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Margins Are More Important Than the Top Line

Concentration on revenue size is a perennial disease that affects most companies, including warehousing. It is nice to see growth, but even better to see improvement in margins. One major wholesaler discovered that the best way to improve the company was to seek higher margin services and delete low-margin business. Management started by identifying those activities that had slim margins and would likely remain that way. Other services, such as repair, have higher margins than the primary activity. The company deleted some of the low-margin business and concentrated on higher-margin activity, and the result was an immediate improvement in profits.

Warehousing has similar examples. Consider a company formed late in the 19th century in Pittsburgh called General Commodities Warehouse. As the name implied, the company specialized in storing commodities, generally a slim margin activity. The third-generation leader of the company moved from low to high margins by embarking in a field that few competitors dared to touch: the handling of retail store returns. He then shortened the original name to GENCO, and the company concentrated on store returns, also known as reverse logistics. The company was sold to FedEx last year for more than $1 billion. By dropping the low-margin business and specializing in higher profit activities, Genco created a value that its founder would never have dreamed of.

 

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