MY BIGGEST FIRST-JOB BLUNDER

My first "permanent" or "full time" job was at the head office of this large warehouse club where you need a card to buy stuff. Like Walmart.  This was a "no frills" environment, especially at the head office. Everything possible was done to save costs.

I am thankful that the people I worked with were really awesome. We had lots of fun and despite the long hours, the environment was a fun and stimulating. Merchandise controllers like me were like buyers' assistants. We did a lot of the administrative type of work for the buyers who were often very creative people. 

I was also lucky enough to be involved in the actual allocation of stock to the stores. Now store allocations were very very important. Stock turns (how quick or slow you sell something once it hits the shelf) are key in this type of business. You want to try and sell things quickly so that you can "bank" the money. If you order the right stock and it sells quickly, you can sell products even before you technically pay for the stock. How does that work? Well, our payment terms with our suppliers would have been something like 30 days or 60 days. We therefore only paid them for their products a month or two after having had it delivered to our stores. So if we sold something within like 5 days for instance, we could put that money in the bank the same day. That money would then earn interest for a number of weeks before we actually had to pay the supplier for it. 

So even if you have to decrease the selling price of something, sometimes we could still make more money if we could sell it fast. It is really all about interest. Interestingly, some warehouse club type of businesses take this to the extreme. When I did my Master’s degree in business administration in Germany, one of our professors told us about a similar business in Europe that would fall into this category. They would buy large quantities of “dumped stock”. Like for instance 20 000 DVD players that are very unpopular in Australia. But there is really nothing wrong with them. Many people in Europe would be willing to buy them if the price is right. So the company would then buy that dumped stock for a very low price (remember the retailers or wholesalers in Australia or wherever just want to get rid of it as soon as possible to free up their money so they can buy more popular products). Then the company would sell those products in their stores at zero margin (not sure the professor really said zero and not just a very low margin, but I think he may have meant zero profit after taking overheads and transport and everything else into account). 

So how did they make money? You guessed it. On interest. Because the deals were so good, customers at their many stores all over Europe would scoop these 20 000 DVD players within a couple of days. The warehouse club would then bank the money on the same day. For a couple of months they would then earn interest on that money until they had to pay the guy who dumped the stock on them. Because they were one of the bank's biggest clients, they would probably also get a good interest rate from the bank. Come to think of it, they could even invest some of their sales proceeds in higher yielding assets like real estate (that last part I just thought of, not sure if the professor said that, but it makes sense to me. I doubt whether their interest income alone would be able to cover all overheads as well and not just cost of goods sold). 

Which reminds me of a similar strategy that was explained in one of our classes. The professor or lecturer said that McDonald’s is not really in the fast food business. After an awkward silence, it would be revealed that they are actually in the real estate business. They look for properties at strategic locations all over the world and then put up their restaurants there. So, even if they break even in the actual selling of burgers and fries, they still make money from buying and selling properties. 

Before I write another couple of paragraphs about this business model, let me get back to the reason why you are probably reading this article, especially this far in the article. What was my biggest blunder at this job? I once added a zero when ordering some DVD recorders for a store. I ordered 20 instead of 2. These products were pretty expensive at the time, but the real problem was that they were not a very popular line item and so no one really wanted to buy them. They sat on the shelves for a long time, until eventually we had to mark them down significantly to sell them. Instead of earning interest, therefore, we actually paid interest. That is because we sold them after buying them. Sounds weird, but think about the interest we could have earned if we sold them quick. Also, we wasted some space in the store that could have been used for more popular products. Please leave a comment below...what was the biggest blunder you made in your first job? Have a wonderful day…