business news in context, analysis with attitude

Read yesterday's news in the archive >

I'm not a big winter sports guy, so I'm only now coming to the story of Mikaela Shiffrin, who continues to break records as a downhill skier.  Her backstory is fascinating … and offers a great business lesson.

The New York Times has a story about how "the retail industry is trying to figure out its correct size.

"Retailers, faced with sky-high demand from shoppers during the pandemic, spent the past three years ramping up their operations in areas like human resources, finance and technology. Now, times have changed.

"A public that rushed to buy all sorts of goods in the earlier parts of the pandemic is now spending less on merchandise like furniture and clothing. E-commerce, which boomed during lockdowns, has fallen from those heights. And with consumers worried about inflation in the prices of day-to-day necessities like food, companies are playing defense."

The Times writes that "while it’s not unusual for major retailers to announce store closings and some job cuts after the blitz of the holiday season, the recent spate of layoffs is more about structural changes as the industry recalibrates itself after the rapid growth from pandemic-fueled shopping. And it accompanies broader worries about the state of the U.S. economy and layoffs by prominent tech companies."

Not all retailers, the Times writes, "are in a defensive crouch. For instance, Walmart announced this week that it was raising the minimum wage for its store employees in a bid to attract and retain workers in a tight labor market.

"Still, some retailers are becoming focused less on bringing in new customers — an expensive undertaking — and more on retaining those they gained during the pandemic."

KC's View:

The notion that it is cheaper to keep existing customers than to bring in new customers is one that has existed pretty much since retail was invented … so it is kind of ironic that it took a pandemic to teach some retailers that lesson.

I've always thought that retailers gravitate toward customer-acquisition strategies because such efforts often can be outsourced to an ad agency or PR firm … while satisfying existing customers is very much an in-house operation.  It requires consistent innovation within the store (or, these days, online), and that's hard.  

What's happening right now in retail - and in so many tech firms - shouldn't really be a surprise.  So much growth took place during the pandemic, as companies sought to satisfy customers in a fast-changing climate that was hard to predict, that some sort of rightsizing probably was inevitable.

Retailers just have to avoid making knee-jerk decisions.  This is a continuum, and while some retrenchment may be necessary, this also is a time for innovation, for carving out competitive niches that will give them a sustainable differential advantage.

Being "defensive" is short-sighted.  It misses the moment, and grants opportunity to those with larger visions.

corporate drumbeat

CNBC reports that Walmart-owned Sam's Club plans to "open more than 30 new stores in the U.S., marking its most aggressive expansion in years.

"The warehouse club’s next store is expected to open in Florida in 2024. Sam’s Club also plans to open five fulfillment and distribution centers this year, with the first of those opening in Georgia.

"CEO Kath McLay said the retailer wants to reach more customers, after sharp gains in sales and an all-time high in membership at its current clubs … And, McLay added, as prices of goods and services remain high, she said Sam’s offering has become more relevant."

Some context from CNBC:

"For Sam’s Club, the expansion marks a return to store footprint growth. The club chain has about 600 stores in the U.S., including Puerto Rico. Yet it hasn’t opened a new club in years. It shuttered 63 clubs around the country in 2018, converting a small number of those clubs into e-commerce fulfillment centers.

"Its last major expansion was in the 2010s, when it opened five to 10 clubs per year on average. Its most recent new club opened in 2017 in Hanover, Pennsylvania.

"McLay said the new stores will open in high-growth suburban areas where Sam’s Club has few stores or no stores, but declined to specify the locations, citing competitive reasons. She declined to say how much the company’s build-out of the clubs and e-commerce facilities will cost."

KC's View:

I didn't realize that it had been so long since Sam's Club had experienced a growth spurt.

But y'know what they ought to do?  Buy Boxed, and use it as a strategic play to expand beyond its physical footprint.

corporate drumbeat

The Boston Globe writes about Addie's, a new independent pickup-only grocery store that has opened in Norwood, Massachusetts, about 20 miles south of Boston.

It is, the Globe writes, "the brainchild of Jim McQuade, an aerospace engineer by training, who says he became 'obsessed' with the online grocery concept more than a decade ago, after his wife asked him to pick up a few items for dinner: balsamic vinaigrette, feta cheese, and walnuts.

"'I go into a supermarket, and of course it’s, ‘how do you find these three things?,' he said. 'Twenty-five minutes later, I finally find these three items...but when I get home, the kids are hungry, nobody’s happy'."

The Globe writes that "McQuade, who was then working on an MBA at Harvard Business School, figured there was a better way for busy families to get their groceries. He came up with an idea for a drive-up store - customers would simply pull into a parking spot and receive their order in minutes … That was in 2013, and McQuade said the idea never took off. 'It was too early,' he said.  'There was no curbside pickup from any grocery store'."

