Rogue Techies Monthly Meeting: November 2018

NOTE: The following is primarily transcribed narrative from Ray Reid, captured during a recent Tech Talk at the Rogue Techies Monthly Meeting. Some minor changes—a word or phrase here and there—were made to translate conversational to narrative format, or to clarify a concept. Enjoy!

Ray Reid, recently certified by the CodingDojo bootcamp, is transitioning to the World of Technology after having spent over ten years in retail management. This evening, he presented a Tech Talk on How to Formulate Pricing Policies in Merchandising, according to profitability requirements, and the challenges faced by retailers in automating the process.

THE BASICS
Every store or every company has their profit requirements; called EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization); that’s how they operate their business. Retail stores bring in product(s) from a manufacturer. The manufacturer sets the first price for the item—the cost of manufacturing the item—plus a profit margin on the product.

Question: Is the manufacturer setting the Retail Price?
Ray: Well, it used to be that manufacturers would simply tell the retailer what the item would cost them to put it in their store; basically, the Wholesale Price. Then the retailer added some money for theirprofit; called a Markup.

PRICING POWER
It used to be that the manufacturers had the power in the pricing process; setting both Wholesale and Retail Prices. Then, during the ’60s, Walmart entered the picture. They changed the process by asking the manufacturer to name the lowest price they would take for their product; basically, negotiating. That caused manufacturers to focus their efforts on manufacturing their products as cheaply as possible and still make a quarter-cent profit on the product.

THE RETAILER’S PERSPECTIVE
The Retailer has to look at a product and determine whether the product will sit on their shelf and cost more money [fixed costs never quit] while it’s on the shelf (i.e., be a “dog” and take up shelf space), or whether the product will move off the shelf quickly. Every day the product sits on the shelf, the Retailer is paying for electricity, air conditioning, refrigeration (for frozen items), manpower to arrange products on a shelf, etc. The cost to display an item on a shelf inches up every day, so the Retailer is looking for a return on their investment.

CATALOGS; THE ARCHAIC WAY TO ORDER
The way things used to work is: manufacturing companies would offer a large catalog book and store managers would look through the catalog book to select items they wanted for the store; 5 of these, 10 of those, etc. This gave the store managers all the power because, if the store retained their employees, those employees got to know their customers really well and would have an idea of what their customers wanted—and they could order products accordingly. But that was more costly; paying wages and benefits, and dealing with mistakes.

MISTAKES HAPPEN
Ray shared a mistake he made early on in his career: He wanted to buy some cans of sardines. After carefully reading the catalog and noting the minimum quantities, he ordered the minimum quantity (three) of sardines by the case. When they arrived, the cans were on three palettes; 254 cases per palette with 36 cans per case; for a total of 27,432 cans of sardines. This error took six months to sell-through. The error happened to be a typo in the catalog, but the store was liable for the problem, since the distribution center can’t lose money; it’s a pass-through. The way the stores achieve that is they pass along the onus of profit to the stores because the stores are the places that generate revenue for large-scale operations like Target, WalMart and Fred Meyer who operate their own internal—or, corporate—distribution centers.

WHOLESALE DISTRIBUTION CENTERS
There are also independent Wholesale Distribution Centers.

Wholesale Distribution Centers purchase directly from the Manufacturers and then turn around and sell—or, distribute—to smaller stores. They might even sell to larger stores such as Target, WalMart or Fred Meyer if they can get good pricing. Geography plays a big part in this decision.

ENTER TECHNOLOGY
In the past 10 years, retail stores have been steadily increasing their technology in this area. What started to happen was a change in the process: Instead of walking around with a pen and piece of paper on a clipboard, they started providing hand-helds running fairly basic Microsoft O.S. applications. Clerks simply keyed-in the desired quantities. But the bigger companies realized people were still making mistakes; the process was quicker and they weren’t dealing with as much manpower (costs) on ordering, but what they could do was to formulate a code. So they set up a database system at the warehouse.

