#5 – Hal Compton

Mark Taylor:

Welcome back to Supply Chain Saga. I’m your host, Mark Taylor, and in this episode, I’m joined by Hal Compton, the CEO of Image Microsystems. Hal began his career in retail with CompUSA in 1996. He’s participated in the rise of e-commerce, becoming a successful serial entrepreneur along the way, and has even taken one of his companies public. Today, he’s at the forefront of tackling the massive problem of returns and clues us in on what can go right when you follow the customer. Let’s dive in. And with that, we are live. How are you doing today?

Hal Compton:
Every day is an awesome day at Image Micro.

Mark Taylor:
I like that. I love that. So how about you just take a second, introduce yourself, and we’ll go from there.

Hal Compton:
Okay. My name is Hal Compton, and today I’m the CEO of Image Microsystems. Tomorrow could be a whole nother story, but that’s where I’m at today.

Mark Taylor:
And tell me a little bit about Image Microsystems.

Hal Compton:
Image Microsystems started as a break-fix company for major retailers, Best Buy, CompUSA, Circuit City, Fry’s, back in the day. So the company’s been around about 27 years. It morphed over time into a refurbishment company. I bought it about seven years ago and moved it from Austin, Texas, to Dallas, Texas, and started doing refurbishment for Hewlett-Packard. And then that turned into doing all kinds of weird projects for a very large e-commerce company, returns, repairs, refurbishment. And so today, we are now returns refurbishment, and then starting in February, we open an additional warehouse that does 3pl pallet in and out.

Mark Taylor:
Okay.

Hal Compton:
That’s where we are.

Mark Taylor:
So reverse logistics is one of those really hot topics right now. I was able to see a gentleman from the RLA, I believe.

Hal Compton:
Yes.

Mark Taylor:
The Reverse Logistics Association and they were… in their presentation, they said that ReCommerce, or not ReCommerce, but returns and specifically are up to about a one trillion dollar problem per year. And I don’t know exactly the math, but we can… we’ll assume that it’s thereabouts. And then one of the other shocking things that came back was we’re seeing about 60 million tons of e-waste. So that being electronic waste.
So somebody… Obviously Walkmans aren’t a thing anymore. But somebody has to send a phone, or the phone doesn’t work for them, they return it. And in many cases, that that’s ending up in a landfill or being, quote-unquote, recycled. So this is a very, very interesting topic for me, especially after hearing some of that. The million-dollar question for me in this moment is how did you get into reverse logistics, repairs, returns? That’s not a… I don’t feel like that’s a very typical pathway. So I’d love to hear how you got into it.

Hal Compton:
It’s not a typical pathway. I grew up… I’m a retailer by trade, so I grew up through retail stores. Actually, I grew up through CompUSA stores when they existed.

Mark Taylor:
Wow.

Hal Compton:
Did that for 12 years. And after that decided to start my own company with my father, who was the CEO of CompUSA for 14 years. And when we started our business, we actually started in medical, and then medical morphed into handicapped vans, and handicapped vans turned into a public company. And then we sold that. And then after we sold that, we bought a furniture company, and the furniture company while I had just purchased that somebody that used to be the president of Image Micro, he was the president here. He used to be an executive with me at CompUSA.
And he reached out to me one day out of the blue and said, “If you were running this company, we could five times what it’s doing.” So after 24 to 27 years, he didn’t feel there was any more growth opportunity, so he reached out to me, I came and visited the company, and a couple of months later, I own the company. So that’s how I got in. And I knew nothing about refurbishment. All I knew is, from a retail perspective, I knew how to sell printers and laptops.
But from a reverse logistics, how do you buy them, repair them, go through all the regulation that you have to with Hewlett-Packard to then get them ready to go back out for sale? I knew nothing. So luckily, I have a good team. My management teams followed with me. Almost all of us were Comps graduates, and they’ve stuck with me for about 20 years. So I’ve owned about 10 or 12 different companies over the last 12 to 15 years. And, like I said, this is the latest.

Mark Taylor:
The thing that popped into my head as you said that was most people from 20 to 40 will change jobs. I think it’s 10 times. I don’t know that I’ve ever met another serial entrepreneur that has owned 10 to 12 companies in as many years.

Hal Compton:
Yes. And that same… I was 34, 35-ish. So in 15 years. Yeah. I’ve almost owned a company a year on average.

Mark Taylor:
Wow.

Hal Compton:
So hasn’t quite worked that way.

Mark Taylor:
And I’m assuming every single one of them was an absolute smashing success, right?

Hal Compton:
No. A few were huge duds, but a few have turned into home runs. And luckily for me, this one, we’ve always had the philosophy of follow the customer. So again, we started doing refurbishment, and because we were doing refurbishment, that brought a large e-commerce customer in, and they saw what we were doing for Hewlett-Packard, and they’re like, “We want you to do that for us.” So that led into starting to do stuff for them. And then, all of a sudden, they came and said, “Well, now you’re doing repairs, but can you do this? And we want to test something with you.”
So okay. So three or four years ago, I ran a test on 120 truckloads of huge stuff, refrigerators, kayaks, sheds, weird stuff. So I ran that test for about a year for them, and then that led into, “Well, can you do our returns?” And I said, “Sure.” And before you knew it, I had 1,400 trucks, and I had to get three warehouses here in Dallas. And I went from a little 160,000-square-foot warehouse to over 600,000 square feet and went from 60 team members to almost 850 team members in three months. And we handled returns for them for two years.
And then that test ended, and then they said, “Well, test this and test that.” So whatever the customers want. And then, a few months ago, I had a couple of customers, “Well, can you store our product? Sure.” So we rented a warehouse five miles down the road, and now I’m back in two warehouses and now I’m officially called a 3pl. So it’s amazing where life can take you if you just listen to what your customers want.

Mark Taylor:
Yeah, absolutely. So there’s about 10 things I want to lob onto and dig into, but let’s start… let’s go back to more of the origin. What was the conversation like with your father that said, he’s CEO of CompUSA, everything’s going great, or maybe it’s not? And he says, “Hey, let’s look at this.” And it was a pivot away from electronics, really. So how did that happen? What was that like?

Hal Compton:
Okay. Well, my father actually retired in 2005. So after he retired, I stayed on with the company for two more years. I was the vice president of stores and operations by then. And I stayed on, and as the company floundered because after he left, we went through three CEOs in less than three years. So he ran it for 14 years, and then after he left, nobody could hold it together. So I left. And when I left, actually, I went and interviewed to be the president of Abercrombie & Fitch, and it was the most horrendous interview I’ve ever been involved in my career.
And as I’m walking with the CEO through what my plan would be to right the company and I start talking about how stores should be run and this and that, the guy interrupted me and told me, “Well, none of that… I don’t care about any of that. I just want pretty people.” And I’m like, “Well, that’s why you’re in the problem you’re in right now.” And then, as we continue to talk, he basically told me everybody that worked for him was an idiot and that they were stupid. And I’m not the smartest guy you’ll ever meet. I mean, I’m the most self-proclaimed, charming, and delightful one you’ll ever meet. But I’m not the smartest. And so I knew I was going to end up working for that guy, and I just didn’t like the attitude.
So I flew home from that interview, and I sat down with my father, who was retired, and we were actually kind of laughing and talking about all the knuckleheads that we had worked for over the years. I included my father in my list. He didn’t include himself in any of the list. And we started laughing and talking about it. And that’s when my father said, “Well, maybe it’s time for us to be the knuckleheads.” So he said, “Why don’t you go find a business and let’s go start our own company.” So I went out, started researching different companies based on their profitability, and we ended up picking a durable medical equipment company, which I knew nothing about. Hospital beds, wheelchairs, power chairs, oxygen, they were just very profitable.
So we ended up buying a durable medical equipment company and starting with that, and then it just morphed. And before you knew it, we turned it into a hundred-million-dollar company doing handicap vehicles, which had nothing to do with the origin of where we started. But again, we followed the customer, took it public, and, after five years, became the largest handicap-accessible dealership in the country. And then somebody came and bought us. So that’s kind of how we ended up on a weird entrepreneurial twist is one bad interview changed my life.