Fast forward to 2020, when the pandemic meant that curbside pickup was what everybody wanted.  "Addie’s raised $10 million in a deal led by the Disruptive Innovation Fund, the venture capital arm of Rose Park Advisors in Boston, which was cofounded by the late Clayton Christensen and his son, Matt Christensen."

According to the Globe, "McQuade said Addie’s addresses several of the obstacles that come with existing pickup options. For example, some stores offer a limited number of pickup slots per hour, or they end up frequently making substitutes for out-of-stock products. He said Addie’s can serve hundreds of customers per hour, and its software ensures the products customers see online are actually in-stock.

"McQuade doesn’t sound fazed by the competition. He believes it will be more efficient to pack pickup orders in a grocery store that isn’t open to the public. Most stores’ inventories are designed keep customers shopping for a longer period of time, whereas Addie’s is arranged in a way that allows its employees to pick items the fastest."

KC's View:

This sounds very interesting, and worth a drive up to Boston to see it one of these days.

There is one passage in the story, however, that gives me pause, in which it suggests that Addie’s goal is to open 2,000 stores in 10 years.

Yikes.  I would suggest that McQuade check out a company called J. Bildner & Sons, a Boston-based retail chain that was way ahead of its time during the eighties when it came to fresh food marketing that catered to what then were called "yuppies."  It was a terrific format, and I really liked Jim Bildner … but they expanded beyond their ability to deliver on their value proposition, and the company eventually folded.

This Inc. piece by Bildner is a good one, if painful, to read.

I could be wrong about this, and maybe it is too early to make such a prediction, but I'd bet dollars to doughnuts that if the software is as good as McQuade says it is, he'll either end up licensing it to other companies or will sell the concept to someone with deep pockets and a strategic mindset.

corporate drumbeat

Good story from National Public Radio (NPR) in which it looks at price increases at a single Walmart - just south of Savannah, in Georgia's Liberty County - between mid-2019 and the present.

In 2019, the story says, NPR visited the store to see "how the Trump administration's trade war with China was affecting prices … Since then, the pandemic has hit. Global supply chains became chaotic and fuel prices swung wildly. The Great Resignation pushed U.S. employers to raise long-stagnant wages. Russia's invasion of Ukraine disrupted food and energy trade. Cue: historic inflation.

"We returned to the same Walmart in December to see just how much prices have changed at America's most popular supermarket. There, we found some items on the shelves have changed, too — and a few surprises."

Two major conclusions - prices have, indeed, gone up in many categories, and shrinkflation (in which product sizes are reduced without prices being lowered) is real.

Another reality:  "Walmart also has stopped selling some items from big-name brands — like the Stanley screwdriver — in favor of private brands that are usually more profitable. This can give a store more wiggle room to lure shoppers with lower prices, while still making its money."

But, NPR writes, there were a number of items where their prices stayed the same, or even got cheaper.

You can read the entire piece here.

Industry drumbeat

The Wall Street Journal reports that "Bed Bath & Beyond Inc. said it doesn’t have the funds to repay its banks after they determined the retailer has defaulted on its credit lines.

"The home-goods chain said Thursday it received a notice of default from JPMorgan Chase & Co. on Wednesday. The banks are calling for an immediate repayment of all outstanding loans under the credit agreement … The company has $550 million in loans outstanding from the banks led by JPMorgan, as well as $375 million from a facility provided by Sixth Street Partners, according to a securities filing. It had $154 million in unrestricted cash and equivalents in late November.

"As a result of the default, Bed Bath’s interest rate goes up by 2 percentage points, according to the filing, and it is required to put up cash collateral to back letters of credit, which are often tapped for payments to suppliers. The company has $186 million in outstanding letters of credit."

The story points out that the retailer has "racked up losses as sales have plummeted," 

has had trouble keeping its stores in stock because of its lack of funds, and has warned that it may have to file for bankruptcy as it looks at strategic alternatives.

KC's View:

Talk about a format that is past its expiration date … I cannot imagine why anyone would want the damn thing.  (The real estate may have some value, but the brand has outlived any usefulness.)

But I can't possibly say it any better than Willie Nelson:

Turn out the lights, the party's over

They say that all good things must end

Call it a night, the party's over

corporate drumbeat

•  Reuters reports that Amazon "recently added to its growing pile of debt with an $8 billion loan. The extra funding is curious, but not as much as the foreign banks providing it.

