walkitout (walkitout) wrote,

Observations about High Volume/Low Margin vs. Low Volume/High Margin businesses

Some aspects of business size are driven by market size: you just cannot sell more than so many x to certain groups. Either they lack the resources, just aren't that interested in more even after the price is effectively zero, or whatever. We _think_ consumption is unlimited, but it's not. At all. I'm not talking about that situation.

If you have substitutable goods (and that doesn't mean stuff -- it can mean a service, and the service includes relieving you of things, not just giving you More), and one business can make a small margin of money on a very large volume, and a competing business operates on a much smaller volume but with a much larger margin, the smaller business will probably Go Out of Business. I know you are thinking, well, luxury items vs. TJ Maxx or Kohl's or whatever, but I said substitutable, and if you think those things are substitutable, but then not, well, that's not much of an argument against what I am saying. The Innovator's Dilemma seems to talk about what I am describing, but that author is really looking more at a Worse Is Better (fewer features, worse build quality, less reliably -- but Good Enough and a lot cheaper so as to create a new market as well as cannibalize the existing higher end market) situation.

Again, I'm not talking Worse Is Better. I'm talking Substitutable.

Here is an example, sure to annoy. I want a book, and for the sake of this particular argument, I want a p-book from a major publisher. A particular one. I could get it at Amazon, my local bookstore or a mall bookstore, it will be the same book everywhere, altho I might be able to get it used if it has been out for a while. We know how this is going for the p-bookstores, and they've done everything in their power to make the Buying Experience NOT substitutable, but, alas, they are Really Up Against It, because I can buy it used for a penny with $3.99 shipping if I'm feeling broke, or discounted with Prime (if it's new in hardcover) and get it probably the next day, two days max -- and place the order while watching the author be interviewed on The Daily Show. This Buying Experience is way superior to having to figure out how to get to the bookstore during the hours my kids are in school, which tend to be somewhat occupied anyway, and if the local bookstore doesn't have it, add an hour round trip to the malls. And if it isn't a current and widely available book, I might not even be able to find it in a store I have time to drive to.

But that, ironically, is not what I was thinking about. What I was thinking about was textile recycling. When you've gone through your closets and determined that it is time to move some clothing along (table cloths, cloth napkins, etc.), there are a bunch of options for where to send that clothing. Kids stuff can go to a friend with kids, or a kid consignment shop if it's in really good shape. Adult stuff probably goes to a thrift, altho again there are consignment shops if you dress better than I do and you maybe even have friends you do swaps with. But once you've decided you can't (or won't) resell this thing yourself (even via consignment) and you haven't pre-identified someone you know to "give" it to, the Substitutable Good is Where Do I Put the Bag? Perhaps you go to thrift stores to shop and can drop it off then. (Consignment is also likely in a parallel situation where you think it is sale-able.) But if you don't ever go to thrift stores to shop, then it's truly Where Do I Put the Bag. Given the prices at thrift shops, it is hard to imagine the tax deduction making any meaningful difference in the lives of the person who donates to but never shops at thrifts. While charities offer the tax deduction, taking it is probably more hassle than is justified (I was trying to imagine a person who itemized and had income to offset but who did their own taxes and blah blah bleeping blah, trying to make those few dollars make any sense at all to collect). And the convenience of depositing a bag in a nearby bin versus a shop with limited donation hours is a potential difference.

But here's the real killer. A thrift operates on a business model which is driven by the hope that the donators cannot be bothered to Consign the Good Stuff. They will sell the stuff you may have been able to, then bale up the rest and send it overseas or to a fiber recovery operation or whatever. They'll extract value from it all, but the business model is driven by the high margin of the nicer items. If too little of what lands in their bins is resaleable, their labor costs and facility costs for processing the stuff are too high to be profitable on the rest. And they are Not Shy about publicizing this.

There are, however, for-profit enterprises which have figured out a way to make money off of the lower margin items, but it requires a _lot_ more stuff, and it requires a completely different processing strategy. If you put potentially consignable stuff onto this path, it probably won't go through a process-and-extract-resale-items-locally stage: it'll get shipped somewhere faster and may never be cherry-picked at all. So that's an argument _against_ this system.

But boy, it sure would be convenient if I didn't have to think about every single damn piece of clothing and try to predict which operation might want it and then stage it to go to that location. If the Good I want is Where To Put the Bag of Used Textiles, the for-profit that will take all of it, right now (ideally, pick it up at the house when I put out the recyclables and the trash) is going to Win. And I don't think I'm alone. Many people who donate to charities send them stuff the charities are exasperated at having to process. We _know_ this is true, because they complain about it, often in the same breath that they complain that their input stream is being diverted to fiber recovery by for-profit corporations.

It's easy to think, my gosh, well, you _should_ ... whatever. But it does take a certain amount of cubic to stage stuff, and the trips aren't free, especially if they are by car, and especially if they are additional trips. If we could get the 85% or whatever of textiles that is ending up in landfills into the recycling stream, would we be okay if we lost a few shirts that someone might buy at a thrift to a manufacturer of wiping cloths?

Something will be lost. Borders went out of business. Barnes & Noble is hurting, and the independents are scrambling. Used bookstores have moved online almost entirely. You can say, well, take those nice things to a consignment shop! Or a thrift store! Shop at an independent bookstore! But if they are inconvenient _now_, that isn't going to get any better, and if they are distant now, well, that can only get worse as they close up due to lack of supplies.

We've been here before. Pre-curbside recycling and similar innovations, you could sell aluminum cans (even in non-deposit states) to people whose business was recovering the aluminum. Curbside recycling absorbed some of those -- if they were able to scale -- but it put a lot of the small operators that relied upon self-exploitation of owner-labor right out of business. What really drive the decision to scale up and involve the government and so forth in recycling a new category, however, is current waste stream fractions. As soon as enough _other_ stuff that you can get money for is diverted from landfills, textiles will be top of the list.
Tags: our future economy today
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