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Wednesday, February 10, 2016

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The Innovation Conversation: Bricks & Mortar, Sense & Sensibilities, & Zombies

Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

And now, the Conversation continues...

KC: Tom, perhaps the biggest e-commerce news of the last week had to do with bricks-and-mortar, when the CEO of a mall management company said it was his understanding that Amazon planned to open 300-400 bookstores along the lines of what it has been testing in Seattle.  Now, he walked that back pretty quickly the next day - I suspect because someone from Amazon headquarters gave him a call (or maybe put a horse's head in his bed) and made him an offer he couldn't refuse.  But it's been my feeling all along that when people talk about Amazon opening physical stores, it tends to be wishful thinking on the part of traditionalists who would like to fit Amazon into a box into which it has no intention being confided.  Would you agree?  Is it inevitable that Amazon will become an omnichannel retailer?

Tom Furphy:
Amazon’s physical retail moves are interesting. It is counterintuitive to see them opening physical stores, when the crux of their model – unlimited selection, a powerful platform and sophisticated shipping programs – flies in the face of physical retail. Further, traditional retail has been flat, but Amazon continues to grow well above 20%. So the Amazon model seems to be working based upon the votes of customers.

That said, they did open the store here in Seattle last year. It is a well-presented store, with a balance of physical and e-commerce retail rolled into one. I’m sure they are testing and learning fervently there and are using those results to model future stores.

If they are planning to open 300-400 more stores, it is because they have proven what they set out to prove and have used that data to model their future strategy. Are they looking to roll out more book-only stores? Or are they planning to expand into showrooms for additional products? Not sure. It is interesting to think about a series of showrooms or service centers, where customers can try products, pick up orders from lockers, return products, get demos for Echo or Dash, try a Kindle or meet with an AWS expert. If they can pack a lot of utility and a great experience into a reasonably small footprint, it could be a winner.

And it also could start to define what the next generation of retail might look like. I don’t believe the rationale for rolling out stores is because they feel they need physical retail to survive long-term. Perhaps they feel like enough of their customers are looking for the physical experience and that they have found something that works in the bookstores. Whatever the reason, I guarantee that it’s based on data, a thorough analysis and a calculated risk.

KC: I did see one idea for an Amazon store that was kind of intriguing … a sort of Amazon Outlet store chain (that would go in all these outlet malls that are all over the place) that would serve to sell the stuff that it needs or wants to get rid of, for whatever the reason.  (I suppose it could also sell the week's top ten items.)  But what sort of intrigued me about the idea was the suggestion that it would be for Prime members only … if you weren't a Prime member, you couldn't get in.  Sort of like Costco.  The idea was that not only would it give Amazon another selling venue, but also could drive even more Prime memberships.  Now, I'm probably missing all sorts of problems with this model, but I'm intrigued …  Thoughts?

Hmmm. That’s a tough one to like. Prime members have declared their loyalty to Amazon, including its model of two-day, next-day and now same-day shipping. They know that Amazon gives them a virtually unlimited assortment of physical and digital products at great prices. They have more or less “sworn off” bargain hunting across stores because they know Amazon provides a great value. I’m not sure why, or even how, Amazon could offer close out items through a physical store. Given the economics of getting product to the stores and staffing those stores seems daunting. Amazon’s sophisticated inventory and pricing algorithms already move product through the system optimally. The “yield” of every product is optimized by balancing price, inventory & supply chain costs, fulfillment costs and customer demand. The cost of pulling this inventory from current stock, then trans-shipping to a physical, manned store just doesn’t add up.

The Innovation Conversation will return ...

KC's View: As a postscript, I wanted to point out that as dedicated as Amazon may be to algorithms, someone there apparently does have a sense of humor.

Witness the stories this morning about how, deep in the terms of service for a new game engine for developers called Lumberjack, there is a clause describing the circumstances under which the terms can be voided..."a widespread viral infection transmitted via bites or contact with bodily fluids that causes human corpses to reanimate and seek to consume living human flesh, blood, brain or nerve tissue and is likely to result in the fall of organized civilization.

