NU12 for May 15, 2012 - Michael Ligayo - Unclaimed Lost Baggage

Prof. Jorge,

Below is my NU12 for May 15, 2012.

Regards,
Michael Ligayo

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Unclaimed Baggage Center

Over the past few years, the emergence of the ukay-ukay that sells used clothes has been gaining a lot of fuzz. In fact, there are a lot of building spaces that eventually opened up to house a new ukay-ukay shop. You will definitely notice the sudden popping of establishments with hundreds and hundreds of hangers with non-identical clothes. The main reason for all the limelight that this industry is getting is simply the price. Imagine getting clothes for as low as PHP10. Who wouldn't be excited to get their hands into this merchandise? For now, let's keep this idea as we develop this highly probable industry.

On a different note, the recent brawl between celebrities Raymart Santiago and Claudine Barretto against journalist Mon Tulfo has been broadcasted by the evening news to start of because apparently the luggage of Ms. Barretto was brought back to Manila from Boracay under a different flight of Cebu Pacific. This resulted to a problem wherein the luggage of Ms. Barretto could not be claimed by the latter. The story went on and became an instant headline for at least a week now.

But I don't want to focus on the brawl. I would like to focus on the opportunity behind this issue. According to statistics, about 99.5% of all checked-in luggage are claimed or picked-up by the owners at the baggage carousel in airports. Thus, roughly about 0.5% to about 1% don't get to their owners. Of the 0.5% to 1%, about 95% reaches their owners (that is after five days). Of the remaining quantity of unclaimed baggage, about half of them find their way to their owners after 3 months of intense search process. The rest of the remaining unclaimed, unfounded luggage are paid of by the airlines and / or insurance companies.

To make it clearer, let's do the math. Assuming there are 100,000,000 passengers a year (which is the approximate number in domestic flights in the United States alone), each with only 1 luggage,

                      100,000,000 * (1 – 0.995) = 500,000 mishandled luggage

                      500,000 (1 - .95) = 25,000 luggage (not returned after 5 days)

                      25,000 * 0.50 = 12,500 luggage (not returned after 3 months)

Based on the numbers given above, about 12,500 luggage don't get returned and paid only by the airline or insurance company. This quantity is only based on the best performance of airline. What if they poorly perform in handling baggage such as what happened in 2005 when there is 6.20% rate of mishandled baggage or in 2006, when there 5.86% rate? Clearly, there is an opportunity in these numbers. It is actually expected that these numbers will rise with the release of cheaper flights resulting in more travel, heavier bags, overbooked flights and even, weather-related delays. The number of travels will result in more complicated handling of baggage and will surely drive-up the rate of mishandled baggage.

The next question is: What happens to the unclaimed luggage, which, as in the case above is around 12,500 pieces? What happens to the luggage and contents? Here is where the opportunity comes from. These luggages along with their contents can be sold on thrift shops. It is actually surprising what people put in their check-in luggage. According to Discovery Channel's TLC, people interesting items in their luggage such as memorabilia and artwork, electronic gadgets especially digital cameras, souvenirs, jewelries and even wedding dresses.

How to Start the Business

There are several critical key points that need to be done in order to start with this business:

·       Obtain a contract with airlines and other transportation companies to purchase luggage that cannot be traced by owners.

·       Hire pricing experts or at least those with experience in appraising. The items that go with the luggage can be very surprising. Without the right appraisal, the company cannot maximize the value that it can get out of it.

·       The items, especially the luggages, may require a thorough cleaning. The company should know where to bring the items for cleaning or it would be best if the company itself knows and has the facilities to do the cleaning – from art pieces and memorabilia, clothes and even jewelries. It is very important that by the time the pieces go to the sales floor, it will look like brand-new.

·       There should a contact with a recycling facility. Of course, it is not always that 100% of the contents can be sold. Some of the contents may no longer be saleable and may need to be either donated or simply, recycled.

What's Good With This Business

At first glance, this business might look like just a different form of ukay-ukay. But there are a lot more to this. Here are some good things about this business:

·       The capital requirement is just very similar to that of an ordinary ukay-ukay.

·       Technically, this industry is based on trash – meaning, there is high return since the variable cost is very small.

·       Help is being provided to airline and other transportation companies in disposing these "wastes".

·       There is a big market. With the emergence and fuzz about ukay-ukay, expanding it further to becoming higher-end thrift shops can be a great potential.

·       To those who lost very important items, they will be given a chance to find them. (The company may even set-up a lost and found service for documents, IDs and other very important stuff that they find on the luggage.) 4