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Friday, August 01, 2014

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Friday Morning Eye-Opener: Inverted Arguments

by Kevin Coupe

So, a little while back, we had a story here on MNB about inversion, which is the practice of an American company acquiring a company based outside the US and relocating its headquarters to that country as a way of reducing business tax exposure. One example: Walgreen reportedly is considering the acquisition of the shares in British chain Boots that it does not already own, which would allow it to make such a move.

The most recent story we ran took note of a New York Times report saying that the Obama administration was calling for the US Congress "to strip away tax advantages that have encouraged a rush of mergers and acquisitions that give companies an overseas base while they maintain their presence in the United States." There even has been some suggestion that such legislation be made retroactive, so that even if companies rush to make such deals before any legislation could be passed, those deals could actually be voided by new law.

To be honest, I'm not sure anyone has to rush to do anything. The notion that the US Congress could come up with anything like a compromise bill to deal with inversion that would be signed by President Obama seems fairly unlikely. Companies like Walgreen can just take their sweet time, because nobody in Washington is doing anything.

Meanwhile, I got a number of emails on the subject. Here is a typical comment:

This is another example of an entity making decisions and not understanding the potential consequences. When labor costs got high in the US companies began shipping production overseas- look what that did to the US Manufacturing work force. This is another example of an action( higher corporate tax rate) that has become uncompetitive and now we want to not only make it illegal to move your company but penalize you for trying to be competitive. We need to ATTRACT businesses to the USA not imprison them through legislation.

The general consensus of the emails I received was that companies needed to do everything and anything that is legal to cut their taxes, and politicians should stop whining and start cutting corporate tax rates.

In my original commentary, I questioned the whole idea of retroactivity, and added:

When it comes to the inversion debate, here's what I'd like to see - someone needs to come up with a simple chart that explains where corporate taxes go, and why it is good business for someone to stay here rather than go abroad. I'm willing to accept on faith the idea that the US is a better place to do business than anywhere else in the world, in terms of having a culture of innovation, greater levels of freedom, more access to capital, etc… But markets don't do much on faith…and so someone has to make this case persuasively.

Except that last night, on "The Daily Show," that's pretty much what Jon Stewart did. If you're interested in that side of the argument, just click on the screen at left.

One other thing. Immediately after "The Daily Show" last night, Stephen Colbert on "The Colbert Report" addressed precisely the same issue, interviewing writer Allan Sloan of Fortune - not exactly a Commie rag - about his recent cover story criticizing companies using this strategy. You can read the whole story here, but let me offer you a relevant excerpt:

Sloan says that these companies are practicing "a new kind of American corporate exceptionalism: companies that have decided to desert our country to avoid paying taxes but expect to keep receiving the full array of benefits that being American confers, and that everyone else is paying for.

"Yes, leaving the country–a process that tax techies call inversion–is perfectly legal. A company does this by reincorporating in a place like Ireland, where the corporate tax rate is 12.5%, compared with 35% in the U.S. Inversion also makes it easier to divert what would normally be U.S. earnings to foreign, lower-tax locales. But being legal isn’t the same as being right. If a few companies invert, it’s irritating but no big deal for our society. But mass inversion is a whole other thing, and that’s where we’re heading.

"We’ve also got a second, related problem, which I call the “never-heres.” They include formerly private companies like Accenture, a consulting firm that was spun off from Arthur Andersen, and disc-drive maker Seagate, which began as a U.S. company, went private in a 2000 buyout and was moved to the Cayman Islands, went public in 2002, then moved to Ireland from the Caymans in 2010. Firms like these can duck lots of U.S. taxes without being accused of having deserted our country because technically they were never here. So far, by Fortune’s count, some 60 U.S. companies have chosen the never-here or the inversion route, and others are lining up to leave.

"All of this threatens to undermine our tax base, with projected losses in the billions. It also threatens to undermine the American public’s already shrinking respect for big corporations.

"Inverters, of course, have a different view of things. It goes something like this: The U.S. tax rate is too high, and uncompetitive. Unlike many other countries, the U.S. taxes all profits worldwide, not just those earned here. A domicile abroad can offer a more competitive corporate tax rate. Fiduciary duty to shareholders requires that companies maximize returns.

"My answer: Fight to fix the tax code, but don’t desert the country. And I define 'fiduciary duty' as the obligation to produce the best long-term results for shareholders, not 'get the stock price up today.' Undermining the finances of the federal government by inverting helps undermine our economy. And that’s a bad thing, in the long run, for companies that do business in America."

Which is sort of the point I was trying to make from the beginning, though I did not make it nearly as eloquently as either Sloan or Stewart.

