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Does Bigger = Better?

Vincent Viewpoints Header-vincent-kenGoing back to pre-industrial days, bigger was considered good. The bigger the shire, the more land controlled, the more townships, the more serfs, the more power. Colonization meant that bigger countries were better than smaller countries. Then, later, industry considered bigger as being better. Bigger manufacturing plants meant more production, more sales, more profit, more expansion. That mind-set has of course followed us into today’s world of business. More and bigger stores with bigger lines of inventory meant drawing more customers and stomping out or absorbing smaller competitors. It has been the operating mantra of retails stores, grocery stores, oil companies, and farms.

With the advent of high-tech bigger was the mandate. Whether Apple, or Facebook, or LinkedIn bigger was a requirement to succeed and even to stay in business.

But is bigger always better. Some are beginning to question that theory. Bigger brings other problems such as increased overhead for layers of management, often at a very high price. Bigger often creates poorer service and customer inconvenience. A very large retail store such as a Super Walmart can be daunting and time-consuming for shoppers. Long walks from the parking lot, another long and searching process to find the two or three items the shopper needs. Long check out lines. Look at the service slippage in companies like LinkedIn. Look at how many companies have had to base their “customer service call sites” in India and Pakistan due to bulging needs and lower payroll costs.

So, is bigger always better? Some are questioning that theory now.

Hotel companies started years ago to grow their limited service properties. An overnight guest can pay for using a room and not share in the cost of maintaining huge ballrooms, multiple restaurants, and themed bars that he/she doesn’t intend to use.

Macy’s and Kohl’s are both down sizing, both in number of outlets and size of outlets. They are also reducing inventory, a silent killer of many businesses. Macy’s is selling off several of its mega stores and moving toward a more focused product line. The stock has shot up 7% recently. Kohl’s has announced that it will focus future growth on smaller stores and stop growing the mega-stores with wide product offerings. Both companies will see further savings in being able to shrink layers of expensive executives. Huge stores mean huge parking lots on very expensive land.

Some of the great financial advantages lie in inventory. Smaller product lines and less inventory allows a retailer to sell more of the merchandise at full price vs. having to discount surplus product to get rid of aging styles and surpluses. That equals better cash flow and higher operating profits.

So, is bigger always better? Perhaps not. When customers find bigger creates poorer service or physical inconvenience, then bigger may not be the panacea for all businesses. One has to wonder if the emerging trend will bring back the corner butcher and baker. There is something to be said for being able to walk into a neighborhood store and asking Joe if he has any veal kidneys today. Will customers go full circle and place knowing who they are doing business with higher than being able to buy everything from auto tires, to canned goods, to a non-stick skillet, and baby shoes all in one mega store?

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Ken Vincent
Ken Vincenthttp://sbpra.com/KennethVincent/
KEN is a 46 year veteran hotelier and entrepreneur. Formerly owned two hotels, an advertising agency, a wholesale tour company, a POS company, a leasing company, and a hotel management company. The hotels included chain owned, franchises, and independents. They ranged in type from small luxury inns, to limited service properties, to large convention hotels and resorts. After retiring he authored a book, “So Many Hotels, So Little Time” in which he relates what life is like behind the scenes for a hotel manager. Ken operated more that 100 hotels and resorts in the US and Caribbean and formed eight companies. He is a firm believer that senior management should share their knowledge and experience with the next generation of management.

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2 CONVERSATIONS

  1. Can’t argue with that, Chris. Of course the more layers of management a concept or plan has to filter through to get to the employee/customer relationship, the more chance of it getting watered down or even distorted or lost entirely.

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