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Marketplace on RADIO IQ
Marketplace with host Kai Ryssdal produced and distributed by American Public Media focuses on the latest business news both nationally and internationally, the global economy, and wider events linked to the financial markets.
The only national daily business news program originating from the West Coast, Marketplace is noted for its timely, relevant and accessible coverage of business, economics and personal finance.
Monday, March 10, 2014 6:22pm
Marketplace listener Blake Waller from Denmark, South Carolina asked us what retailers like Wal-Mart, Kmart and other big box stores do with items they don't sell. We went off in pursuit of the (complicated!) answer.
When it comes to food, retailers throw away around 45 billion tons each year. That's about 10 percent of what's on the shelves. A lot of stores donate food that hasn't perished. Walgreens, for example gives away about 5 million pounds of food a year to charity according to Reuben Slone, who runs supply chain for the company.
But when it comes to clothing, household goods or anything with a brand name, it gets a little more complicated.
James Merwin can attest to that. It was 2008 and he had a problem. Actually, he had 30,000 problems.
Merwin was working for a bathroom fixture company at the time. This was when the housing bubble had just burst. People stopped building houses -- and they stopped buying toilets to put in them.
"You go very quickly to almost bursting at the seams with product everywhere," Merwin says. "We had to not just fill our own warehouses; we paid a premium to store it somewhere else because we didn’t have space for it."
This is something that happens in varying degrees to almost every retailer -- from a pharmacy to a big box store. It’s called the "Bullwhip effect," and it means you ramp up to meet what you think demand is going to be, and then demand falls off. It’s at its worst with seasonal stuff like plastic Christmas trees or clothes that go out of fashion.
Mark Barratt teaches operations and supply chain management at Marquette University. He says the first thing stores do is cut the price.
"Target has a pretty clear schedule of how long the product is sitting on the shelf before it gets discounted."
Barratt says big box stores like Target systematically cut the price until it’s roughly 70 percent off.
"If it's still unsold from there, they are likely to liquidate it or in some cases donate it," Barratt says. "Or sell it to one of these discount stores like T.J. Maxx or Marshalls."
But brands can be sensitive about their products ending up in outlets or in resale shops.
"The primary concern is the impact on the brand. Suddenly it’s, ‘Hang on a minute! We’ve spent all this time and money creating this image that we’re an upscale retailer, and now suddenly you can buy our products for 20 percent of the price if you’re just prepared to wait long enough and go to a different outlet store.”
And that same problem pops up with donating.
The trouble is, if you’re not careful, what you donate might end up on a Manhattan sidewalk sale, competing with you in front of your own store.
So many companies choose to shred, incinerate or simply throw away the stuff they can’t sell. That maybe part of the reason nearly 21 billion pounds of textiles end up in landfills each year, though a lot of that comes from us customers.
Barratt says the best way to deal with unsold merchandise is to not have much of it in the first place.
That’s why the most powerful weapon in the corporate arsenal is logistics.
Walgreens sells 18,000 different things at 8,200 different stores. That means they have to make 160 million predictions about how much merchandise to order and put out every week. Obviously, they use computers, but they also have some pretty complex data to crunch with those computers.
“What we’re trying to do is predict human behavior,” says Reuben Slone, who runs supply chain for Walgreens. “Everything that we do is based on a forecast, and that forecast is based on history.”
Take cough syrup, for example.
"We use a lot of factors," Slone says. "Everything from weather reports to adjacent product that’s purchased. For example, if there’s a spike in aspirin and toothbrushes, that might be an indication there’s an outbreak.”
They start predicting a year ahead of time, monitoring incidences of flu around the country.
"I tell people it’s like rocket science," Slone says.
The key is having lots of history and data. And Slone says they’ve learned some fun tricks about demand this way.
"On Christmas Day we sell more bacon than anyone else in the United States. We even have a bacon report for the Christmas holiday to monitor that."
New products or fashion lines are what really involve some serious guesswork. But for any supply chain, one wrong move or bit of bad luck, and you can have a stack of 30,000 toilets on your doorstep. Just ask James Merwin.
"It’s as much an art as it is a science," Merwin says. "And it’s a rodeo, or as I like to say, it’s a roller coaster."
Whatever analogy you choose, you’ll be happy to know that Merwin did sell all of his toilets after all. He just had to discount them. No crushing or crumbling required.
Monday, March 10, 2014 5:12pm
Fyffes plc may not be a familiar name in to U.S. consumers, but it means "bananas" in Europe, and the company is the world's fourth-largest purveyor of the fruit.
And despite the impending bananapocalypse, as discussed on our show last week, U.S.-based Chiquita Brands has purchased the company, creating a $4.6 billion empire (which also includes pineapples, melons, and other fruits).