I think that when companies are only focused on getting the stock price up today - a policy that often linked to the practice of rewarding CEOs based on today's stock price - they tend to make tactical and short-term decisions, not strategic long-term plans. That's sort of what bothered me about the pro-inversion argument - that it seemed to be viewing taxes in a vacuum, as opposed to seeing them within the context of received services, accessible customers, and all the other financial arrangements that companies make with local, state and federal government agencies.

So, yesterday was an Eye-Opener … if for no other reason, because Jon Stewart and Fortune seem to agree on something.

Attorneys General Warn Market Basket About Adhering To Employment Law

The Boston Globe reports that the attorneys general of both Massachusetts and New Hampshire have sent a letter to the management of troubled Market Basket, warning that they must adhere to labor law if employees are fired.

"We are keenly aware of recent reports that Market Basket has terminated a number of employees and of reports today that more workers may face termination and replacement in the coming days,” wrote Martha Coakley, of Massachusetts, and Joseph Foster, of New Hampshire, adding, “Whatever decisions you make in the coming days, needless to say our offices expect and will require compliance with our respective laws."

Facing mass employee protests and customer boycotts as a result of the firing of CEO Arthur T. Demoulas, the current Market Basket management has said that employees who return to work by next Monday will not be penalized, but that it will begin holding hiring fairs to replace those who do not.

Market Basket co-CEOs Felicia Thornton and James Gooch replied with a statement: "We have said several times that we hope sincerely that we do not discharge any employees. We want our associates back. We are focused solely on getting Market Basket stores back up and running for our customers and, importantly, for the many local vendors that rely on Market Basket to make their own businesses successful for the sake of their employees. We respect the Attorneys General position, and would of course follow all applicable laws."

KC's View: It is just incredibly hard to imagine any scenario in which the current management at Market Basket is able to lead the company in any sort of effective way. It isn't just the employees who have slowed the supply chain down to barely a crawl, but the customers who are boycotting the stores because of the way it is being managed. You have to wonder where the line is, at which point the company becomes irreparable.

Editorial continues after a word from our sponsor...

Corporate Drumbeat

From Samuel J. Associates...


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Why Target Hired Brian Cornell As Its New CEO

Following up on yesterday's news that Target has hired Brian Cornell - most recently of PepsiCo, and previously with Safeway, Sam's Club and Michaels - as its new CEO, the San Francisco Chronicle writes that "Cornell's hiring marks the first time in Target's 50-plus year history that the retailer has chosen an outsider as CEO. The retailer normally prides itself in developing its managerial talent, so hiring an outsider like Cornell suggests that he brings something to the table that does not exist at the company.

"It sure isn't digital retail experience. Nothing in Cornell's resume - including top stints at Walmart, Sam's Club and PepsiCo - indicates that Cornell possesses the omnichannel skills that Target so desperately needs. Target stock fell nearly 3 percent Thursday, not exactly a ringing endorsement from Wall Street.

"But Cornell's Safeway experience is what Target really wants. For several years, Target has aggressively expanded into groceries, rolling out P-Fresh sections throughout its 1,800 stores in the United States. In fact, the grocery category has been the only consistently growing one in Target's arsenal, despite the retailer's reputation for on-trend clothing and home accessories.

"Food is key to every facet of Target's strategy. To boost sagging traffic in stores, it has been trying to get customers to shop more often and buy more stuff. You need to buy groceries way more often than you need to buy shoes. Target's REDcard loyalty program, which gives shoppers 5 percent off purchases, encourages these types of stock-up trips. The retailer's new digital savings program, Cartwheel, initially focused on groceries.

"As chief marketing officer at Safeway, Cornell oversaw marketing and merchandising at a supermarket chain known for these skills. It's probably no accident that under Cornell's three-year tenure, Safeway stock more than doubled."

KC's View: It isn't just food that Cornell will have to address. Bloomberg has a piece saying that among the things he will have to do Immediately is figure out a way to quicken the pace of small store openings, fix the badly broken Canadian operation, get the company's bricks-and-mortar and online businesses more in synch, and eliminate red tape in a way that makes the company more efficient and effective.

And that's probably just in his first month.

Good luck with that.

BTW…to be clear…not everybody thinks that Cornell has the retailing chops to make this work. And to be honest, I think that, fair or not, he's going to have to show some results fairly quickly.

Pepsi Looks To The Spire For New Growth

Advertising Age has a story about the Pepsi Spire - essentially, its response to the futuristic Coca-Cola Freestyle vending machine - that is worth taking a look at.

There are, the story says, "three versions of Pepsi Spire—the largest of which allows consumers to customize drinks in up to 1,000 ways … There is the social-vending machine that allows people to gift each other beverages. And next to that, a cooler with a translucent screen that lets the company display its beverages while running a loop of marketing messages."