The system now looks at the quantity you have on the shelf and compares that with a pre-determined number set by the company, which is usually determined by historical sales numbers, and then places orders based on the metrics. Essentially, they’ve taken the whole manpower element out of the ordering process.

Question: When you go around with a hand-held device and scan the bar code on the shelf, does the hand-held display the ideal quantity of the item?
Ray: The scanner checks on the price and quantity on hand. But the company has taken away the ability for a human to make changes to the quantity; the order quantity is pre-set. Then, when the order comes in and is short of what was ordered, the store must do a Gap Scan to determine the differential. A Gap Scan is where the clerk scans the shelf and locates gaps in the product displays. If a gap is discovered, the clerk must record the empty space on the shelf. At that point, the system creates an order for the product and causes that item to be placed on the truck for delivery. There’s a benefit to that process: now the system is updated hourly.

As a retail manager, I would have problems with this system. Originally, the numbers were pre-set by a person at the company. But then, the numbers were tinkered with at the distribution center, and now it tracks the previous (12) weeks of sales on an item and automatically manipulates the number up or down. Management believes this will save them money because now they will stabilize the inventory on the shelf and, when an item has sold-out, the store doesn’t have to wait an extended period of time to replenish stock.

ORDERING PROCESS GLITCHES
But there’s a drawback to that process: If you have a customer that purchases large quantities of an item at one time, on an irregular basis, (e.g., quantity 12 of an item once a month), the system then plans to stock for a greater quantity than will move in the desired time frame and, instead of the item moving off the shelf in a reasonable timeframe, it takes up space in the warehouse. Since the clerk has no way to manipulate the quantity in the system (lowering the quantity to a realistic number), this process doesn’t work in all cases. So the system is doing the ordering on a weekly basis but needs to take into consideration unusual cases for certain items.

FIXING ORDERING PROCESS GLITCHES
Every time the (programmers) do more to automate the process, the changes they make end up creating more work for the retail staff; they must go through the shelves and do an inventory count or a gap count, or over-and-short count to fix the discrepancies.

Comment: So basically, you’re constantly in Beta Mode; everybody who’s working in the warehouse is a Beta Tester.
Ray: Yes. And what’s happening now is that as technology speeds up, and online takes a toll on the general retail store, the retail stores are trying to catch up, and they’re behind. The issue that retail stores are having is: they’re working with legacy software and it’s incapable of coming up to current requirements.

Question: What is the legacy software written in?
Ray: Mostly Microsoft; Windows Server 8 as their server system to the backend computer. But on the backend computer, they’ll be running something a bit above a DOS program, where there is no mouse; you simply do key-entry. And, they still haven’t updated the system. Some companies, like Target, have gone ahead and removed the DOS programs and are using more sophisticated software, but the issue with most stores is that they don’t have the capital or the ready extra funds to invest in technology.

Question: And, even if they did, would they know who to contract with?
Ray: Not primarily. As an example, at PetCo, they updated their phone system, as a way to make themselves relevant; replaced their archaic phone systems in all their stores. They contracted with AT&T to come in and install a VoIP Phone System. What they were running, previously, was three phone lines to each store. Now they only have two (physical) phone lines to each store but they have the capability of 15 lines into each store. And, they were updating their systems of hand-held devices from big hand-held devices to using iPod Touch devices and/or iPads with scanners; basically iPhones that don’t connect to the cellular system. The new idea—or terminology—is: Omnipresent in the stores.

OMNIPRESENCE
The idea of Omnipresence is that the customer can order merchandise at home and wait for the shipment to be delivered to their home, or they can go to the store to pick it up from the store’s current inventory. To prepare for that, the store must increase the accuracy of inventory to ensure the merchandise is on the shelf (or in the back) at the store. Everything now is about the way the customer feels about that store.

PLAYING CATCH-UP
Retail is trying to catch up in a digital world, at this moment.

