STORES Magazine - April 2009 - (Page 23) Does the retail industry have all the answers? Not by a long shot. Industry experts are among the first to concede that retail companies have made mistakes along the way. Still, it might not hurt for Wall Street executives to take a peek at how companies like Wal-Mart, Best Buy and others run their businesses. There may even be a handful of lessons from retail that Wall Street could apply on its journey toward recovery. And here’s a perk – it’s free. Lesson No. 1 where near as much as a credit default swap. Good retailers don’t sell items that they don’t understand or don’t believe consumers will see a need for. What’s the point? They would only end up having to mark down the item to sell it – and there’s a very good chance that they’d lose money along the way. Retail companies are not in business to confuse shoppers. In retail, it’s all about having the right merchandise in the right place at the right time. And, it’s about marketing items to consumers in such a way that you’re sure they understand its value proposition – singing fish sales notwithstanding. A big chunk of Wall Street’s current troubles stem from the sale of complex derivatives — presumably by astute people who didn’t fully understand what they were peddling to other presumably astute investors who were similarly perplexed by what they were buying. Apparently, no one was listening when warnings were raised by George Soros, one of the world’s foremost investor-speculators, who avoided using derivatives “because we don’t really understand how they work,” and Warren Buffett, who once described them as “financial weapons of mass destruction.” f somebody calls himself a liar, maybe you should believe him. Trust, but verify. This Reaganism dates to the 1980s — around the same time that Walton was doing the hula — but the current crop of lenders and investors never got the memo or, more likely, skipped that chapter in “Personal Finance for Dummies.” The principles of “trust, but verify” are etched into the way retailers do business. Retailers expect a customer to pay for an item at the point of purchase. They’re not in the business of “running a tab” or dealing in promissory notes. TransLesson No. 2 WWW.STORES.ORG A singing bass may be perplexing, but it doesn’t stink any- actions are immediate, whether the purchase is made with cash, credit, debit or check, and retailers know the customer. And, on the off chance that someone tries to walk out without paying for an item, retailers call that stealing. Credit checks are routine across retail channels. Sure, mistakes can happen, but retailers don’t generally accept credit cards that are declined and they make every effort to reject bills that may be counterfeit. Online payments are evaluated and verified in seconds in an effort to lower risk and weed out potential hiccups. Many homeowners now facing foreclosure claim they didn’t understand how a liar’s loan worked: They trusted lenders who led them to believe that getting a mortgage for a home they couldn’t really afford without having to provide tax returns, employment history or much of anything else would somehow work out. For their part, the banks never got to know the customers they were granting loans to; they trusted that someone else had done the homework. Trust without verification is a recipe for disaster. Most would like to believe that lying is something few people do. But in this instance, the term “liar’s loan” is strikingly apt: no ambiguity here. The blind conviction of homeowners caused the housing market to crumble; that same blind conviction rippled throughout the financial world, destroying investors’ portfolios. old the spaghetti sauce. If Tiffany began selling chopped sirloin and spaghetti sauce, would shoppers queue up to buy? Do Walmart shoppers expect the reigning champion of everyday low prices to start selling Rolex watches? Retailers have learned (and relearned) that focusing on what you do best yields the greatest return. Leveraging what you know to expand your business is smart; Gap and Abercrombie & Fitch can attest to that. But if Macy’s decided to get into the used car business, one would hope investors would raise a cautionary hand. For decades, American International Group (AIG) was considered an insurance empire. The firm’s focus on its property-casualty insurance and foreign general insurance businesses was razor sharp. In the late 1990s, however, AIG began selling credit default swaps, plunging headlong into perilous new markets. As the debt securities created by Wall Street became more complicated, so did the swaps AIG offered. Eventually, the side business overtook the main business — with catastrophic results. Heck, the entire country of Iceland seems to have forgotten to “be who they are.” For all intents and purposes, Iceland’s fiLesson No. 3 STORES / APRIL 2009 23 H I http://WWW.STORES.ORG
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