"Slowing growth, weakening profitability and planned acquisitions, including 1Life Healthcare and iRobot, are reshaping Amazon’s balance sheet and creating new claims on its resources. It had nearly $60 billion in combined cash and easy-to-sell securities as of Sept. 30, but it also burned through some $20 billion of free cash in the 12 months ending in the third quarter. In that context, raising $8 billion, fast on the heels of arranging a $10 billion term loan in November, seems intuitive for boss Andy Jassy.

"Less intuitive is the roster of financiers. After first tapping the market’s biggest bookrunners, Amazon enlisted Canada’s TD Securities to shop the lesser-traveled byways around Wall Street for the follow-up deal. Among those agreeing to lend to Amazon for 364 days at 0.75% over the benchmark rate, plus an additional 0.1% credit spread adjustment, were Australia’s ANZ, Bank of China, France’s Credit Agricole, Spain’s BBVA, Britain’s NatWest, and Singapore’s DBS."

Reuters writes that "it’s easy to understand why the wannabes would jump at the chance to work with Amazon. Although its credit profile has slumped a bit – retained cash flow, an after-dividend measure used by ratings agency Moody’s Investors Service, has dipped below 50% of net debt – it is a brand-name borrower with an investment-grade rating. Some in the latest syndicate will have access to cheap funding. Others such as BBVA, which offloaded its American subsidiary but kept its broker-dealer business, are keen to expand in U.S. investment banking."

•  From the Associated Press:

"Fewer Americans filed for unemployment benefits last week as the labor market remains tight, even as the Federal Reserve has tried to cool the economy and inflation by raising interest rates.

"Applications for jobless aid in the US for the week ending Jan. 21 fell by 6,000 last week to 186,000, from 192,000 the previous week, the Labor Department reported Thursday. It’s the first time in nine months that number has been below 200,000 in back-to-back weeks.

"The four-week moving average of claims, which flattens out some of the week-to-week volatility, declined by 9,250 to 197,500. It’s the first time that number has been below 200,000 since May of last year."


•  From the Washington Post:

"The Food and Drug Administration announced Thursday that products infused with CBD, which is derived from cannabis or hemp and used in items as varied as soap and seltzer, do not appear to meet federal safety standards and require stricter regulations.

"The announcement was a blow to the burgeoning CBD industry, which had hoped the agency would greenlight CBD’s use. Instead, the agency asked Congress to pass new regulations governing its use."

The Post writes that "the use of CBD raises various safety concerns, especially with long-term use, according to the agency statement. It cited studies that show potential harm to the liver and the male reproductive system as well as risky interactions with some medications. CBD exposure may also hold risks for certain vulnerable populations such as children and those who are pregnant."

The story notes that "despite the lack of a green light," from federal regulators, "CBD products have proliferated in the marketplace, from energy drinks and bubbly water to ointments and tinctures — and even pet foods. Industry studies had predicted the global CBD market would grow to $1.25 billion by 2024, with thousands of CBD-infused products now available online."


•  The Hill reports that this week a federal judge "tossed a lawsuit from three former Whole Foods employees alleging the grocery chain unlawfully retaliated against them for opposing a workplace ban on Black Lives Matter masks.

"U.S. District Judge Allison Burroughs granted summary judgment in favor of Whole Foods, finding it didn’t treat the workers differently than similarly situated ones who violated its dress code policy when the chain stepped up enforcement in mid-2020."

corporate drumbeat

Executive Suite is sponsored by Robin Russell Executive Search.

•  The Austin Business Journal reports that Amazon has hired Shannon Loew as its new vice president of worldwide corporate real estate and facilities, succeeding John Schoettler.

Some context from the piece:

"It was Schoettler who saw the potential to convert some nondescript warehouses in Seattle's South Lake Union area into an urban headquarters campus. He later led development of the high-rise campus just north of the central business district."

Loew, the story says, was chair of the Seattle Design Commission last decade when Amazon developed its downtown high-rise campus in the Pacific Northwest city."  Loew is described as an architect who "founded real estate design company FIX Impact in 2008 and was with the company until last year. His LinkedIn profile states FIX has drafted land-use policies for cities, guided strategy for multibillion-dollar urban redevelopment projects and launched affordable housing entities."

corporate drumbeat

Billy Packer, who moved from being a college basketball player for Wake Forest to a more than three decade career as a network television college basketball analyst, broadcasting with 34 Final Four broadcast teams, has passed away from kidney failure.  He was 82, and did his last Final Four broadcast in 2008.

Industry drumbeat

I got a lot of email this week about the decision to reformulate Fat Tire beer.

MNB reader Annette Opseth wrote:

This story reminds of “new coke” when Coca-Cola tried to change their tried and true Coke.