In other words, a zombie apocalypse.

I do love a company with a sense of humor.

Wednesday Morning Eye-Opener: Towels or Toothpaste, Will Robinson?

by Kevin Coupe

The Daily Mail has a story about how a company called Savioke has developed what it is calling a "hospitality robot" that hotels will be able to use to deliver to guest rooms "everything from toothpaste to Starbucks."

The robots navigate using Wi-Fi and 3D cameras, and currently there are a dozen of them being tested in the US. "This includes the Residence Inn by Marriott Los Angeles LAX/Century Boulevard, where Relay makes routine deliveries and also brings coffee to guests from the Starbucks in the hotel lobby. Officially called Relay – though it has gained its own nicknames at some hotels – the robot stands three feet tall, and has a compartment at the top that can be loaded with items for delivery."

The story says that "on Saturdays and during the December holidays, the Relay robots were met with their busiest delivery days, taking on the many deliveries that would otherwise be done by hotel staff. While some may argue that these robots are set to replace human jobs, the hotels assert that they won't be taking jobs, but instead allow human employees to put more focus into other tasks."

The company recently landed $15 million in funding, which experts believe could make the robots a lot more ubiquitous. And definitely an Eye-Opener.

Editorial continues after a word from our sponsor...

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Now back to regularly scheduled editorial...

Internal Memo Details Amazon's Global Shipping, Logistics Ambitions

Bloomberg reports on its obtaining of an internal Amazon memo detailing the company's plans for a global shipping and logistics business designed to compete with the likes of FedEx and UPS.

Here's how the Bloomberg story describes the plan:

"A 2013 report to Amazon’s senior management team proposed an aggressive global expansion of the company’s Fulfillment By Amazon service, which provides storage, packing and shipping for independent merchants selling products on the company’s website. The report envisioned a global delivery network that controls the flow of goods from factories in China and India to customer doorsteps in Atlanta, New York and London. The project, called Dragon Boat, is proceeding, according to a person familiar with the initiative, who asked not to be identified because the information isn’t public.

"The ambitious strategy promises to turn FedEx and UPS into Amazon rivals, but also will pit the Seattle giant against Chinese counterpart Alibaba Group Holding Ltd. Both companies are vying for dominance of the rapidly growing cross-border e-commerce market, which by 2020 is expected to swell into a $1 trillion industry serving 900 million shoppers, according to a June report from Accenture and AliResearch, Alibaba’s research arm.

"Amazon’s plan would culminate with the launch of a new venture called 'Global Supply Chain by Amazon,' as soon as this year, the documents said. The new business will locate Amazon at the center of a logistics industry that involves not just shippers like FedEx and UPS but also legions of middlemen who handle cargo and paperwork associated with transnational trade. Amazon wants to bypass these brokers, amassing inventory from thousands of merchants around the world and then buying space on trucks, planes and ships at reduced rates. Merchants will be able to book cargo space online or via mobile devices, creating what Amazon described as a “one click-ship for seamless international trade and shipping.”

KC's View: The thing about an algorithm driven business is that as the business evolves, simple math (and, I suppose, not-so-simple math) highlights where the waste is and where the opportunities are. These plans would seem to be perfectly aligned with Amazon's ecosystem approach to strategic business development, especially considering all the recent news about it testing entries into the air freight and ocean shipping businesses (and, of course, the drone delivery business).

This takes Amazon beyond where I might have expected the company to go. But that probably has more to do with the limitations of my imagination.

Editorial continues after a word from our sponsor...

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Now back to regularly scheduled editorial...

New Hampshire, Rhode Island Lawmakers To Consider GMO Labeling Bills

Politico reports that state legislatures in Rhode Island and New Hampshire are scheduled this week to begin consideration of bills that could result in mandated labeling of products containing genetically modified organisms (GMOs).

