Brilliant. An argument I plan to deploy in future supply chain work.
All this shopping recently got me to thinking…
I always cringe a bit when I see things like this, especially when people outside of the industry see it. It makes the clothing industry look completely evil, but markups exist in EVERY business out there. Otherwise it’s not a business. I can make a graph about how many pennies it cost to produce the alcohol you’re paying $10.00 for at a bar, or how you theoretically are overcharging your consulting employer by 100% because you are not producing a physical product.
Please remember that markups exist so people like me and those that are working to produce these products can make a living. We to need to pay bills, buy food and pay people we employ.
I’m glad someone weighed in on this. Infographics like this can be way too misleading. I have a dog in this fight, so it’s hard to take my opinion as unbiased, but ‘markup’ is kind of a pejorative term. The idea that markups like this only exist in the fashion industry is ludicrous. Look at Apple.
How much should a designer get paid for designing something? How much would you want to get paid to sew the same thing over and over again for 5 days a week? What about the people who work in the warehouse, packing and shipping everything? They need to get paid, as do the drivers, the lawyer that helped right the terms of sale and return policies, etc., etc., etc. If you ordered the item online, what about the web developer, the credit card processor, bandwith fees, and domain name ownership?
Things like this just beg more questions than provide any real answers. Maybe a t-shirt should cost more than $6.70 to produce. What is a living wage? More importantly, what’s a wage that you would take for making something? Maybe t-shirts shouldn’t cost 15-20 dollars because it demonstrates that someone down the line isn’t getting paid fairly.
To be honest that “$6.70 a shirt” price is only going to keep going up. And not just because of inflation. And it should. The rising middle class in China and other developing countries aren’t going to swallow getting paid a few dollars on the hour for too much longer. It’s the same reason why we don’t manufacture things like this in the United States anymore - people want to get paid enough to not only survive, but enjoy their lives.
No one likes hearing justifications for things they find ‘overpriced’. But when’s the last time someone asked you how much your work is worth? Or questioned how much you get paid?
17 July 2013
We will see huge steel gates that automatically rise up from the earth to block floodwaters. River-mouth barrages, many kilometres long, will hold back storm surges, while giant self-inflating bags, that mould themselves to contours, will seal off tunnels and underground railways from encroaching water. Many people will live in houses that, quite literally, float up as the water rises, trailing flexible cables and pipes.
14 January 2013
[My writing, first posted on the Forum for the Future blog. And my first entry of many at Forum!]
“All the old companies need to fit into the new economy.” That’s what I heard from Zipcar founder Robin Chase, upon returning from Christmas break, to discover that rental car giant Avis had acquired the car-sharing upstart. Only as I began to process what this might mean for my favourite way to move a sofa-bed around London, Mike Barry at Marks & Spencer tweeted that ‘old economy businesses’ are buying into the new economy, citing Avis as the latest taker.
After hearing these two, my fears of a Zipcar-as-walking-dead scenario subsided. I started to wonder what the Zipcar’s views are on the qualities an ‘old guard’ business can bring to a partnership with seemingly incompatible new economy ventures.
Avis – and for that matter, all traditional rental car operations – bears hallmarks of the old guard. For one, they serve middle-class, twentieth-century customers well enough. By allowing holidaymakers to get to their final destinations from any airport, by equipping executives with the means to make sales calls, or by providing replacement vehicles for insurance claimants, Avis allows customers to do more of the same – drive. The rental car industry has grown and thrived as a result.
But to succeed, Avis requires another old guard qualification – lots of physical capital. Specifically, tonnes of iron, steel and aluminium, shaped into the form of automobiles, and parking lots, rental desks, and fuel to store it, lease it, and move it around. Behind all this are hefty financing programmes to balance the piles of cash required to buy fleets. For Avis, industrial-strength finance and the economy of scale afforded by over 400,000 vehicles are hand-in-glove.
By contrast, Zipcar is a brave little harbinger of the new economy. Since its beginnings, the company built a new model based on flexibility, scalability and innovation. Fundamentally, Zipcar utilises resources as efficiently as possible. It doesn’t own branches or lots; by locating its cars in car parks, it takes advantage of existing real estate. Sophisticated technology means less staff. For its customers, by easily and inexpensively renting cars by the hour, Zipcar often eliminates the need for personally-owned cars at all. Indeed, this new economy car business actually helps solve problems of personal transportation in gridlocked urban locales.
But Zipcar’s biggest battle has been for capital. An obstacle in rental or sharing start-ups is the need for up-front, sizeable investments in the assets to be shared. I discovered this in my master’s course, while building the financial model for a pram business based on collaborative consumption – and in the financial statements of Zipcar itself.
Capital expenditures must be covered in a reasonable timeframe, with some profit built in to make the venture worth it. Zipcar is acquiring pricey assets, and taking a guess at what cities, neighbourhoods or car parks its assets should ‘live in’ to be available to its most profitable customers. Although the company is now rather good at this, it didn’t have the pockets to finance rapid expansion without posting initial losses, as its public accounts will attest.
Enter old guard Avis, financial machinations in hand. With access to a pool of capital, one which Avis is likely willing to invest, the new economy Zipcar is freed from the vagaries of expanding a rental business. It’s no secret that the rental car majors have access to the lowest new vehicle prices of any industrial buyer – something that is likely to undercut the pricing Zipcar can get by several thousand pounds, thus improving the crucial capital payback period for car-sharing in ‘AvisZip’. Moreover, Zipcar now solves one of its biggest fleet problems – it can deploy underutilised Avis autos to fully deliver on pent-up weekend demand it cannot serve with its fleet alone. (Yes, Enterprise Rent-A-Car still offers $9.99 weekend specials in the United States; traditional rental operators have been trying to drum up weekend demand in their fleets for decades.)
Combining Zipcar’s urban market expertise, marketing cachet, and brand goodwill with Avis’s financial acumen, fleet management expertise and worldwide footprint may yield a very exciting old guard – new economy collaboration, indeed.
Despite Zipcar’s enhanced powers to reduce personal car-use, there’s been a chorus of naysayers across whose concerns range from the ‘blandness’ of adding Avis cars to the fleet mix, to price increases and worries about customer service. If Avis would like to realise a return on its $500m USD investment, I doubt it’ll allow these concerns to materialise. One need only look at Unilever’s acquisition of Ben & Jerry’s, or Molson Coors’ buyout of Creemore Springs, to understand that Avis will probably emulate the management philosophy of ‘separate culture, integrated benefit’.
So, what can old guard businesses learn from the Avis – Zipcar transaction? A few thoughts spring to mind:
I, for one, welcome the opportunity to shoehorn a Freecycle’d armoire into my Avis-sourced, Zipcar-booked hatchback. On a weekend, this time.
14 January 2013