Marc Levinson

Tag: Retailing

  • Digits Aren’t Always Free

    On a recent road trip, after yet another cup of tasteless hotel coffee, my wife and I ordered lattes at a trendy roastery. “That’s $10.36,” the cashier told me, turning the payment screen in my direction. When I laid a twenty-dollar bill on the counter, he changed his tune. “If you’re paying cash, it’s $9.96,” he said. Our coffee had suddenly become four percent cheaper.

    Credit card surcharges seem to be popping up all over the place, often without notice to customers. The reason is obvious: accepting cards costs merchants money. That coffee shop would probably have paid 2.6% of the transaction amount plus 10 cents — a total of 36 cents — to ring me up on its Square terminal, and the typical per-transaction cost to a small business using Stripe, 2.9% plus 30 cents, might have been even higher. The bank that issues the card takes a share of these fees, and some goes to network operators like Visa and Mastercard. With so many intermediaries, running a cashless business can be expensive.

    But accepting cash isn’t a costless alternative. Cash gets stolen. It must be counted and secured. Someone must cart it to the bank. And banks don’t want it, which is why they often charge business customers for depositing coins and currency.

    The bottom line: while a cashless sale would have been more efficient for me, the coffee shop, and the U.S. financial system, frictions in the market led me to pay with a twenty-dollar bill instead.

    This mundane story is worth pondering. Companies, industry groups, and standards organizations are pushing to standardize digital information concerning everything from home sales to import supply chains. This is touted as a way to cut costs. But if gatekeepers are able to tax the flow of information, as they do with credit cards, the benefits of doing away with paper may be less than expected. Digits aren’t necessarily free.

  • Too Much Stuff

    The U.S. distribution system is stuffed with stuff. Business inventories in April were up nearly 18% from a year ago. Inventories at non-auto retailers were up 20%. One merchant after another — Target, WalMart, Costco, even mighty Amazon — has reported disappointing earnings and is marking down excess merchandise like crazy. Merchant wholesalers — a category that includes companies that import everything from washing machines to smartphones for sale in the United States — show much the same trend.

    The reason for the excess inventory? Simply enough, consumers have stopped spending with abandon. As shopping habits revert to prepandemic norms, inflation decimates buying power, and home sales stall, the demand for consumer goods is stalling as well. This trend, visible in Europe as well as North America and parts of Asia, means that fewer consumer products and the inputs required to make them are moving through manufacturers’ and retailers’ supply chains. International trade in goods, which soared in 2021, is facing a decline. Construction of new distribution centers is grinding to a halt.

    The logistics industry has been slow to pick up on the implications. Some transportation companies and freight forwarders have issued glowing forecasts for the months ahead. Many ports are expanding in expectation that the trade boom will linger, and some that have rarely seen a container ship are investing to lure vessels that may never arrive. Shipbuilders’ order books are full, including many orders for vessels large enough to carry 24,000 20-foot containers. As globalization enters an era in which manufacturing value chains matter less and consumer spending is anemic, this enthusiasm for adding capacity is hard to understand.