It used to be a lot of paperwork; filling it out every day, making sure that you placed your orders in on time, and there was enough time to fill the truck so the distribution center could get the merchandise to you in a timely manner.

But nowadays, with the new computer systems they’re putting in, and software and options, they’re having to entice customers into their stores instead of going to Amazon. They’ve streamlined a lot of that. They’ve also streamlined—or shrunk—their warehouse by implementing JIT; Just In Time Deliveries is the current fad. So, when a clerk says they don’t have additional stock in the back room, they really don’t have anymore stuff besides what’s on the shelf; they must wait for the truck to show.

REGIONAL INVENTORY ISSUES
JIT is starting to show some problems in regional areas. In our region, the one thing that really affects these stores is the weather; specifically, snow. When we had that really bad snowfall a couple of years ago, PetCo, wasn’t receiving certain deliveries. And, I’m still trying to wrap my mind around why they made that decision. PetCo has a distribution center in Portland and another one in Reno, NV, and they split what each distribution center handled, by category.

Question: Do you mean, like, 50/50?
Ray: No. The distribution center out of Portland dealt with all the big bags of dog food and cat food; that category. And then, over in the new Reno Distribution Center, they placed the all the little stuff that you would find on the shelves; trinkets, toys, gadgets, whatever.

What was happening was: trucks weren’t able to get out of Reno because the pass was snowed-in. The people at the Reno Distribution Center contracted with a third-party company to move the merchandise from the Reno Distribution Center to the Portland Distribution Center and offload their trucks. Then, at the Portland Distribution Center, the staff re-shuffled the merchandise, put it on trucks and then shipped the merchandise out to the stores in the region. So, while the trucks couldn’t get out of Reno, the local stores would get one truckload of dog food and then, a couple of days later, they might get the little stuff. This resulted in shorts on the shelf and upset customers. This delay in the fulfillment chain threw everything off. I still don’t understand why they made this decision; it might have been better to simply split the merchandise between both Distribution Centers.

CURRENT DISTRIBUTION CENTER OPERATIONS
Now, the company is ordering less from the manufacturer to be sent to their Distribution Center because they reduced the lead time when they computerized the process.

And now, the company is trying to offer ShipToStore or PickUpInStore so the customer can get the item(s) they order—and get the online price.

Comment: That must be cutting into the company’s profit.
Ray: Yes. Most companies that I know of are simply trying to achieve revenue numbers comparable with last year. So, if they did $22 million in sales last year, all they want to do to achieve success is match last year’s numbers. But what’s happening is that they might be selling $21 million or $21.5 million but they’re not even meeting last year’s numbers. And the biggest reason is: online sales. Amazon, WalMart, Target…

If you’re not matching or beating their price, you’re not going to get the customer because the customer is going to go with the lowest price.

THE WALMART WAY
Comment: What I recall, from one of my former clients, is that WalMart would actually go to a manufacturer and tell them how much to produce; they did that electronically. This was back in the ’80s. Really invasive.
Ray: Yes. They have the Negotiation Rooms at WalMart HQ in China, where the manufacturer’s representative will go in, planning to meet with a WalMart Buyer, and the WalMart representative will tell the manufacturer’s representative that they need a particular product for 21 cents on the dollar. “You’re just going to have to do it.”

Comment: WalMart is also well-known for trying to corner the producer market on something. For instance, the CEO of a lawnmower company was told by WalMart that they wanted to put his product on their shelves and they were going to make massive orders—creating massive production security for the next five years—however, since we’re WalMart, the price has to be really competitive but our huge order volume will make up for the lower margins. So the CEO agrees and decides to build new manufacturing facilities in order to meet the projected demands of WalMart. THEN, once the exclusive contract is signed, the manufacturer can’t go to other retail distribution places. Once WalMart has the manufacturer in that position, they can dictate whatever price they want; e.g., instead of selling that lawnmower for $119, we’d prefer to sell it for $99. And, if the manufacturer complains that they can’t produce the product for that price, WalMart says, “Too Bad. Not our problem.” WalMart is so huge, they can dictate what the selling price is going to be. Even if the manufacturer makes a tenth of a penny profit, because WalMart is everywhere, the total profit will at least be better than they might get otherwise.