The Rhode Island House Committee on Health, Education and Welfare is holding a public hearing "on a handful of measures that would establish rules for labeling," the story says, while "the New Hampshire House of Representatives will take up labeling legislation, although passage is far from a sure thing."

The story notes that Vermont's GMO labeling bill is "still set to go into effect July 1. But that could change if the 2nd U.S. Circuit Court of Appeals grants the food industry’s request for an injunction. A ruling on the issue has been pending for four months." Connecticut also has passed GMO labeling legislation, though its implementation depends on other states taking similar actions.

KC's View: The battle continues. I still think that we'd be better off with a federal standard (which is not the same thing as a federal ban, which is what some trade associations and manufacturers) would like.

The big message is that the growing consumer interest in GMO labeling has not subsided. Companies and the lobbyists represent them may have to face the possibility that their commercial desires may be swamped by popular opinion.

Editorial continues after a word from our sponsor...

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Walgreens Gets Into The Business Of Fighting Drug Abuse

The New Haven Register reports on how in 39 states Walgreens is installing in-store kiosks for the safe and free disposal "of opioids and other prescription medications." In addition, the story says, "Walgreens plans to offer naloxone, more commonly known as Narcan, to consumers without a prescription by the end of the year. Narcan is a drug that reverses the effects of opioid medication and can be used to help treat someone suffering from the effects of a heroin overdose."

The company says that the move is part of a broader initiative to help fight drug abuse, and the offerings will be available in urban, suburban and rural locations.

Editorial continues after a word from our sponsor...

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Whole Foods' Robb Says Company Is 'Not Back On Its Heels'

The Wall Street Journal has an interview with Whole Foods co-CEO Walter Robb in which he addresses some of the competitive headwinds that the company has faced this year.

"You’re looking at a tectonic shift in the marketplace where all the growth in food has moved in the direction [of natural and organic products], so you have massive competitive changes," Robb says. "You have a big generational change. You have huge change in technology. Everybody’s into this space because they realize this is what customers want.

"We’re still creating 8,000 new jobs this next year. We’re still opening 30 new stores. We’re launching a second format called 3-6-5 by Whole Foods. It’s a short-term reset…but we intend to continue to be leaders in the new world order. We’re not back on our heels."

Future supermarkets, he suggests, are likely to be smaller, and "more fresh than non-fresh. You’re going to see an explosion in food service and prepared foods and beverages, an explosion of choices for those who don’t want to cook. And they’ll be able to get it on-demand. Ultimately [customers] are looking to the food store not just for food that they can cook but for food they can eat right now."

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Now back to regularly scheduled editorial...

Coke Plays A Zero Sum Game On Trademark Issues

The Wall Street Journal reports this morning on how the Coca-Cola Co. has been fighting an uphill battle to trademark the word "Zero" for its diet soft drinks.

The story says that US regulators have taken the issue under advisement, while both Canada and the UK have rejected Coke's efforts to trademark the common English word. The story says that "if Coke prevails, it could more easily sue imitators. If it loses, it could face an onslaught of competitors such as Dr Pepper’s Diet Rite Pure Zero, who take the name and dilute a brand that has turned out to be a star for Coke in a game that has been rough going."

The Journal also notes that while diet soft drinks have taken a sales hit because of growing consumer concerns about artificial sweeteners, Coke's "Zero" products have not been hit as hard.

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Even As A Force Awakens, The Power Of Disruption Is Evident

The New York Times reports on how while Disney had a 28 percent increase in its most recent quarterly profit, CEO Robert Iger this week found himself on an investors conference call defending the company's ESPN cable networks. The story notes that "Disney has been dogged by concerns about the long-term health of its cable television holdings, which have historically provided the bulk of its annual profit. Mr. Iger has repeatedly rejected the notion, put forward by a few analysts, that ESPN is particularly at risk as some consumers forgo a traditional cable subscription.

"On Tuesday’s call, Mr. Iger again emphasized the strength of ESPN, noting that in recent weeks the sports behemoth had achieved an increase in subscribers, in part from new, slimmed-down cable and satellite services like Sling TV that are popular with younger consumers."

