be the cost of replacing the parts and labor of the defective ones?

3.     In the apparel industry, there is a bad paradigm for quality control. It is called AQL. AQL is a US military-originated system which checks final production for pass or fail based on a number sampling scheme. This just doesn’t work anymore. Process control is needed, then final inspection should be a formality.

4.     Factories in China and other countries must change their mentality and their quality standard from doing what they perceive they need to do to get an order shipped to doing the right thing.

Factories are generally very shortsighted-reluctant or unwilling to change anything that might cost them money-even if the change will actually save them money and improve their quality performance. They need their customers to convince them to embrace a new quality paradigm-process by process control. Once they see the result, they will understand.

Oh, and everybody in the supply chain must be compelled to do their job-not just the final producer.