Comment: It sounds like WalMart turns the manufacturers into their slaves; offering them just enough profit to keep them tethered to WalMart.

WALMART’S LOSS LEADER STRATEGY
Another thing that WalMart did when they were building in Medford was to undercut their own prices. The store might not make any money for the first couple of years; however, they would drive out all the competition; the smaller retail stores in the area. So this is one reason you see downtown areas with empty stores; dead cities. This Loss Leader Strategy is a common practice with WalMart. Grocery stores have Loss Leaders like milk; lose money on milk to get the customer into the store. The cost of getting the refrigerated product to the store, storing the product in a refrigerator, manpower to maintain the stock, all outweighs the profit they get from the milk. But the idea is that the customer won’t simply buy milk; they’ll buy cereal and other items while they’re in the store.

Back to WalMart. Once they have driven out local competition, they can start incrementally increasing the price to where they make a profit. WalMart is so big that, if they lose a couple of million dollars at one store, they can make that up at another store; it’s a rounding error on their balance sheet.

THE COST OF LEGACY SOFTWARE
Stores are trying to catch up on technology and start using it but they’re running into issues because they have their legacy technology and it costs so much to upgrade that technology across their operations and they don’t have the capital; they don’t have the revenue coming in to justify taking on a $30 million debt to upgrade the technology in a thousand stores. So they are playing catch-up.

UNIVERSAL TECHNOLOGY
Question: You talk about legacy technology; is that universal across the board for all retailers or are they all using completely different technologies?
Ray: They’re all searching for a product. Across the board, they’re using Microsoft as their base operating system on their computers. They might be using another O.S. for backend processing.

Comment: I’m surprised that the larger stores aren’t using Oracle or some other enterprise-level product.
Ray: They might, at their corporate HQ, use a more-robust system to capture and aggregate store information, and store it. But, at the store level, most are operating with technology that might be up to 30 years old. Most of the registers are 10-15 years old.

PATCHWORK OF PROCESSES
Question: Do they use proprietary software for their inventory?
Ray: A lot of times, stores have purchased software and customized it to fix the gaps in their other technology. For example, one issue PetCo has is they want to offer Drop Ship but they don’t have a system in the background that can do that. They have basically maxed-out their inventory program and they’re slowly trying to work out replacement processes on the back end. They’re basically operating with a patchwork of processes. They simply don’t have the funds. The stores are simply trying to match revenues from previous years; the goalfor the stores is to not show a negative number from last year’s sales.

HISTORICAL EXAMPLES
Comment: Going back to the ’80s, retail stores (one a lumber store, one a carpet store), the projections were always 15% – 20% more than the previous year. But you’re saying that, for retail chains, it’s not uncommon to simply shoot for getting the same numbers they had the previous year.
Ray: Yes. That’s what I’m talking about.

FollowUp: Mainly due to online, you’re saying?
Ray: Yes. It was the WalMart Phenomenon in the ’90s and they could sort of compete with that by increasing their volume (and, thus, lowering their cost) but then, in 2000, Amazon opened its doors. Now it’s just this beast out there. Everyone wants the Amazon Price.

Comment: And the convenience.
Ray: Yes. What’s happening is there’s a Shelf Price of the same item you find on Amazon, and if you ask the clerk about the pricing, the clerk will honor the Amazon Price—but it has to be from Amazon, not a third party.

THE AMAZON WAY
Comment: I had that experience; I saved $100 a plumbing fixture by showing the store the price for the same product from a competing store. The store honored the competition’s price.
Ray: Yes. What’s happening is that the store is contracted to sell that item for the contracted price, and Amazon isn’t. And the store is undercutting the retail price and showing a shortfall at the end of the year. They’re trying to keep the customer happy to bring the customer back into the store, instead of letting them order online.