Mark Taylor:
So when you say you were looking at them, were you going to business brokerage sites and you and you’d look at listings, or how were you getting into it, and how did you identify that the profits of that company were just so fantastic?

Hal Compton:
I started by… Yes, actually this was back in 2008. So just started looking at websites for businesses for sale, and then that led me to a few brokers, and then I met a couple of business brokers. And then, when I met a couple, they each have kind of their listings and what they’re focused on.
And even though I lived in Dallas, I ended up meeting a broker out of Florida. And he had a very profitable, durable medical equipment company for sale in Mobile, Alabama, which was not where I expected to buy my first business, but that’s where we ended up buying a little three-million-dollar business to start.

Mark Taylor:
What were some of your takeaways? I guess I have friends who’ve done… gone down that exact path, and every single one of them has a gotcha story. And I find it actually rare that there’s not at least one because it’s like you don’t know what you don’t know. What were some of your… Were there any gotchas in your mobile durable goods business?

Hal Compton:
Almost immediately. So you buy a company, you look at it, you’re like, “Okay, we can run this.” We thought we went small or small enough. But what you don’t know when you get into a business as an entrepreneur, which I’m sure you’ve run across too, is you don’t know the unknowns because you don’t understand… Well, if you buy into an industry you don’t understand, you don’t understand what the gotchas could be. We bought in and didn’t realize that Obamacare was about to be enacted and was going to absolutely devastate that niche.
So yes, they were very profitable. And back in the day, there was a company called the Scooter Store, which was running ads like every 20 minutes that you could get a scooter or a power chair just by calling them. But Obamacare ended all of that. And as soon as… almost as soon as we bought the company, within six months, Obamacare got enacted, and all of a sudden, I’m making up a number, but if you got paid $1,500 for a power chair, Obamacare now said, “$999 is the new limit. Take it or leave it.”
And they just came out with a entire cut across the industry. So it’s tough when you model a company that you think they’re going to go forward at their current rate, and then the government steps in and literally cut your profits by 25 to 50% overnight with the act of Congress just enacting something. We were not prepared, nor did we think that would ever happen. That was a big gotcha.

Mark Taylor:
Uh-huh. So then how did you… Keeping in this theme with following the customer, how did you identify the places that took you from a three million dollar business to a hundred million dollar business?

Hal Compton:
It started… Again, it’s some of those weird things. And our intent was we were going to buy up a bunch of these durable medical equipment companies. We were going to consolidate them, and we are going to almost turn it into almost retail all over again, but that way, we’ll go learn the business. And then I’ll buy out mom and pops across the country, and we’ll have kind of our locations very similar to how retail works. So that was our intent. When the profitability got crushed, we said, “Well, this isn’t going to work.” So we started looking into other pieces that [inaudible 00:14:31] could be a bolt-on so we could keep that and do something else.
So we started actually chasing the pharmacy business, which, again, I knew nothing about pharmacy, and we had a deal to buy a seven-chain pharmacy and worked on… I worked on it for almost four months, and we got to the closing table, and the guys, literally at the last minute, tried to squeeze an extra million dollars out of the purchase price out of us, and we got up and walked away. So I went home that night, got on the internet, started looking for other bolt-on businesses that would be in that realm, and I found some little handicap-accessible van dealership in Florida that was for sale. And I just sent a random email.
And the broker that sold me the durable medical equipment company a year and a half or two years earlier reaches out to me the next day and goes, “That’s my listing. So out of anywhere on the internet, I could have typed in, I ended up running across the same exact business broker, and he literally set a meeting up within a day. And my father and I flew down to Florida, checked that place out, and said, “Oh, that’d be a good fit. We could figure out how to do durable medical and the van so we could turn around, sell them their walker, their cane, their power chair, and then a vehicle.”
But what we didn’t realize is is you sell a $60,000 vehicle, and then I had the most amazing technicians. They could put $200,000 worth of stuff into a vehicle so that you could drive it with no arms or no legs, which, again, I knew nothing about. And that’s how we grew to a hundred million dollar business is we just stayed in the medical field, but just kind of flipped over to the vehicle side. So I became a used car salesman overnight, which I never thought I would ever have on my resume.
But in order to sell cars in a lot of states, you had to have used vehicle licenses. So I had to fly to various states as we kept growing the company because we ended up having dealerships from Maine all the way down to Miami along the east coast. Every state had different rules, so I’d have to go get fingerprinted or… But now I’m officially a used car dealer in about eight states.

Mark Taylor:
Wow. That’s quite the thing to have on your resume.

Hal Compton:
I don’t know if it’s as exciting as it sounds, but it’s just one of those weird things now as an entrepreneur on my resume that if you would’ve asked me 20 years ago, never would’ve told you it’d be there.

Mark Taylor:
So did the original business play in the way you thought it would with… Did the bolt-on business work the way you thought it did, because it sounds like the, quote-unquote, bolt-on is what became the primary situation.

Hal Compton:
The bolt-on became the primary. Obamacare kept every year either cutting an additional five or 10%. So another couple of years went by, and we ended up shuttering our durable medical and ended up just growing to 22 of these dealerships. So yeah, what started as the original business within four to five years didn’t exist anymore. We had shuttered it, liquidated it, and then in between, went from one little dealership, still went down our same path. We ended up buying up a bunch of mom and pops and turned it into 22 dealerships.
But the way that industry worked, they had protected territories just like a car dealership. So I couldn’t go to the main vendor and just say, “Hey, I want to sell Toyota Minivans in Maryland because somebody already owned the territory. So the only way to do it was to go in and buy the handicap-accessible van dealer or pickup dealer in Maryland. So that’s what we did. So we took the same concept, took a couple of years to get there, and then turned it into a hundred-million-dollar company.
And I ended up taking it public, which I don’t know if I’d ever do that again. But at the end of the day, our biggest competitor, they were smaller than us at the time, but they came in and made us a deal and ended up buying the company, which I resisted selling. But my SEC attorney explained to me in great detail that, at that point, I was selling.

Mark Taylor:
So I found this… You told me the story behind this, and you had your SEC attorney, and he effectively looked at you and said, “Look, if you don’t take this deal, it will look like you’re being… you’re not doing… you’re upholding fiduciary duty to your shareholders.”

Hal Compton:
Correct, yeah. So yeah, actually, his direct quote was, “If you choose not to take this deal, go put $5 million in a bank account, and then you and I will spend the next two and a half to three years sitting in court together as we defend against all the shareholders that are going to sue you for not doing the right thing for them as a shareholder.” So that made it pretty simple, and that convinced my board of directors, at the time, that we were selling.