Ad Age writes that "for Pepsi, this is an important play. The fountain channel accounts for nearly a quarter of total soft-drink volume, according to Beverage Digest. And Coke dominates with a share of about 70% compared with Pepsi's 19%."

Making it harder is the fact that Pepsi is playing catch-up to Coke, which launched its Freestyle in 2009: "There are now 20,000 Coca-Cola Freestyle units around the country, and the company is in the midst of rolling out new formats. PepsiCo hopes to have 2,000 units in the market by the end of the year."

Editorial continues after a word from our sponsor...

Corporate Drumbeat

MyWebGrocer's New Aisle Beacon™ Technology, Personalizing the In-Store Customer Experience

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Continue the conversation with your customers (right in the aisle!) and deliver personal messages based on what each shopper wants and needs.

Contact us today to learn more:  sales@mywebgrocer.com , or call us at 888-662-2284.

Now back to regularly scheduled editorial...

India To Be Small Battleground For E-Commerce Companies

The Wall Street Journal reports that Amazon pledged this week "that it would invest $2 billion to expand its India operations, a day after Flipkart, India's biggest homegrown e-commerce company, said it had raised $1 billion from backers to help it grow."

The story goes on to say that "Amazon, Flipkart, eBay Inc. -backed Snapdeal.com and others are battling for the early lead in an online market that now amounts to just about $2 billion in sales a year. By 2020, analysts forecast, annual Internet sales could hit $30 billion, but that is still relatively small … Indeed, India poses a host of challenges. Approximately half of Indians don't have bank accounts. The country's creaking infrastructure can make deliveries costly and time-consuming."

The Journal writes that by comparison, China in 2013 racked up $300 billion in online sales, according to iResearch, which tracks Internet activity in China, while in the U.S., Internet retail transactions totaled more than $260 billion."

However, a surge in smartphone sales in India is seen as helping to drive growth in the online sales segment.

Editorial continues after a word from our sponsor...

Corporate Drumbeat

From Park City Group...


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E-conomy Beat

• Amazon and Blackhawk Network announced this week what they are describing as "a better way to manage and spend their gift cards. Using the new Amazon Wallet app, customers can more easily store, redeem and check the balance of gift cards from dozens of major retailers and restaurants."

According to the announcement, "Amazon customers can now load information from their existing physical and digital gift cards into their Amazon Wallet. Once the information is saved, card balances can be viewed from the app or online. Customers can redeem their cards online, or present them in-store right from their phones. The Amazon Wallet app comes already installed on the new Fire phone, and is also available for download to Android phones running 4.0 or above."

KC's View: A common sense solution to a basic consumer need - none of us want to carry any cards around with us anymore. We want it convenient, we want it mechanized, and we want it user friendly.

Editorial continues after a word from our sponsor...

Industry Drumbeat

Are You Happy With Your Digital Marketing?


Webstop retailers are satisfied and you could be too.

Webstop provides comprehensive grocery websites with advanced integration of mobile features, digital coupons and other award winning marketing tools for grocers. To talk to us, call 727.942.2797 or just email shawn@webstop.com

Now back to regularly scheduled editorial...

The MNB Walmart Watch

ZDNet reports that Walmart is acquiring a site called Luvocracy, described as "a three-year-old online community for surfacing product recommendations made by the most persuasive of tastemakers: family, friends and select online influencers."

The purchase could be a way for Walmart to get better at recommending products to online customers. Terms of the deal were not disclosed.

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Corporate Drumbeat

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Now back to regularly scheduled editorial...

Worth Reading: Chinese Food Safety Issues So No Sign Of Going Away

The New York Times has a story this morning about the ongoing food safety issues facing companies doing business in China. The Times writes that "after a series of food safety scandals in recent years, regulators repeatedly have promised to tighten food safety standards only to have another problem arise."

It is worth checking out here.

FastNewsBeat

• IRI is out with a new study saying that "15 percent of consumers" say they will be increasing their usage of "at least some natural and organic products," even shopping occasionally in "a specialty gourmet retailer," over the next 12 months.

In terms of age, the study says, "the most significant differences appear between baby boomers and millennials, who each find value in varying premium brand attributes and employ different shopping strategies. For instance, millennials are more drawn to convenience, while boomers are more likely to seek quality ingredients and brand names. Generation X consumers tend to align most closely with the general population and serve as the middle ground between their adjacent cohorts."


Syracuse.com reports that two-store Green Planet Grocery, which specializes in organic products and supplements, has some pretty ambitious expansion plans, projecting that it will open 10 new stores over the next three years.

According to the story, "the expansion will begin in the Syracuse area, but Green Planet will eventually look to other markets like Albany and Rochester as well."