KC's View: This is an interesting story to follow, since it is yet another example of how traditional businesses can be disrupted by new technologies. It wasn't that long ago that the idea of major sporting events appearing on cable networks was deemed revolutionary because it appeared to disenfranchise people who don't have cable; now, not only does ESPN carry major events, but it seems to be a foregone conclusion that at some point sports events will be available on services like Netflix and Amazon.

It would seem that ESPN (and probably its brethren) is being hurt both my evolving technology and by high licensing fees ... it is getting squeezed from both sides. This is the kind of thing that every business has to worry about ... finding themselves in circumstances in which their relevance is being squeezed out of existence.

The irony, of course, is that Disney had a pretty good year with a little movie you may have heard of called Star Wars: The Force Awakens. But even the power of the Force may not be able to stand up against the power of Disruption.

Editorial continues after a word from our sponsor...

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Fast Company has a follow-up story on Chipotle's company-wide virtual meeting on Monday that was designed to highlight the company's efforts to reboot its fresh approach to food safety.

As part of that approach, "Sick employees must now stay away from the workplace for five days after symptoms from an illness disappear; the time off will be paid."

"If you are feeling sick, or if you have vomited, either at work or at home, you need to tell your manager or field leader immediately," co-CEO Monty Moran said. The story says that "managers are also expected to report if an employee gets sick at work, and if a worker or customer vomits in a restaurant, the location must be shut down immediately."

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Your Views: The Harder Side Of Sears

Got the following email from MNB reader Norm Krause:

I am sad when I think how low Sears has dropped in the retail scene.

I remember doing a lot of shopping at Sears in the 60s-80s but then they moved their store further away and I found other retailers closer who could fill my needs.  I shopped mostly in the Sears Hardware Dept. back then.  Craftsman were the tools you wanted because they were Guaranteed.  If a wrench broke, you took it back and got a new one.    No questions asked.
Not so, anymore.

I bought a Craftmans $70.00 air pump about 2 years ago.  The electric cord broke away from the housing.  Called Sears to get it repaired.  Clerk asked when I bought it.  Two years ago, I replied!  "Sorry, it has a 1 year Warranty.  You are out of luck.  We don't even fix the old ones!  Old ones?  What an answer!  It was as if he didn't care and left me hold the bag.  An empty one!

He didn't care. Of that, I have no doubt.

Responding to Michael Sansolo's Springsteen column yesterday, MNB reader Beatrice Orlandini wrote:

I never knew that you, too, were a fan of  the Boss. We would have had even more topics to share!

I was delighted a few weeks ago when two Italian dates were confirmed. Pre-sales due to start this morning at 11.

My daughter was ready to secure us 2 tickets, hopefully on the lawn so as to be - really - where the action is.

At 11.05 almost all sold out.

We managed to buy only the lousiest tickets ever. But we managed.

How is this possible? It's not real/good service. Your customers/fans are loyal and they cannot even come to see you.

Anyway, nice to know that this tour is just as good as the previous ones. Haven't missed a date in years!

The proliferation of ticket agencies and scalpers who manage to almost monopolize the ticket scene will, I think, do damage to the concert business in the long run. It is all about yet another segment of society catering just to the top tier consumer, and treating the vast majority of us as afterthoughts.

On another subject, from an MNB reader:

Yesterday, Chipotle offered a free burrito as a “raincheck” for being closed during lunch-time.  The offer was to have been given to anyone who texted them at 888-222.  When I tried to submit my name for redemption, their system continually rejected it.

Fail. Pure and simple.

And finally, responding to my commentary about the Groupon-selling-mars-real estate story, MNB reader Peter Wildes wrote:

J'onn J'onnz?

Wow. Thanks for bringing me back to my DC comics days.

My pleasure.

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Kevin Coupe uses his unique perspective as MorningNewsBeat "Content Guy" and more than 30 years writing about business, marketing and innovation to identify 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.

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