Mark Taylor:
It’s never how you assume it’s going to go down.

Hal Compton:
No. It was not the plan. So the goal is, in theory, I’m supposed to still be running that business today. But then, after that, we sold that company, and it moved into furniture, and furniture morphed into getting over to Image Micro, where I am now, to do refurbishment.

Mark Taylor:
So why furniture? How how’d you get down that path?

Hal Compton:
Same concept. Sold our other company, decided… Well, I thought I wanted to retire at age 43, but my wife explained to me, at the time, my two kids still weren’t in college, and she explained to me I wasn’t staying home and I wasn’t retiring, so I just started looking for another business. So we started looking for profitable businesses, and my father and I said, “Let’s go do this again and see if we can get lightning to strike twice.” So as I started looking for businesses, commercial furniture, very profitable up until the pandemic, but very profitable.
So we bought a furniture company, and again, our intent was we’ll buy one, learn the business, and then I’ll go buy up mom and pops, and we’ll grow the company again. But literally, within four to five months of buying that company, the president of Image Micro reached out to me and said, “Come buy this company.” And I resisted, but my father didn’t. And after a couple of days of arm wrestling and thinking about it, we ended up deciding to do this business. So I ran the furniture business for the last five years. Actually, I guess up until about two years ago.
So I ran it for about five years, and then for the last two years, I just shoved all the furniture to the back end of the warehouse because this other e-commerce customer came and asked us to do their 1,400 truckloads of returns. So I ended up turning that warehouse into a production facility literally within 10 days. So I closed a 12… I bought the furniture company, owned it for five years, but it existed for 12.
I literally closed it overnight and dropped 10 production lines in, and hired… I went from 12 people at the furniture company to 300 people in 11 days, and we started receiving trucks and doing returns. So it became one of my three warehouses. But again, the customer asked, and they needed something within 10 days, and I couldn’t get a warehouse during the pandemic. So my furniture company got shuttered. And again, that was just another way to follow the customer. Weird track.

Mark Taylor:
So walk me through how you scale 288 employees in 10 days.

Hal Compton:
Well, during a pandemic, you don’t do it very easily. It was funny. I actually reached out. I didn’t know what to do. I had a customer that wanted… We were already running two warehouses for them in Dallas of about a half… We were up to half a million square feet for them, and we probably had four to 500 team members for those two warehouses combined, maybe up to 600. And then, at this warehouse, I literally got a one-day notice, and they came and asked if we could have a warehouse within 10 days. So I called all the brokers that I knew here in Dallas, and they all laughed at me and said, “You’re not getting a hundred thousand plus square foot warehouse in 10 days.”
So that’s why I chose to close. But then I didn’t know how to hire the people, so I got the production lines dropped in. So I reached out to an old friend from CompUSA, who used to run our advertising department, and I reached out to her and said, “Any ideas?” And she goes, “Yep, I got an idea.” So she put me on the radio, and we ran the corniest ads you have ever heard. And my old business partner, if he ever listens to this, he’ll cringe because he hated it every step of the way. But she wanted to play off of my name.
So we started a website, and she started a whole campaign around hiringhal.com. So I got on the radio, and she literally put me on live every day. I had to get on three or four different stations and do live feeds so it didn’t sound like a commercial. So she had live DJ discussion with me, but I would have to stop my day four times a day and get on with these different radio stations. But it worked, and we were able to hire hundreds of people over a couple of weeks, but it was crazy.

Mark Taylor:
So the interesting thing to me is that you probably, while you hired hundreds of people, you might have talked to thousands.

Hal Compton:
Yes, more… Well, and at the same time, we had to use temp agencies out the wazoo for… again, during the pandemic. Nobody wanted to come to work.

Mark Taylor:
[inaudible 00:24:36].

Hal Compton:
So when we started this right at the beginning of the pandemic, we had 60 team members, and by the time we finished two years later, we were up to 800-ish. But only about 350 to 400 of them were on my payroll, actual team members, and the rest were temps.
And it was a constant cycle five to six days a week of we had to put training leads, is what we called them, in every building because we just have so many new temps every day across all three warehouses that they would have to give them how the company worked, what our culture was, what we expected from them, and we just had to have a full-time person every day at each warehouse because we’d have 20 to 40 temps a day showing up at every warehouse.
But we got through the project over a couple of years, and it was very lucrative, and I think we made our customer very happy. So at the end of the day, it was well worth it, but it was painful.

Mark Taylor:
Yeah, I can imagine. What were some of the biggest… I mean, I don’t know that you could do it another way, but looking back on it, was… would you have changed the way you did it? And I think I’m even more interested in what are some of those really big lessons learned about clear communication when you’ve got that many people coming in.

Hal Compton:
Well, the biggest thing, if I had to do over again if I would’ve known the timing is figure out how to do it in just one big warehouse. Breaking out across three warehouses across Dallas, Fort Worth was very difficult for myself and my management team because we weren’t like down the street. So the warehouse I’m sitting in talking to you today is one mile south of DFW Airport, which strategically is a great warehouse.
But then I had another one 22 miles away, another one the total opposite direction, 18 miles. And then you put in traffic, and all of us driving around was a lot of wasted time and energy between my executive team. So if I had my choice, I would’ve just picked a half-a-million-square-foot to a million-square-foot warehouse and dropped the whole project for two years into one warehouse.
But my customer, at the time, would not give me a commitment and kept telling me that this was just going to be a six-month deal. So when we started, we thought it was going to be a six-month project that turned into a two-year or two through… or through two Christmases type of project. So that was my biggest takeaway is if you could really have all the information from your customer, which I’m sure everybody in the 3pl world’s well aware, you never get all the details from your customer.

Mark Taylor:
Nope, never.

Hal Compton:
So I never would’ve planned for a six-month project to go buy or to go lease a huge building anyway. It’s in hindsight, as you say, that I look back that, if I would’ve known, I would’ve done that different.

Mark Taylor:
So how did you, from getting into furniture out of the accessible van market, the accessible van company, I should say, into furniture to then building that capability for refurbishment? And why don’t you take it to what level are you actually refurbishing and repairing? Is this you’re actually pulling apart like laptops and resoldering things or wiping hard drives? What’s the… Describe how you kind of built that capability.

Hal Compton:
Okay. Well, when we started for Hewlett-Packard at the time, laptops, we were doing a full, what I would call refurbishment. So we would either replace the screen or get down to the motherboard. So I had technicians. At the time, we had 50 technicians here that just sat to work on either laptops. We were also doing servers, and so we had techs physically repairing. On the printer side, it was more of what I would call more of repair, test, clean, repackage. It wasn’t really ripping a printer apart.
So if it passed, it got repackaged, and then it was available for resale. So printers were a little easier. I’d call them more of a basic test and clean, where laptops we got all the way down to the nitty-gritty or to the servers. And then hard drives. I still actually have a room hidden in this warehouse that we can put 300 hard drives into this device, and it will wipe all 300 hard drives in about an hour.

Mark Taylor:
Wow.