The MNB Portland Party Pics








Thought you might enjoy seeming some pictures from the little beer-and-wine get-together that we had earlier this week at Portland's Nel Centro, as about 30 or so MNB readers stopped by during the evening to say hello. It was great to see all of you, and all I can say to folks in places like Buffalo and St. Louis who asked when I would host a similar event in their cities … well, next time I'm in town, I'll do my best.

RIP

Dick Smith has passed away at age 92, of natural causes.

Whether you know it or not, you are familiar with Smith's work as a Hollywood makeup artist.

Variety writes that in addition to aging Marlon Brando for his role in The Godfather, Smith also "was responsible for Linda Blair's harrowing possession in The Exorcist, as well as for startling transformations of actors and special makeup effects in movies like Taxi Driver, Little Big Man and Marathon Man. He also transformed the young Hal Holbrook into the wizened Samuel Clemens for "Mark Twain Tonight!"

Your Views

…will return.

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Industry Drumbeat

Make Your Next Event Unique, Mesmerizing & Provocative

Here is everything you need to know about what Kevin Coupe - MNB's "Content Guy" - can bring your meeting or conference:

"The response from our staff to your presentation has been overwhelming. There has been an excitement and enthusiasm that I have not witnessed since taking over this position. The thanks in the hallways, the emails, the comments … have all been extraordinary. Thank you for capping off the perfect company event yesterday."
Steven L.  Goddard, President/CEO, WinCo Foods

"He brought a unique perspective, and  helped us think about our industry and the changing consumer in new ways ... He left us with a lot of rich conversation and actionable information ... He was terrific."
- Lynn Marmer, Group VP Corporate Affairs, The Kroger Co.

"Kevin Coupe was an injection of high energy. Both his presentation and the session he facilitated were huge hits with our team.  Unanimously, people told me how right on, topical and extremely well presented his speech was!"
- Peter T. Wolf, Chief P Global Sales Operation, ParTech Inc.

"Kevin Coupe is authentic, witty, informed and speaks from the heart.   His pace and style of walking the room kept our members engaged and attentive and his remarks were punctuated by a mix of thought provoking and entertaining pictures and videos.  Kevin is direct and challenged our members to think and take risks by tapping into both sides of the brain.   The positive energy that Kevin generated lasted throughout the day; expect to be surprised.” - Shelley F. Doak, Executive Director, Maine Grocers Association

With a uniquely fast-paced, provocative and entertaining approach, Kevin Coupe identifies the ways in which consumers are changing, the reasons behind these changes (technology, the economy, culture, demographics), how new and unorthodox competitors are altering the marketing landscape, and what companies need to do to find and exploit differential advantages.

"My team was mesmerized by Kevin’s presentation. Thanks to Kevin, they left the meeting newly energized with a strong sense of purpose.”
- Donna Giordano, President, Ralphs

"He’s refreshingly real and authentic…it’s more of a conversation than a presentation ... He uses everyday customer experiences to think about food retailing and the possibilities ... Many times he was reaffirming where we were headed, occasionally he pointed out something we hadn’t thought about and in at least one moment, we knew we had a lot of work to do ... " - Beth Newlands Campbell, President, Food Lion

"Our group felt your presentation was filled with fresh, practical information and is excited about trying some new marketing approaches.”
- Norman Mayne, CEO, Dorothy Lane Market

Want to bring this kind of excitement and energy to your next meeting or conference? Check out KevinCoupe.com.

Contact Kevin Coupe at 203-662-0100, or email him at: kc@morningnewsbeat.com .

Now back to regularly scheduled editorial...

OffBeat: Monkey See, Monkey Do

Of all the special effects in Dawn of the Planet of the Apes - and there are many - the single more effective one is the astonishing performance of Andy Serkis as Caesar, the genetically modified ape who finds himself the leader of a nation of apes seeking peace in the woods north of San Francisco. Aided by technology that creates the physical Caesar, Serkis allows us to see into his soul in a way that I cannot quite understand, but completely appreciate.

Dawn of the Planet of the Apes is a sequel to Rise of the Planet of the Apes, which was the studio's successful attempt to reboot the Planet of the Apes series that started with a highly regarded Charlton Heston movie back in 1968. This new film follows the events of Rise by a decade, with much of the world's human population having been wiped out by a plague, and those who remain blaming the apes for the death of their civilization.

Dawn of the Planet of the Apes is, of course, a metaphor - about fear, about intolerance, and about how power can be a corrupting influence. But it isn't too heavy handed about it, and the filmmakers have turned in a film that is both exciting and has emotional depth … no small feat.

And best of all, there is Serkis. He is remarkable, and worth seeing the movie for.




I have a lovely summer rose to recommend to you this week - the 2013 Domaine de Marquiliani, which is bright and smooth and perfect for a hot summer day.



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

Slàinte!

PWS 29