A Lesson from Shoe Returns

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Shoe Returns

A popular online shoe retailer delivers your new shoes for free and if you try on your lipstick red pumps only to find you can’t walk in them, you can also return them for free. That’s a great way to overcome the objection that the eyes couldn’t see what those pumps would do to the 26 bones, 33 joints and hundreds of muscles in each foot.  What a great strategy for building an online retailer!

I learned this by going to a neighborhood printing/faxing/mailing store.  Every time I go there to print, fax and mail, I see a mountain of boxes, literally hundreds of them, waiting for pickup and the shoe company’s distinctive brand is all over many of them.  Clearly this neighborhood is into shoes!

I was happy to see that one of my neighborhood entrepreneurs is doing well and I asked him about the remarkable number of boxes with that brand.  He explained their free strategy. Wow, that’s great for your business, I said.  He rolled his eyes.  Turns out big companies, like the shoe retailer and the delivery company make money on the deal because of the scale of their businesses.  The little neighborhood business owner, however, makes about a half dollar per box.

As I walked home, I wondered, could he be losing money from pennies per box?  If there are enough of those boxes, wouldn’t that ultimately make a great contribution to his revenue? Let’s think about that.  Picture a mailing box for shoes.  The dimensions are roughly  8″ X 5″ X 14″.  That’s 560 inches, or about a third of a cubic foot.  Now, imagine a hundred of them. That’s roughly 32 cubic feet.  Say he mails 100 a day on average and gets 50 cents per box. That’s $50 a day in revenue for his small retail store in a neighborhood with high rents.

Now let’s multiply that by 6 days a week for a whole month.  That would be $1,290 a month from a single online retailer’s business.  $.50 per box adds up!  Retail real estate in the neighborhood runs an average of about $37.50 per square foot (per year).  If the entrepreneur is renting 1,500 square feet, he is spending about $4,700 per month in rent.  Is it worth it for him to cover 27% of his monthly rent by handling a consistent flow of shoe boxes?

Many of the 100 plus entrepreneurs we interviewed said regular revenue, even at a discount, is essential for building a business.  Seasonality may have a dramatic impact on your consumer sales. Revenue from large company clients may ebb and flow due to restructuring, mergers and acquisitions, technology changes, and, of course, budget cuts.  The key to withstanding the ups and downs is to have a dependable source of revenue, even if it’s at pennies a box. Will we experience a shoe bubble?  Will the bubble burst and result in no one buying shoes?  Hmmm.  I suspect he’ll have piles of shoe boxes and part of his rent covered for years to come.  Now, the fax machines and printers could be another story…

All the best!




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