Hal Compton:
And it’s got a defense-grade software on it. So we could produce… At the time, we could produce the printouts to show that everything had been wiped clean and that it was defense grade acceptable of there was no data left on there, and that had to be provided back to them at the time. Since HP has stepped away as one of our customers, our newest customer for the last four to five years, they’re more in the what I would call lower repair. They don’t really want us getting down. They don’t want to pay the cost to get all the way down to the motherboard.
So today we do all kinds of crazy as I… Well, they call it repair. I would call it more of a clean, test, repackage. But we do vacuums and monitors and heaters and air purifiers, and we’re not supposed to have them. But in the last month or two, we’ve gotten 1800 rugs in which you don’t really need technology to do that, but it’s not in our wheelhouse. So we’ve had to start figuring out how to unroll them, look at them, clean them, re-roll them, and repackage them. But again, whatever the customer asks for, we figure it out. So we like to be more technology-based, but they have 1800 rugs, and they need them handled. We figured out how to get them handled.

Mark Taylor:
Fair. That’s great. One of the things I think I did, as you were speaking, it kind of occurred to me. In a way, when you bought Image Microsystems, a lot of that talent was native. They had the technicians. There was already an understanding within the Image Microsystems for how to do basic… your basic refurbishment and repair and tearing it down. So were they already doing that, or is that something that you brought it, like you brought Hewlett-Packer to the table after you got ahold of it?

Hal Compton:
No, they were doing it.

Mark Taylor:
Okay.

Hal Compton:
Like I said, when the company started, the original founder was doing break-fix. And break-fix was computers and laptops. So all the big retailers 20 years ago, me included, when I used to run CompUSA stores, we sent… a customer would bring in their broken laptop, and before Geek Squad or any of that, we had our own technicians in every store that could repair computers. But if it needed a part, we shipped it to Image Micro at the time, not knowing 12 or 15 years later, I’d be dealing with a company that had been one of our biggest suppliers.
I just never dealt with Image Micro on the operations side because I didn’t run the tech side of our world, but they’ve been doing it for years. So then they got… they went from break-fix to actually doing refurbishment for Dell before I came along. And then Dell for them morphed from Dell into Hewlett-Packard. And then, by the time I bought the company, they were already in bed with Hewlett-Packard for probably two to three years before I took over. Now the problem is when I chose to move the company from Austin, Texas, four hours, three and a half to four hours south of Dallas, I only had three employees that followed.
So we had to rebuild that knowledge base in Dallas, but by then, we kind of had the playbook. But we had to bring in all new team members in Dallas because I didn’t want to do the commute. So when I bought the company, the intent was learn it, run it for six months, and then move it to Dallas. So after that, like I said, we had the playbook, we saw how they did it, and then we just hired all the right team, and we’ve grown from there.

Mark Taylor:
Outstanding. Having had my own love affair with Austin. I’ve lived there three times since 2007, I’ve made that drive many, many times. I assume that when you guys bought it, so there was no conversation like, “Ah, maybe we’ll go down there,” or was it… what was the consideration to make sure you move it back to Dallas?

Hal Compton:
That was the consideration from day one. And actually, the president at the time who convinced us to come even look at the company, he was commuting from Dallas to Austin for the year prior. So he was urging us, if we bought the company, to attempt to move it to Dallas also because he didn’t like doing the commute. So another one of those crazy entrepreneurial because I’m a cheap skate. To your point, I still had to learn the company. You can’t just uproot it. Well, you can. We didn’t think that was a smart move.
So at first, we went and found a cheap hotel, but then when you got five or six executives driving down there every week, and now five of you are staying at a hotel five nights a week, it got very expensive really quick. So we rented a five-bedroom house in Austin and literally ran to a mattress store and bought five beds and went to Big Lots, and bought the cheapest little living room furniture set you could buy, and five of us, including one female because my CFO is female. So she lived downstairs, and the rest of us all lived upstairs, and we lived in a house for six months, and we would just go back and forth to Dallas.
But to keep our costs down, we just rented a house and had no TVs in it. No nothing. We all went to work every day at… We’d get up at six in the morning, meet downstairs, all drive to work together to the new warehouse, work for the day, go to dinner, come back, go to bed. And we did that five days a week. And what we labeled the frat house, I don’t know if our CFO agrees with that term, but at least, for the upstairs, it was just four guys and a gal living in a house.

Mark Taylor:
Sounds like a sitcom.

Hal Compton:
Yeah, I’m sure it was.

Mark Taylor:
So one of the things that fascinates me as a bootstrap entrepreneur is… and I always joke that bootstrap is an alias, or it’s another way of saying undercapitalized. But when you have to go from 12 employees to 300 employees, or you scale up in this to a much larger facility very, very quickly, how do you end up financing that typically? Is that from cash flows of the operation, or do you have to go and borrow on a line, or how do you approach those?

Hal Compton:
We’ve done it a few ways over the years. So as my father calls it, his favorite type of financing is OPM, other people’s money.

Mark Taylor:
Of course.

Hal Compton:
So we’ve been lucky. We have had a fantastic banking relationship with the same bank, which is actually based out of Tampa, Florida, which is nowhere near Dallas, but we’ve been with them for probably now at least 12 to 15 years. And they figured out, based on myself and my father’s background, that I guess we were worth taking a gamble on. So every time we hit a new venture or one of these customers comes and says, “Hey, we need three warehouses in Dallas for a six-month deal,” they’ve been willing to help support us.
So sometimes it’s through loan, sometimes it’s through line of credit. This large e-commerce customer, the person that used to head it up, was a very logical ex-retailer also. So he and I got along really well. He even saw the expense. So he was smart enough to say, “Well, let me do some things on my side so that you don’t get crushed,” which most business customers, as you know, don’t care about looking out for you as their vendor. That’s your problem.
But he at least stepped in and said, “Hey, let me move you from a net 30 to a net 7, and why don’t you bill me weekly and let me go to the finance department and let me see if I can get you some upfront money. You’ll have to pay it back. But let me see.” That didn’t happen. But two different times, he at least went to the head of finance in this-

Mark Taylor:
Sure.

Hal Compton:
… Fortune 100 company and at least tried to get them to give us hundreds of thousands of dollars in upfront and then slowly take it off-

Mark Taylor:
Pay it back.

Hal Compton:
Yeah, take it off of their weekly invoices. So that kind of helped.

Mark Taylor:
I mean, even having somebody like that with your… in your customer set is just, it’s fantastic because it’s more of a partnership at that point.

Hal Compton:
Yes, and he was a true partner. Now, he’s since been promoted and moved on, and I miss him every day because it’s hard to find a partner that thinks the same way of, “How do I look out for my vendor partner?” But he did. And back to your original question. It’s either been personal money from myself, my father, or our bank, which, over the last 12 years or so, we’re down to almost no money owed to our bank at all. Between all these different companies we’ve purchased, they’ve always just been behind us.

Mark Taylor:
And you’re doing all that borrowing when interest rates were very, very low.

Hal Compton:
Yes. But your definition of low and mine are two different things.

Mark Taylor:
Of course. But now, I mean, now is when your bankers really want you to utilize those lines of credit and those loans and things like that. So I mean, you’re breaking their heart.