The companies say they expect to save $40 million by the end of 2016, a number that sounds low to Brett Hundley, a senior equity analyst who watches agribusiness for BB&T Capital Markets. He thinks consolidation will give the new company more leverage with both suppliers and with supermarkets.
"It will provide them more power at the negotiating table each year," he says.
That's been a problem for companies like Chiquita in recent years, says Edward Evans, an economist at the Center for Tropical Agriculture at the University of Florida. As supermarket firms consolidated, he says, "They were able to say, 'Well, we're going to pay you less for the bananas.'"
Monday, March 10, 2014 4:38pm
Hussein Kurji didn’t have to look far for inspiration for his latest project, "The Samaritans."
"I had heard a lot of stories from aid workers in and around Nairobi, and I thought they’d make for good television," he says.
What he came up with was a “The Office”-style mockumentary that tackles nepotism, sexism, racism, and misplaced idealism.
Criticisms of non-governmental organizations aren’t new, and Kurji makes sure to acknowledge that many do excellent work in Nairobi, Kenya where he’s based.
“We decided to show the funnier side, the crazier side of NGO culture,” Kurji said.
He emphasizes the stories are exaggerated for comedic effect.
"It is a work of fiction, but we weren’t naïve, we knew that there would be conversations around the topic."
For now, they’re using their website as their source of global distribution. They have already released the first two episodes of the series. Viewers can rent the show using PayPal. Kurji says they hope to get distribution soon through Hulu or Netflix.
Monday, March 10, 2014 4:21pm
The Ukrainian economy is one big mess. The country has zero percent growth. Its currency is plummeting. Its credit rating is worse than Greece’s, and its black market economy is one of the biggest in the world, depriving the government of much-needed taxes. The government owes billions, including nearly $2 billion to Russia for fuel.
Bad leadership and corruption are at the root of Ukraine’s problems, says Anders Aslund, an economist at the Peterson Institute for International Economics and a former advisor to the country.
"President Victor Yanukovych had one aim for his economic policies – enriching himself as much as possible together with his family. He didn’t care much about the rest," Aslund says.
That corruption has scared off foreign investment in a country that has agriculture, steel, rocketry and even its own (under developed, critics say) natural gas resources. Ukrainian leaders say they need at least $35 billion to start fixing the mess they’re in.
Monday, March 10, 2014 4:02pm
The fraternity Sigma Alpha Epsilon turned 158 years old over the weekend -- and it also banned pledging. SAE is one of the largest fraternities in the country and it’s gained something of a reputation for its intense hazing rituals during pledge period. At least 10 fatalities have been linked to hazing-related activities at SAE since 2006, including the death of a 19-year-old Cornell student, whose mother sued SAE for $25 million.
"We realized that a lot of people might have a bad perception of Sigma Alpha Epsilon, which we regret," says Brandon Weghorst, spokesman for SAE. "Because we know all the good things that our members do every day that don’t get attention."
Now students who want to join SAE will simply be invited. It’s been a controversial decision: on SAE's Facebook page, one person said the frat was throwing the "baby out with the bathwater" and punishing everyone for a few people's bad decisions.
But others think SAE didn't really have a choice.
"I think they found themselves in a very untenable position," says Ron Binder, associate dean of students at the University of Pittsburgh at Bradford. "It’s not sustainable given the number of injuries and deaths and number of lawsuits." Binder’s fraternity, Sigma Phi Epislon, did away with pledging back in the 90s. Binder says since then, the frat’s membership, GPAs and community service hours have gone up.
But will a pledge ban make a difference?
"I really think that this pledge ban is semantics and public relations," says Andrew Lohse, who pledged SAE at Dartmouth in 2009 and is writing a book called Confessions of an Ivy League Frat Boy. "Before this, this organization said they didn’t allow hazing, and there was a hazing hotline, and all these things… This policy change probably won’t accomplish a lot to actually curb the on-the-ground hazing events."
Lohse doesn’t think hazing will really go away until fraternities and sororities do.
And those fraternities have some powerful alumni out to support their cause:
- Warren Buffett, CEO of Berkshire Hathaway - Alpha Sigma Phi - #4 on the Forbes Billionaire’s List
- The Koch Brothers (Charles and David), Koch Industries - both Beta Theta Pi - #6 on Forbes Billionaire’s List
- S. Robson Walton, Chairman of Walmart - Lambda Chi Alpha - #14 on Forbes Billionaire’s List
- Paul Gardner Allen, Co-founder of Microsoft - Phi Kappa Theta - #56 on the Forbes Billionaire’s List
- Phil Knight, Co-founder/chairman of Nike - Alpha Epsilon Pi - #446 on the Forbes Billionaire’s List
- Bernard Marcus, co-founder of Home Depot - Alpha Epsilon Pi - #446 on the Forbes Billionaire’s List
- Jerry Yang, Founder of Yahoo! - Phi Kappa Psi - #828 on Forbes Billionaire’s List
September 23, 2013