Why some terrible business models work so well and far better ideas fail is a total mystery. But two of the most profitable industry role models are unlikely businesses that make no economic sense whatsoever, yet both are so immensely successful.
One is debit cards. Whoever thought up that banks could encourage people to deposit all their money in the bank, using their money for free to make high interest loans to others, charging people all sorts of fees to use their own money is a genius. And people want to use these debit cards to pay for tiny little purchases at all sorts of stores, apparently unaware of all the fees that merchants have to pay when people use these cards instead of cash. Now, Wells Fargo is hoping to create a new user fee on debit cards to make even more money off these ripoff cards. Wells Fargo is planning to start with a new $3.00 a month service fee, which may already be in addition to other account maintenance fees that some banks already charge which is around $8.95 a month or so. Debit cards aren’t the same as credit cards, but lower income persons might think they are, and don’t seem to mind paying to use an independent ATM $2-3 to get their own money back. In the old days, there were wallets or purses. These were meant for putting money in. Today, folks think that these are supposed to be debit card holders, making poor people think they’re like better off folks who actually own credit cards because better off people actually have credit while poorer folks are just paying fees on debit cards to banks to use their own money. Genius. Sheer genius.
Another strange business idea that works really well are 7-11 stores. The corporate company springs up new 7-11 stores like weeds throughout the country and then sells these franchises to individual investors at about $191,000 or so for each location, charging them for part of their gross revenues as well as rent on the building. But, some of these stores can bring in $300-400 an hour at peak daytime hours where customers seem perfectly happy to pay very high prices for products even though each location only has about $22,000 in store stock invested, which is almost nothing by grocery store standards. Your average 7-11 has very limited food inventory, yet somehow magically has a gross revenue many times that of independent stores that might have a much bigger investment in store stock. Somehow, the 7-11 brand name draws in customers willing to pay a lot more for most most items compared to shopping at a large discount store. But, with many stores open 24 hours a day, 7-11 stores seem convenient for customers although very few people actually shop at those hours. While these stores sells some hot dogs, nachos and drinks, they don’t account for the huge success of the business model. How these stores sell so much with so little stock on hand is a greater mystery than the loaves and fishes story from the Bible.
7-11 stores also defy explanation for selection as well. People will shop at large stores because of better selection. 7-111 stores cut down selection about as much as you can and still have anything on the shelf to sell. Yet, 7-11 stores work by turning over a small inventory at a terrific rate.
If you’re considering a business, then a 7-11 franchise has to be one of your safest business ventures. Even in a bad economy, these stores do very well.
THE SIMPSONS like to joke about the little independent KWIK-E-MART store which has nothing on 7-11 in terms of gross sales, but maybe far more selection than a 7-11. The difference is the 7-11 works as business model.