Comment: Because the store’s investment is in brick-and-mortar.

CONTRACT PRICING
Comment: I’m not sure what you said about the manufacturer. Does the store have to make up the difference in the suggested retail price and the actual sales price to the manufacturer? IOW, If the suggested retail price is $100 and the store sells the item for $50, does the store have to pay the manufacturer the difference?
Ray: The store is ultimately going to have to pay the manufacturer because they’ve set up a contract for a specific amount of dollars per unit. So if the store undercuts that price because Amazon is selling for less, the store is on the hook for the contracted price per unit.

Question: Isn’t the store obligated to pay for the merchandise when it’s delivered to the store, or is there a 30-60-90 day pay policy?
Ray: Sometimes, there’s a delay when you have to pay the manufacturer; it depends on the contract.

Comment: For a lumber store, it’s net-30 to pay; you have 30 days to pay for the lumber.

INDEPENDENT DISTRIBUTORS
Comment: I want to talk about distribution. When I was getting my Marketing Degree, about 10 years ago, the instructor talked about how the distribution companies have really moved-in and inserted themselves between the manufacturers and the retailers, and the distributors are the ones calling the shots, and I’ve seen this more and more.
Ray: I don’t think so. Because, when WalMart came in, they didn’t work with wholesalers; they went directly to the manufacturers. Once they got big enough, they simply skipped the wholesaler. But what happened then was that Target and Kmart and Fred Meyer changed their distribution setup because they needed to get the same wholesale price.

The grocery store business is different. Depending on the size of the store (or chain), you might work with a wholesale distributor. For example, Thunderbird Mini Markets use Food For Less as their distributor. But if you go smaller than than, Chevrons, Mini Marts, etc. most of their product is delivered by a wholesaler. They might have multiple wholesalers; one wholesaler might only deal with first aid products or barbecue products and another wholesaler might do all the candy and donuts and stuff like that. But that’s a different market because they’re not battling grocery stores because they’re a convenience store and have a smaller footprint; smaller floor space, use less electricity, less manpower. Overall, fixed costs are less than a larger store.

GOOD IDEA GONE BAD
Ray told a story from his early days in retail, about working for a British-based company called Fresh ‘n’ Easy. The company made a huge investment in infrastructure—initially spending $100 million—setting up stores sized at between 3,000 and 10,000 square feet per store. The whole idea was to focus on small grocery stores. 75% of all the products were either theirs or sub-contracted from a single supplier. They went bankrupt. The parent company poured in $400 million before the company closed its doors. This was 2007; then the housing crisis happened in 2008.

Comment: This sounds like the Trader Joe’s Model.
Ray: Interesting. TJ’s still does paper inventory. TJ’s is owned by a German company. Also, they slowly grew their chain. Fresh & Easy bought a whole bunch of real estate and plunged into avante-garde things like self-checkout. Saving on manpower. Using technology to save on manpower. The managers (regionals, districts) didn’t run the place correctly; not enough controls. Too loose. No tight management. They’d try to run the store with 5 people but they’d hire a lot more and then downsize when people didn’t work out.

THE FUTURE OF RETAIL STORES
Question: How will these brick-and-mortar stores make it?
Ray: Things are still shaky. The reason is: Amazon only has to pay for their distribution centers. But Target, WalMart, etc. saw this coming and started having an online presence. If you didn’t have an omnipresence in place by 2009, you probably won’t make it; order anywhere, pick up in the store. Order online and ship to the store. Social Media. Stay in contact. Special coupons. Memberships; Pals Friend, Target Club, etc. have kept them relevant.