Hal Compton:
Yeah. Well, over the years, you got to remember, I’ve been using them since 2008. So even in ’08, ’09, they were making a killing when the economy tanked back then. And, of course, that’s when I chose to start to be an entrepreneur is during the worst two years, financially, you could have picked. But no in-between to their credit, if you ever can find a partner in a bank that… I talked to my banker at least once a month have for 12 or 15 years.
He’s always looking out for me of, “Well, let’s refinance that or let’s…” He put me in this weird loan program where if interest rates went up, our payments went down, but if interest rates went down, our payments went up. So he put me in some weird different programs over the years, but he’s always attempted to find ways to help me hold onto cash.
So again, it’s always about people and process. If you can find the right people and surround yourself with them. I just got lucky this banker’s liked our story. Personally, he’s always liked myself and my father. So he has just bent over backwards. And then, over time, he’s been promoted up through his bank over the last 12 to 15 years. So as he kept getting promoted, he’s just helped us.

Mark Taylor:
He keeps bringing you up.

Hal Compton:
Yes.

Mark Taylor:
That’s great. So within the same topic, but definitely taking a little bit different approach now, tell me how you think about returns, reverse logistics, and all this sort of stuff. Like what… I mean, for me, it’s a consumer behavior thing. And I think it’s about to with some of the announcements that Amazon’s recently made with, they may start flagging products that are high return items. They may start kind of giving customers who return a lot of things a little bit more of a black mark, or I think they’ve done that for a bit.
But they’re also starting to speak of, “Well, in some cases, we’re going to make the customer pay for shipping back.” And I mean, to me, these are all necessary trends that are going to have to happen for us to get kind of this under control. But you’ve been so close to it, and you’ve worked a lot with it. How do you just view… I mean, this is a very open-ended question. How do you view returns and in general at this point?

Hal Compton:
The sad part of returns in today’s environment is it is a messy business. So if you want to get involved or any of your listeners want to get involved in returns, just understand I’m a neat freak on how my warehouse looks. And when my big e-commerce customer came in, the biggest compliment they paid me is they’d been in hundreds of warehouses, and we were neat, and we were organized, and we were clean. You get into the returns business. You can kiss that goodbye if you’re a 3pl today because you don’t know what’s going to come in.
Well, you might if you set up with your customer. My customer sells so many various products. We started with 12 categories four years ago, and now we’re over 600 categories that come in our back door here every day because I have stuff from lipstick to vacuums to monitors to refrigerators to earbuds, phones. I get all kinds of crazy stuff. But then the customers don’t return it in the original packaging. You have to sort it. You have to try to keep up with it. Then you have to go through the rules that your vendor puts in place of how do they want it graded or repaired or repackaged.
So I think, over time, you’re going to see more and more e-commerce. They’re going to have to get a handle on slowing down returns because we’re the only country that really allows you to return anything you want for any reason you want. But right now, throughout that, I was at the same RLA conference that I think you said trillion dollars is what they threw out or what the president of the RLA threw out. I don’t know if that number’s right, not right, even if you cut it in half. It’s a huge number.

Mark Taylor:
I think there is a… So I’ve thought about how that data was presented, and you know what they said is e-commerce returns, on average, are 25 to 35% of e-commerce sales. Based on the available data out there, we’re at… I think e-comm just topped a trillion dollars in total retail sales. So that is 200 and… that means it’d be 250 billion to around 350 billion, which is still a monstrous issue. For reference, if you look at amazon.com, their entire revenue for 2022, I believe, was 515 billion. So to kind of conceptualize that you’re talking about on the better side of things, because, keep in mind, they… in that five 15 billion, you’ve got AWS and all the other… their other businesses being counted in there.
So any way you cut it, if it is 25 to 35%, the e-comm returns out there amount to more than half of what Amazon sells on its platform. Now that’s taking everybody into account. So I mean, that’s still a massive number. One in every two Amazon boxes basically is going to get sent back. Now that’s not fair because not all that… that’s not really the way it’s going to play out but just to help somebody conceptualize how many… what returns are looking like. And then the RLA [inaudible 00:45:13] thing, he also said that your brick and mortar retail stores is typically an eight to 9% of return rate. And if that’s the case, I mean, then that I think total retail sales for the US in 2022, I think, was 6.5 trillion. So that’s still eight to 9% of five and a half trillion worth of stuff.
And that also doesn’t take into account I don’t know if that retail number was including auto sales if it’s including grocery. But the point is, I mean if you look at, just take those raw numbers, the six and a half trillion, one of its e-comm, e-comm rates 25 to 35%, retail rates eight to 9%, you get eight to 900 billion, which so I’m sure they’re somewhere in the ballpark. But you’re still talking about a problem that existed long before e-commerce. I mean, the majority of that problem still existed before e-commerce. So there’s a little bit of sensationalism going on, but 250 to $350 billion is still an incredible shocking amount.

Hal Compton:
Oh, there’s a business to be had. If somebody could become the expert in doing the returns, they’d make a killing. But the problem is returns are so varied.

Mark Taylor:
Mm-hmm.

Hal Compton:
And just like when I used to do refurbishment for Hewlett-Packard, what got my e-commerce customers so excited is I only had 12 models of printers coming in, and they typically stayed the same 12 for a year. So I could easily go to China and order the styrofoam to fit around the printer, and then I could order the boxes in bulk. And again, when you only have 12 models, yeah, I made them look just like they looked at the retail store. But when all of a sudden you’re dealing with a large e-commerce, and they have 5,000 subcategories of product coming back, and you have no idea what a customer’s going to return.
And just today, in the back of my warehouse in vacuums, I probably have 20 different name brands, but then inside of that, probably two to three to 400 models. So I can never package it the way my customer originally when they first showed up because they wanted me to do it just like I was doing for Hewlett-Packard. But it’s impossible. So that’s going to be the big downfall, and retailers are going to have a tougher time. I can tell you from my retail experience, even back in the early 2000s, again just using Hewlett-Packard as the example. They only allowed 5% of whatever you returned Hewlett-Packard would take back.
So 95% of whatever we got returned from Hewlett-Packard, we had to figure out what to do with. Now, typically, we figured the cheaper stuff and we made sure the high-end stuff went back to Hewlett-Packard. But I know more and more retailers over the years have reduced where they have no return allowance now with a vendor. And I’m good friends with one of the executives at Sharp, and he used to run Samsung, but now he is at Sharp. So when he moved to Sharp, of course, I tried to figure out how to do the refurbishment for Sharp, but Sharp put a rule in place years ago. They give no allowance anymore to retailers, so they take zero product back. So Sharp has nothing to refurbish because it’s the retailer’s problem. It’s not Sharps.
And I’m not picking on Sharp. I’m just using them as the example. But they already figured out how they don’t ever have to take a return for the rest of their life unless they do a recall is about the only way. But now all those retailers are stuck with if they buy a Sharp product, it’s theirs now cradle to grave. So companies are going to have to figure out how to get rid of this many returns. And I think you’re going to see Amazon have to stop having what I call the Nordstrom approach over time because there’s just too many returns, and it’s just going to get worse. It’s not getting better.

Mark Taylor:
Right.

Hal Compton:
And if anybody doubts it, they’re more than welcome to come visit my warehouse and just see how much stuff’s piled up here.

