THE WAR ON COLLEGE EDUCATION. PART 2

I was at the Target store in Emeryville today. It”s a fairly large store with 12 checkout lines – but only 1 live cashier was on duty. Customers were encouraged to use the self-checkout registers instead. From a practical standpoint, customers didn’t have much choice. There was a long line of people waiting for the 1 live cashier. The same thing is happening at supermarkets everywhere. Supermarkets and lots of other stores are replacing cashiers with self-checkout registers. Did you read that Amazon just opened its first 100% self-service convenience store in Seattle? It’s like a 7-11, but with no cashiers, none at all. Amazon plans to open these stores all over the country.

According to a new study by the McKinsey Global Institute, robots and automation will eliminate 800 million jobs around the world by 2030. As shocking as this number may sound, it is in line with other studies on the same subject. The jobs most likely to be eliminated by automation are low-skilled, low paying, repetitive jobs. You don’t need a crystal ball to know this is coming. Just look at what’s happening to cashiers. And it isn’t just cashiers. All sorts of jobs are being eliminated by automation and robots.  The jobs of the future will require more education than the jobs that are disappearing. What will happen to the U.S. if our educational system is producing mostly high school graduates who are only qualified to work at the kind of jobs that are disappearing?

WHY DON’T INTERNET RETAILERS MAKE MONEY?

Most people assume that internet retailing is a very profitable industry. Internet sales are growing rapidly, and internet retailers don’t have the enormous expense of operating brick-and-mortar stores, like the ones you see at shopping malls. Because of internet retailing, hundreds of departments stores and shopping malls have closed all over the country. It seems like internet retailing should be a gold mine, but it isn’t. The sad fact is this – most internet retailers lose money, a lot of money. And it doesn’t seem that its a question of size. In most cases, the bigger an internet retailer is, the more money they lose. Even Amazon loses money. Over the past 20 years, Amazon has only made a profit in few quarters but lost money the rest of the time. Amazon makes money on some of their services, especially Amazon Prime, but they lose money selling merchandise, and they always have. Amazon may someday become profitable, but if that happens, it probably won’t come from selling merchandise online. So what’s the problem?

The problem is the cost of shipping and returns – especially returns. About 10% of all the merchandise purchased in brick-and-mortar stores is returned, but 20% to 30% of all goods purchased online is returned. Even worse, 30% to 40% of all the clothes and shoes purchased online are returned. Still worse, most internet retailers pay the shipping both ways. Add to that the labor costs for filling and packing orders and then unpacking and processing all those returns. Then add to that the fact that most returned merchandise cannot be resold for full price. Some cannot be resold at all, like damaged clothes and toys. Some can be resold, but only at a discount, like the ‘out of box’ TVs at Best Buy. However, most returned merchandise is sold to liquidators, and they pay just a fraction of the good’s wholesale cost. So, why don’t internet retailers charge for shipping or adopt less generous return policies? Well, they would if they could, but they can’t. People who buy stuff on the internet have gotten accustomed to free shipping and returns. People take it for granted. Besides, who would buy something like a pair of shoes online if they didn’t know that they could easily return them for a refund if they didn’t fit? But most important, internet retailers know that if they charge customers for shipping or for returns, they will quickly lose those customers to other online retailers that still offer free shipping and no-cost returns. Until internet retailers figure out some way to significantly reduce the cost of shipping and returns, I don’t see how the industry will make money.


Of course, things are very different for retailers that just sell their own brand products, like Ikea, Godiva, and Gap. Because they are just selling their own products, they have pricing power that general merchandise retailers do not. If you are considering a career in internet retailing, think twice about it. Remember that we live in a market economy. Making a profit is not just a desirable objective. A company that fails to make a profit must eventually go out of business.