A HUGE risk … and some would say a “disaster”  although it did give Coke a lot of buzz.  I am guessing you likely wrote about this.

PS: I really love your newsletter KC and often share things from it with my teams.

Thanks…

I've certainly mentioned New Coke over the years;  that name has become a code word for every new product introduction that seems ill-timed or badly thought out.  You're right that it did create buzz … one of the things that Coca-Cola learned from the experience was just how loyal its customers were.

I have to admit, however, that I have no memory of writing about New Coke when it actually happened - in 1990, when it was introduced, I was a fairly young reporter working for Supermarket Business magazine.  For the life of me, I can't remember if I wrote about it or what I wrote about it … but that was more than three decades ago, so I don't feel like this qualifies as a senior moment.  (I hope.)

MNB reader Justin Anthony wrote:

Like you, Fat Tire is one of my favorite beers.  I’ve always enjoyed the amber ales and never really got on the IPA bandwagon.  This type situation was my fear when the company sold to a conglomerate a few years ago.  Fat Tire is no longer a flagship brand, just another dollar amount on the P&L.  While I did not expect the owners in Japan to change the beer itself, I did expect them to not care about it as much as when it was under Employee Ownership.   There are no personal responses because the business is no longer personal.

MNB reader Glenn A Cantor wrote:

I guess the folks working at New Belgium weren’t alive when Coca Cola tried to change to New Coke.

P.S.  If they ever try to change Yuengling, I am giving up beer.

MNB reader Jana Halpin wrote:

I enjoyed your video today regarding the reformulation of Fat Tire Amber Ale.  Like you, our house enjoys this beer and don’t want them to change what made it great, but I have to wonder if this is a publicity gimmick.

“What’s old is new again, or we heard our consumers loud and clear and they want to keep the original product” based on their generic email response.  Last year we saw so many brands bring back old favorites, and call me skeptical, but something feels off in this.  It would be a genius idea as the media coverage has been +10x any of their marketing efforts, and I’m sure the sales lift from everyone purchasing the “last batch” has been great too.  I could be wrong, but for our sake, I hope I’m right.


And finally, regarding our mention of the Doomsday Clock, MNB reader Steve Darr wrote:

I saw that too about the doomsday clock…in keeping with the movie themes you sometimes communicate, I just happen to be watching a movie I never saw when it was new (why I keep asking myself!  After all I was 3 when it was made!!!!!!) where the following soliloquy is uttered by a famous “hoofer”….compelling cinema indeed!  I’m guessing you know exactly what movie and speech I’m referring to as well.  Have a great day and enjoy all 90 of our remaining seconds!

corporate drumbeat

My first reaction when looking at all the Oscar nominations this week was that I have a lot of movie-watching to do if I'm going to catch up.  I've seen exactly two of the 10 Best Picture nominees - "The Fabelmans" and "Top Gun: Maverick."  I have to be honest - I'm not feeling real motivated to see "Elvis" or "Avatar: The Way of Water," but I am looking forward to “The Banshees of Inisherin," “Everything Everywhere All at Once," “Tár," and “Women Talking."  (In fact, I'm planning on watching “The Banshees of Inisherin" tonight, and “Everything Everywhere All at Once" tomorrow night.

That said, the movie I want to recommend to you this week is one that isn;'t up for any awards, but that I think is really good - "Vengeance," on Amazon Prime Video, written and directed by BJ Novak.

"Vengeance" is a small movie - the protagonist is a New York-based writer/podcaster/blogger (I wonder why I like him?) who is completely self-absorbed.  He gets a call one night informing him that his girlfriend has died in Texas … but the problem is that he thought of her as someone he hooked up with, with no emotional connection.

Still, he travels to Texas for her funeral, thinking there may be the makings of a podcast in the culture clash … and then he discovers that the woman's brother believes she has been murdered.  Which sets him off on a journey through the Texas landscape that is both funny and revelatory.  Novak stars as the podcaster, with a strong supporting cast and an excellent Ashton Kutcher who may or may not have insight into the woman's death.

"Vengeance" is smart, with just enough twists and turns … and, best of all, it is a tight one hour and 45 minutes.

Check it out.


This may be my favorite trailer of recent days, for a new Eugene Levy series slated to begin shortly on Apple TV:


I've had a couple of wonderful South African wines this week - the 2018 Reyneke Vinehugger, which is wonderfully spicy, and the 2018 RockyLands Cabernet Sauvignon-Merlot blend, which was rich and elegant.  Both are fabulous.


That's it for this week.  Have a great weekend, and I'll see you Monday.

Sláinte!!

corporate drumbeat