Mark Taylor:
Yeah. There are a number of models out there trying to address it. Right now, I mean, there’s the… Why don’t you describe, so if something comes to your warehouse, you guys run it through a, I call it a stage gate process, but basically step one is this the thing, step two, does it have all these parts, step three and so on and so forth.
And so if it gets through your entire process and it’s eligible for a return, which I don’t know what the percentage is for that. But let’s say it’s eligible to be resold again. And I assume if it’s electric, if it’s an electronic of some kind, it can’t ever be resold as new. It’s going to have to be sold as, “This is a used product” because I think we’ve got that, the rule in the United States, whereas if it’s been plugged in, it can never be sold as new again.

Hal Compton:
Yes. And my current… my biggest customer today they specifically, everything is denoted as used once it goes back to them. But when I’m done, if it passes, they have different steps as we go through, depending on how we grade it or we answer the questions as we do the repair. So if we can’t get it clean enough, we’ll still say it’s dirty. Well, that’ll knock it down a grade or two. If it’s missing parts, that’ll knock it down a grade. And they have rules with us on certain things like monitors.
We’re only allowed to put in so many parts and pieces before it becomes economically… beyond economical repair. So if it starts to get too high, they would rather us take a, I’m making up a number again, a thousand dollar monitor. They don’t want us to go buy the stand that specifically fits it because you have to… you can’t off-market it. You have to go back to, let’s say it’s Samsung and buy that stand. Well, that stand might be $200, but they don’t want me spending more than $150 because they don’t want more than a 10% of the product. So they’ll tell us, “Grade it as missing the stand,” which will knock it way down.

Mark Taylor:
Sure.

Hal Compton:
But when they return it back to their facility, when they put it back online, they tell you if it’s missing parts. They have different grades. I don’t want to go into their grades because-

Mark Taylor:
No, no, no, no, no, no. Of course not.

Hal Compton:
… it could detail who they are. But yeah, we have a process. We bring it in. We do that. Now I have a different customer. They actually have a unique program, and they might become the wave of the future for returns. So they came up with a software that they overlay onto big vendor’s websites of a try before you buy. And I started talking to them about being their refurbishment arm. I didn’t end up getting their refurbishment arm, but they’re actually going to use me for their storage and distribution. But they put a try it before you buy, and they ship you a refurb product.
And then, if you don’t like it and want to return it, they refurb it again and just put it in their pool. But now they’re not sending out a new widget to the customer to return. They’re using their existing returns. And then what they attempt to do is convince the customer, “Well, if you really like that product, it normally sells for $500, but keep the one you have, and we’ll only charge you 300 because it’s refurbished.”
And then they don’t take the return. They didn’t have to open a new product. So this company I’m dealing with, this company’s come up with a new process, and they’re convincing… they’re signing up more and more high-end customers to put this on their website. So hopefully, that becomes more of a wave so that you don’t have so much open return product.

Mark Taylor:
So I’m assuming that sounds like NUCs business model.

Hal Compton:
Sure.
Mark Taylor:
I actually know Bobby. We sat down. We had tacos probably about a month or two ago at Tortas in Austin. They’re doing some really, really interesting stuff.

Hal Compton:
He’s doing a lot of interesting stuff. And we’ve partnered with him. Actually, he’s here in Dallas today, so walking our other warehouse-

Mark Taylor:
Ah.

Hal Compton:
… as we speak. No, but hopefully, they become the future of how people want to re-look at doing returns. But I think Amazon, putting in a dollar to take it back to UPS right now, people are saying that’s going to reduce returns. But I don’t think that’s going to do anything. What it’s really doing is, it’s forcing people for that $1 to be stingy enough to go somewhere where they’re using their internal transportation instead of UPS.

Mark Taylor:
Mm-hmm.

Hal Compton:
They got to go two or three steps farther, in my opinion, to really start to curve putting stuff into landfills. And now my customer makes us recycle everything, and everything either goes to liquidation or, if it has to be destroyed, it has to go back to them, and then they get the proof of destroying it. But not every e-commerce, to your point, is going that step today. So how much stuff’s going into a landfill? I know, years ago, Amazon was even talking about ways to get rid of their returns, basically by shooting them into space.

Mark Taylor:
Cheaper. Yeah.

Hal Compton:
Because you just shoot it and send it, never comes back, cheaper than a landfill of… So I know they had some discussions years ago talking about that might be an alternative is just shoot their returns into space could be cheaper.

Mark Taylor:
That sounds like an onion or a Babylon Bee headline.

Hal Compton:
Yeah. Well, but if you really look at the cost of touching it all and then destroying it if it fails and transportation to move it all around. And at that point, I’m sure Jeff Bezos, with his rocket company, now could just load up stuff like crazy and just shoot it way cheaper.

Mark Taylor:
Yeah.

Hal Compton:
But it was a discussion that I heard somewhere in discussion years ago when I used to know lots of executives there, just that I had done business with over the years. And they were having discussions of ways to get rid of their returns but not cause damage to the environment.

Mark Taylor:
So there are a lot of different business models out there. I mean, in the one case we’ve got, I think NUC is doing very, very interesting stuff, especially the high-end stuff, because it’s like, “Eh, I don’t know if I really like this. I can’t… This is a see it, feel it, touch it, use it kind of thing. And I know going into it that I can send it back.” I think that’s a very interesting approach. But there’s also this level of goods that have been purchased that are in the 10 and 20 and $25 range where it’s just like there’s almost no way you’re ever going to make it worth it to bring it back and then resell it to another customer after somebody’s touched it and then shipping it and then ship it out.
I mean, your cogs on it, your landed cost is probably rarely going to justify incurring more cost and then selling it at a bigger loss. And so I think I’ve seen a couple of people who are doing this. They’re trying to go to consumer-to-consumer points. So I buy something, I decide I don’t like it. [inaudible 00:57:24] say, “Okay, fine, we’ll give you the refund, but we need you to hold it, or we give you an amount to… that we’re going to refund it, but we need you to hold it for a week.” They find another customer, and then they just ship customer one the shipping label, slap it on, send it to the UPS store, wherever it may be, have your guy pick it up when he’s dropping off another Amazon package or Walmart package, whatever it may be.
And then it ships directly from customer one to customer two. And it’s sad that the consideration, in my opinion… In my opinion, it’s sad that the consideration about why that’s a hard business model to go down is because people aren’t going to grade it correctly. Or you might, how… what’s the verification that I got the Billy Talking Bass that sits on my wall, and who’s verifying that that’s what went in the package and that’s what customer two receives, and who’s telling the truth if there’s a discrepancy? I see the issues there.
But that, to me, is probably the least environmental impact you could have as far as dealing with returns or repurposing them. There are also people out there, as we know, that’ll just buy the trailers, and they’ll say, “Okay, well, I know that we’re going to have to throw away 25 to 33% of everything that comes off that trailer and we’ll sell that on a marketplace ourselves. And that’s a hard… that’s a hump busting thing right there.

Hal Compton:
I’ve done that business too.

Mark Taylor:
Yeah.

Hal Compton:
So yes, I mean, you can buy all these truckloads. You can go to lots of liquidation sites, to your point, today. But yeah, I mean, I bought trucks from Target, and you bring them in, and to your point, you’re going to know 25% is garbage because it’s broken, it’s empty packages. Again, that’s a messy [inaudible 00:59:14] returns. It’s a messy business.
But it’s also not environmentally friendly because, to your point now, 25% is people are just buying these trucks or, “I’m going to sell them my underwear from home because I’m going to go buy this truck.” They’re not worried about recycling the 25%. They’re throwing it in the garbage. So-

Mark Taylor:
Mm-hmm.