WHY TRY TO COMPETE WITH THE AMAZON EXPERIENCE?
Comment: The online experience with other-than-Amazon is so bad that why bother?
Ray: PetCo started a project where, if the customer wanted to return something, they could bring it back to the store, no questions asked; just to make the customer happy. But now they’re losing money.

Comment: It never gets to that point. The online ordering process at Amazon is so good that other retailers don’t even come close. Retail store online software is so bad, it’s not worth the time.

WHAT NEXT?
Question: As Amazon grows, when Amazon’s software becomes legacy, who will take over from them?
Ray: Just like WalMart took over from Sears. Moving away from retail? They’ll run everyone else’s business.

Comment: Amazon is working to provide online ordering for other companies like Target.

SEND IN THE DRONES
Comment: Amazon is looking at drone technology in terms of delivery. Crazy! Are they the first to consider that?
Ray: WalMart patented floating distribution hubs. They drew up some schematics of helium balloons floating above the city and then drones would drop the package at your door. What I see in the future is that there’s going to be a resurgence of small mom ‘n’ pop stores because people don’t want to interact with the Internet; they want to touch and feel stuff they buy; see it in person. Most stores aren’t expanding. You’re going to see a lot more retail leasing. It’s not cost-effective to open a new store. The stores that are still around are competing for all dollars.

MINI DISTRIBUTION CENTERS
Question: Do you think it makes sense to have a Sears store be like an Amazon Hub where you can go in and place your order, and pick it up in two days?
Ray: Two days? Same day! Mini Distribution Centers. Recalling another PetCo joint venture with a partner company: You can order online and have the product delivered to you that afternoon, by a third-party company. There would be a service company that comes into the store and purchases the item from the store, using your special club card, and then deliver the merchandise to you that afternoon. They tried it at the Medford PetCo, for most of the Medford Area. This would beat Amazon by getting the product to you before Amazon.

DELIVERY WITHIN HOURS
Comment: Amazon Instant Prime delivered wine, and other stuff one afternoon in SFO. Then there’s GrubHub.
Ray: Going for loyal customers. Thinking of the store as a mini distribution center. Vitamin center linked with Google to get vitamin orders from multiple vitamin stores and deliver them.

All the retail stores Ray knows of are struggling to make the bottom line; trying to keep up. The projection is that, if a store (or retail chain) is not keeping up, they’re probably going to go out of business. J.C. Penney, Sears, Kmart all went bankrupt. The managers didn’t make the proper decisions to keep up with technology. People stopped going to the malls.

Question: I wonder if Amazon will eventually end up having in-town distribution hubs; brick-and-mortar stores in towns? Or, pickup places.
Comment: It’s going to be cost-prohibitive to have drones deliver stuff.
Ray: Right now, Amazon is testing (in Seattle) stores. A self-serve grocery store; self-pay; no cash; goes on your account.

ROBOTS
They’re making a store that only needs a couple of people to work there. And, I just read an article that talked about a robotic arm that could look at the stuff here, recognize each individual item, and pick up the item and put it away. I can see a time where you’ll be walking down an aisle and see a robot pulling stuff out of its cart and putting it up on the shelf; you won’t need human stockers. They’ll probably run at night, and be more efficient.

In the past, I’ve worked in retail and worked my way up from stocker to lead to store manager, and it wasn’t getting any better at the top. One of the issues I see is that the guys at the top run the store into the ground and, right before they jump ship, they get a (golden) parachute, and then get hired by another company. If you look at PetCo, a lot of the higher-up managers all came from Staples. Staples isn’t doing very hot, either; mostly because you can get the products they sell online cheaper than you can get them in a store.

Question: So there are Golden Parachutes for the higher-ups in retail, like there are in technology? And Wall Street?
Ray: Yes. Any large corporation might offer this perq. They’re trying to improve the technology so they can keep the doors open. If you sit down and take a look at some of these stores’ books, you can see that year-over-year, the revenue is dropping or simply not meeting financial goals.

