Retailing Is Risky Business

The Chinese have a definitive response to risk management. After a high-ranking official responsible for product integrity admitted to taking bribes to approve untested medicines, he was executed.

Lesson, hopefully, learned. At least in China.

Here in the good ol’ US of A, we’re a little more forgiving of corporate and official “underperformance.” Sometimes, we don’t even consider unusual behavior to be beyond the pale.

Take John Mackey, for example. The dynamic founder and CEO of Whole Foods Market has built a $5.6 billion enterprise that is the envy of most supermarket, nay, all, retail leaders. Mackey’s vision of a greater Whole Foods includes acquiring his closest competitor, Wild Oats Markets. Believing any such union would limit competition in the organic-food arena, the Federal Trade Commission opposes the merger. Most retailers, I believe, agree with Mackey, as do I, that the FTC is wrong, that the merger should be viewed in the context of the complete supermarket industry, not just the organic-food segment.

But a fascinating development has surfaced, raising more doubts about any merger. It turns out Mackey was a closet blogger, using a nom de plume—Rahodeb, an acronym for his wife’s name, Deborah—to converse for six years on the Internet on topics ranging from his own haircut to the quality of Wild Oats management to performance assessments for Whole Foods. Experts were divided on the legality of Mackey’s anonymous ramblings. There is general agreement that Mackey’s musings placed himself and his whole company at risk.

Mackey was right in one regard. Executives must immerse themselves in the Web culture so they can stay current with their customers. Time spent online is equally important as time spent visiting stores.

Controlling risk is a never-ending task, especially in these times of credit- and debit-card data theft and product-safety recalls, such as the recent tainted-petfood and toothpaste incidents, both products imported from China. Those incidents placed a spotlight on a dark practice oftentimes seen as a victimless crime. Counterfeit goods, à la designer handbags, watches and sunglasses, and pirated films, abound on the sidewalks of most cities. In Europe, fake bags are even sold outside the boutiques run by the designers themselves. The Paris-based Organisation for Economic Cooperation & Development estimates counterfeiting and piracy cost the global economy an estimated $700 billion a year. American business suffers a $200 billion loss, says the U.S. Chamber of Commerce. It’s all a seemingly harmless joke until one realizes that counterfeit parts find their way into many airplanes and automobiles. Or into pharmaceuticals.

As with many of today’s woes, technology can help. Kodak, for one, has proprietary technologies that can monitor product authenticity. They are marketed to the manufacturer and importer. But it behooves all retailers to make certain their suppliers are vigilant. After all, when products fail, consumers most often rush to the retail store where they purchased the product, not to the manufacturer.

Through their databases, retailers can track most purchasers of suspect products (see page 90 for an example of a proactive retailer’s response to the pet-food recall). Retailing is a risky enough business without having to worry about the integrity and authenticity of the products available for sale or a CEO’s blog.