Hal Compton:
… we are, but to your point, that’s the next avenue. And I think you’re going to see more and more of that because it is too easy today to buy a truck from Target, turn around, and then go re-list it back on Amazon because you bought it cheap. But I don’t have to own a warehouse or a store.
And then I’m going to tell Amazon keep it if somebody tries to return it, and they’re going to sell what they can sell, and they bought a truck for 5,000, and if they reflipped it on Amazon for 10, but now there’s more stuff sitting in the cycle at Amazon that is now another problem. But that person is out and gone and [inaudible 01:00:18]. Returns are just, they’re a nightmare all the way around. And I don’t think anybody’s going to come up with a quick solution-
Mark Taylor:
No.

Hal Compton:
… in the next 10 years.

Mark Taylor:
I agree with you. I don’t think it’s going to be a quick solution. I do… I mean, I think consumer behavior has to adjust. I mean, it really does. And every person I talk to says to a man who, or a woman just to a person, everybody I talk to says, “The person that’s purchasing used, refurb, or whatever is not the same customer as the person who’s buying new. Never is.” And…

Hal Compton:
Agreed.

Mark Taylor:
Yeah, because it’s like, and it’s interesting, and I think about my own buying behavior. Why is that? And what… And should I be looking more at used things and that kind of thing? And I believe if we are on the path to a hard few years, if that’s what ends up happening, or God forbid something… some disruption with China happens that basically makes us stop purchasing or stop manufacturing a bunch of things from China, then the way we consume is going to absolutely change.
And it’s going to change in a very, very big way. And so I think it goes from this big problem to where, all of a sudden, consumers make an about-face, and you have a certain amount of absorption where everybody starts craving those things because you can’t get new ones. I mean, you saw it during the pandemic where you might have… your toilet paper be off the shelves for a month, and then they would limit how much you could buy. And it was rationing. It was modern-day rationing, right.

Hal Compton:
Yep.

Mark Taylor:
And so that made it to where all these other ancillary things that were on the shelf that you might not otherwise consider, but napkins also went out, and then paper towels and any kind of other sorts of cleaning things like started becoming substitutes. You look at the hand sanitizing thing. I remember in my feed or on LinkedIn or Facebook or whatever it was at the time. You would see how to make hand sanitizer at home. How do you do this? You mix the Alovera, and you mix the alcohol, and that’s your homemade hand sanitizer, right. So I do think it’s interesting.
I mean the incredible wealth of our country and how much we consume and spend. It’s like it’s a favorite pastime at this point. And if we do hit hard times, I have actually, I mean, maybe this is way too optimistic, but I do have optimism that we will figure out the consumer buying behavior will just completely shift, or hopefully, it’ll shift. And a lot of these used items will be consumed, and they’ll be more sought after, which then you start to see a more direct, I guess, a more defined channel for it.
Because right now, as you know, you can go on BULQ, B-U-L-Q.com, which is Optoros marketplace. You can go to B-Stock. You can go to Craigslist. You can go to eBay. You can go to all these different things. And it’s like, but you’ve got… There are auction sites out the wazoo. I mean, I know Burbank. There’s some that… Then there are the really large liquidation plays.
So it’s like there’s not a defined player. There are big players, but how it’s getting itself back into the market and then into the hands of the individual consumer is not very well-defined yet. And until there’s an Amazon of used, and I mean eBay is not… eBay, of course, is probably as close as you could actually say it is today. But that’s not talking about items that you’re typically going to sell on eBay.

Hal Compton:
Well, Amazon, to your point, they have a used site.

Mark Taylor:
Yep.

Hal Compton:
But they don’t advertise it. So I mean, they have Amazon deals, which is where a lot of refurbishment stuff goes. And then to your point, B-Stock… Typically, companies know about B-Stock, not in consumers, but a lot of these big companies have gone to B-Stock. I’ve bought truckloads from Walmart there. I’ve bought truckloads from Costco there.
But again, the end customer sitting in their house doesn’t know to go to B-Stock, and they can go buy a truckload of stuff from Walmart, but they’re just trying to get rid of stuff. So I think until Amazon pulls the trigger to get more back into a retail type of return policy, even if they went to 30 days, which, in today’s world-

Mark Taylor:
[inaudible 01:05:12] unheard of.
Hal Compton:
… would put people back into a coma and shock. But three, four years ago, that was the way of the world. You couldn’t, in America at least, you couldn’t return anything past 30 days unless you went to Nordstrom. They were it. But Amazon’s changed the landscape. But if they just put a simple 30-day back, everybody else would follow suit.
It would start to slow things down, clean things up. But no, returns are going to continue to be a nightmare. And as long as they are, there’ll be people like me out there trying to figure out how to help their vendors solve that problem. So I guess it’s a good problem and a bad problem all at the same time, at least from my perspective.

Mark Taylor:
Absolutely. So I think every 3pl out there probably has a corner or a spot in their warehouse where returns are coming in, customers aren’t really giving clear direction on what to do with them. I know a lot of people end up with abandoned items and things like that. If you’re going to give some advice to, or even maybe advice as to how to create a service offering for your current customers, how would you just very step one, step two, step three it for people?

Hal Compton:
I’d do it a couple of ways.

Mark Taylor:
Okay.

Hal Compton:
So if you get stuck with product. If you’re a 3pl and you’re stuck with it, and you don’t want to deal with it yourself, find somebody like me or find a liquidation company, Liquidity Services, RL Liquidators, any 3pl that’s either part of the RLA, Reversal Logistics Association or anybody that’s part of IWLA. You can find liquidators through those two organizations, and they’re the easy button.
They’ll give you some type of deal of some type of split. They’ll take the product. They’ll get it out of your warehouse fast, which I know, as a 3pl, a lot of times you just need the stuff out of the way. So my first recommendation would be, if you don’t want to deal with it, find somebody you can get it to that will either process it and give it back to you in a refurbished condition so you can make your money or find a liquidator and get rid of it. Step one.

Mark Taylor:
So I’m going to pause there, and I’m going to say I agree with you, and I’m going to add that for any 3pl out there that does make sure that your customer has either truly abandoned it or there’s no legal claim to it. And you can do that by enforcing a warehouseman’s lien, which is, I’m not giving legal advice here.
But there is a tool, UCC 7210. You should research that and make sure that you’re not working with a… working with some customer that just doesn’t want to pay or doesn’t want pay today, but wants you to make some kind of mistake and then goes after you for punitive damages or something like that.

Hal Compton:
Totally agree.

Mark Taylor:
Yeah, I need to say that.

Hal Compton:
And most of the big liquidators, they’re going to ask you right away, “Is there a lien on the product? Do you own it outright?” And if you start wavering, “Well, my customer abandoned it.” Most of the big liquidators are going to stop you at that point and go, “Until you can prove to me you own it outright, we’re not a good fit.”

Mark Taylor:
You went through the right [inaudible 01:08:27] steps.

Hal Compton:
Yeah. And if your liquidator doesn’t tell you that you’re not… you should be looking at different liquidators because they should be warning you to help protect them and you.