PERPETUAL CRUNCH MODE
Comment: Programmers are making money, but they’re working 60-70 hours a week. A perpetual crunch.

Comment: But I can’t think of any tech company that isn’t in continual crunch mode. And even 25 years ago, video game companies were in continual crunch mode.

Comment: Yes, I partially agree with that. I’ve been in the video game business for many years and, while we’ve experienced crunch times, we get into a groove where we minimize that. It’s one thing to have a couple of periods a year where we operate in crunch mode—before Christmas—but the rest of the time, it’s a pretty normal job. It’s another thing to be crunching every other week or two weeks out of every month or three months in a row followed by a month off and then another three months of crunch. That kind of crunch is not sustainable and leads to turnover.

Broad Discussion: Working in Southern Oregon is a challenge. It’s easy to become overqualified for the opportunities in the area. You can’t transition into the technology industry from an unrelated one and learn web development and then think you can charge the same rates as very experienced coders who have long resumes to back up their expertise; it’s laughable that someone new would think they could command top dollar hourly rates simply because they know HTML. Some people don’t understand that even experienced techies take a hit from time-to-time. Some people call this Craigslist Syndrome; half of the stuff on Craigslist is overvalued. Some things are priced above what you can buy it for, new. Why? Because it’s theirs and they’ve had it longer.

We just had a guy I’ve known for over 25 years call up and want some work on an older console that they’re developing a new product for, and he needs some low-level C programming for the project because they are doing: “a C Compiler, adding a library, need about 2 months of your guys’ time to come in and help us with a couple of games, set up some libraries, etc. We know that you guys know C…” Sure, we’d be happy to help you out. We’ll put you on the schedule. This is a guy I’ve known forever! We get down to discussing terms, we give him the Studio Bro Rate for a senior guy (the Bro Rate is $150/hour; discounted from the normal $175/hour). He freaked out at $150; wanted $100/hour. Well, who else are you going to get to do it? Well, I don’t know. What he’s going to do is pull in some guys from the company who don’t know what they’re doing, tell them to go buy a book on C, and figure it out.

Comment: That’s why government projects fail; the people they hire don’t know how to code so they contract it out and spend too much money.

LONG TERM: EXPERIENCE VS. TIME
Comment: Businesses can’t even think long-term anymore; only consider quarterly budget; or maybe two quarters. If paying somebody an extra $50/hour will put them over, you simply have to say, “No.” Then he’s got to take his chances. He knows that, ultimately, he’s going to pay more money for junior guys to do the same thing we could have done, but it’s going to be spread-out over 2-3 quarters, and he’s willing to take that hit because he has no choice.

Question: Did you find that to be true in retail, also?
Ray: Yes. I found that they’re behind the 8-Ball on technology in the storefront and when people started buying stuff on the Internet, they simply didn’t get on the bandwagon fast enough. And, when they realized it could be a positive thing, it was already too late. So now they’ve been playing catch-up on the products.

SHIPPING RATE DEALS
Question: Amazon is going to offer free shipping & handling for Christmas. How can they do that?

Comment: It’s called a Loss Leader…they’re getting stuff moved out of their warehouses.
Ray: About Amazon: They’ve negotiated a really good rate with transporting the product with the U.S. Postal Service. On top of that, they’ve opened up, this last year, they’ve launched a business for people to start their own delivery business; $14,000 startup cost. You’re a delivery driver for Amazon. Anywhere. “Uber Amazon.”

FUTURES
Comment: I know that Amazon is kind of branching out into the health field, too.

Comment: Amazon is partnering with Chase’s Jamie Dimon and Warren Buffet of Berkshire Hathaway to do something in health care insurance.

General Discussion regarding health insurance debacles. Over billing, patient chart mix-ups, mis-codings, etc.

THANKS, RAY!
We wish to thank Ray for his thoughtful preparation and excellent presentation of a topic familiar to all of us—and for “lifting the veil” to expose the hazards of computerizing the retail business.