Mark Taylor:
Well, and what most warehouses don’t understand, and what I didn’t understand until I went through a couple of warehouseman lien situations myself, is the purchaser of the goods cannot. They don’t really… It’s going to be very, very hard for somebody to go after them. But somebody can go after your warehouse for not only the value. But they can go after punitive damages as well.

Hal Compton:
Yes.

Mark Taylor:
And once again, that’s… the provision that the Universal Commercial Code is put out there is under 7210. And that is… There’s a version one and a version two, and it’s a very, very specific thing. But it’s also a very powerful tool for a warehouseman because it allows you to recoup what is owed to you without taking somebody to court. But there are very specific means to go about it. So just…

Hal Compton:
No, that’s good advice because I can tell you from dealing with it, yes, you hit the nail on the head. So if you’re going to go that route, follow everything that you just heard. That way, you keep yourself safe.

Mark Taylor:
Yep. So the execution of 7210 is its own thing, and that is on any of the listeners out there. But if you’re looking for it, 7210 UCC is the one.

Hal Compton:
Now, if you own the product, after that, do you want to list it yourself? Do you want to put it out to FBA? And again, do you find somebody to repackage it, get it back to you so that you can maximize your dollars? That would be step two for me. Again, you got to look at your own game plan as a 3pl and decide how do you want to maximize your dollars or your space. And again, it’s a… you have 3pl warehouses. Sometimes you got to have the stuff out of there immediately because you need the space.
Sometimes you got to make the decision of, “I need as much money as I can get for it,” where liquidation is a bad choice. So at that point, find somebody you can partner with that runs an auction site or list it yourself. I mean, I’ve listed every… all my products in the past. I’ve been on every marketplace you can imagine and self-fulfilled through target.com, bestbuy.com, walmart.com, Amazon, eBay, Offer Up. I’ve done them all. And then I’m trying to think if there’s a third solution outside of that, other than, I guess, send it to space.

Mark Taylor:
Yeah. In those times, when you listed it on the marketplaces and things like that, was there any… was it worth it or was it… How did it work out for you?

Hal Compton:
I’m not an automated warehouse, and I’ve never chosen to be an automated warehouse. I know a lot of your listeners have, but every customer is different. So in my world, one of the reasons my largest customer likes me is they tell me I’m scrappy. But every customer has different expectations. So you need to make sure that that you’re geared. I was not geared to be a pick-and-pull warehouse. So when we did our own, we weren’t efficient. We weren’t smart. I would’ve done better to partner with somebody that had better skill in pick and pull.
I’m working on learning that skill because I’m working on attempting that might be another businesses because I’ve got a couple of customers that want me to do their pick and pull, so I might have to get smart in it. But when roles were reversed, and I was on the backside, pulling a couple of hundred orders a day of Hewlett-Packard product or accessories, we just did… we weren’t smart. So again, my advice there would be if you’re not good at something, find a partner that is. We muddled through it, but in hindsight, I wasn’t efficient. Probably cost myself more money than it was worth if I had just handed it off to somebody to pick and pull it for me.

Mark Taylor:
Right.

Hal Compton:
But I didn’t know then what I know now. And I didn’t have the network inside a 3pl. If I could go back three to five years, I’d do it totally different.

Mark Taylor:
That’s good. I think if there’s anything, I mean, people could take away from this interview. I mean, other than the illustrious entrepreneurial career that you’ve had, which is an, it’s an incredible career.

Hal Compton:
Well, thank you.

Mark Taylor:
Yeah. I think it’s very, very interesting if, to me at least, and I think too it will be to a lot of other people. But I believe that the return… figuring out returns is not only an opportunity to do better for this little blue ball that we live on, but I think it’s also a way for 3pls and warehouse providers out there to offer another service to the customer and to really say, “Look, we see that you’ve got all these things going and let’s get creative and figure out a way to turn this into a net positive for everybody.” And I think it comes down to really understanding the cost.
At what point is it a lost cause, and we just need to donate this? But there are plenty of things to do that that would allow these items that have been produced, which the majority of the time are perfectly fine items. Another couple of stats that came out of that. The RLA meeting that we had was 76% of customers who return items say, “I know that it wasn’t defective. It just didn’t serve me the way… It didn’t work the way I thought it was going to work.” And the electronics thing, which I found even more incredible, was 90 to 95% of the items that come back or that are returned or perfectly functional.

Hal Compton:
The majority.

Mark Taylor:
Yeah.

Hal Compton:
A lot of people either, I can tell you from all the returns we touch, mainly two categories. It’s they wanted a part out of it to work with their existing widget. So they bought another one, took the part out, and then returned it without the part that they broke. That’s a lot of our returns. And then the other half is, it’s a rental program.

Mark Taylor:
Mm-hmm.

Hal Compton:
So I can tell you for sure, through vacuums and carpet cleaners and the things we do for our vendor here with that category, almost all the stuff was a rental. So it’s been used. They needed to clean a spot on their rug, and they did it, and then they returned it. And then after that, to your point, the majority are just unused in perfect shape. But it really falls into three categories. Took a part out, rented it, or changed their mind. But then the answer everybody wants to give is defective instead of just saying, “I didn’t want it.”

Mark Taylor:
Right.

Hal Compton:
So that’s another thing that has to change because the vendors take defective as, “Oh my God, I got to scramble to find out what’s wrong with it.”

Mark Taylor:
“Was that lot damaged?”

Hal Compton:
Yes.

Mark Taylor:
Yeah. “Do I need to recall?” Well, I’ve enjoyed this conversation very much. If you had any parting words of advice you’d give to anybody thinking about returns or getting into it that we haven’t already covered what would you… what do you think?

Hal Compton:
My advice would be, find somebody that’s already in that business and go visit him. [inaudible 01:15:48]

Mark Taylor:
Yep.

Hal Compton:
Because until you see it, and again, I got into it, unbeknownst to me of how messy it is, but you really need to go see it, find somebody in the network of 3pls who’s doing it. I’m sure there’s somebody that’ll let you visit. If they won’t, you’re more than welcome. Anybody can come visit me anytime. But you should at least take a look at it before you try to dive headfirst into it. Because, again, it’s messy.
And your best-laid plans, even mine, were we’re only going to handle 12 categories, and four years later, I’m up to 600, which was never part of our plan. So if you’re going to get into it, you better be able to roll with the punches because it just, it’s a fire hose that never stops times a thousand because returns are just that big. So that’s my advice. And then I’m still hoping you figured out how charming and delightful I am through this because you left that out. So I want to make sure that’s added at the end.

Mark Taylor:
No, I love that. I love that. And you’re very, very charming and very delightful. Yeah. I think the only thing I would add to that is it’s such a big deal. I mean, the returns piece of this is such a big deal that nobody’s going to figure it out all by themselves. And the opportunity is something that I don’t think any one person or organization’s going to figure out anytime soon.

Hal Compton:
There’s a potential to add to your business as a 3pl to do returns. It’s just can you control what returns you do.

Mark Taylor:
Yep.

Hal Compton:
So if so, I think you’re right. If you’re looking for bolt-on business, the potential’s there.

Mark Taylor:
Yep. That’s exactly right. And that’s a great place to stop. Thank you very, very much for being here today.

Hal Compton:
No, thank you.

Mark Taylor:
And yeah, look forward to seeing what comes next for you.

Hal Compton:
Thank you very much.