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Wednesday, May 22, 2013
by Kevin Coupe
The devastation in Oklahoma has been extraordinary, but no more so than the instant and entirely predictable response of the business community in the hours after that tornado ripped up the lives and belongings of so many people. Almost immediately companies as large as Kroger, Walmart and Target, as well as those much, much smaller, have stepped in do donate money and supplies, and to organize ways to funnel donations from customers to those in need.
Which, every time there is a natural disaster in this country, is exactly what these companies do. When trade associations gauge the extent to which such businesses have an impact on their communities and nation, they ought to factor such moments in. Because they are extraordinary.
Beyond the companies and people that are stepping in to help in myriad ways, I have to say that the people that I most remain in awe of are the teachers. Whenever things are going bad - whether it is a madman with a gun or a tornado bearing down on a small town, the teachers are the ones who throw their bodies over the children to protect them. Always.
A guy I know put it this way: "I've always believed there are angels amongst us and in many cases they pose as teachers."
Dow Jones reports that Target is testing a new Netflix-style video service, Target Ticket, that "has 15,000 new releases, classic movies and next-day TV." For the moment, the beta service is only available to Target employees.
Here's the passage that grabbed my attention...
With the service, Target is not only taking on Netflix Inc. in the video streaming field, but also Google Inc.'s YouTube and Hulu, which is jointly owned by News Corp., Walt Disney Co. and Comcast Corp ... Target is also up against its rival Wal-Mart Stores Inc., which in 2010 bought the Vudu video streaming service.
What's interesting to me is the ways in which all the competition is sort of merging, and that so many entities are going into new categories and segments to compete with companies that are making incursions onto their turf. It is all interconnected, with the ultimate goal being to make indelible and sustainable connections with the shopper that will cut across categories.
It is going to be an enormous and ongoing battle.
Sounds like fun.
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The New York Daily News reports that Amazon.com has unveiled a new dedicated store on its site for men's grooming and HBC products, along with dedicated and relevant editorial.
"Eschewing its usual color scheme, Amazon.com has gone with a classic black and white design for its new men's grooming portal," the story says, "designed to get guys buying more of their health and cosmetics products online via the famous retailer."
According to the Daily News, "Men's grooming specialists Baxter of California and Men's Fitness will be providing the editorial content which mixes editorials with 'How-To Guides' which provide handy tips on topics like shaving, skincare and hairstyling, all laid out above a curated selection of products available to purchase.
"The product selection features plenty of men's grooming classics including Gillette, Hugo Boss, Axe, Panasonic (toothbrushes), American Crew, Ahava, Dove, and Nivea.
"Amazon is increasingly aiming to compete with specialized high-end male grooming sites like Grooming Lounge for a piece of the rapidly growing pie."
The point here is how easily Amazon can a) segregate product categories and segments, and b) use its considerable data to then target customers who have ever shopped in or shown interest in such products. That is an enormously powerful weapon in the competitive wars.
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The New York Times reports that "a recent report by Asymco, a research company that follows the industry, found that each Apple retail store was bringing in $13 million in revenue a quarter on average. In Apple’s latest quarter, its stores had growth of 7 percent in visitors, and record revenue of $57.60 from each visitor, the report said. That is remarkable performance, particularly for a nonholiday quarter, when sales generally slow down ... the average number of visitors for each store is 250,000 a quarter, up from 170,000 a quarter in 2010."
Slate follows up on the same report by noting that Apple seems to have slowed down its opening of new US stores, focusing instead on opening stores abroad - and wonders why .
Perhaps the problem, Slate suggests, is that the job of senior vice president for retail has been vacant since last October. The story points out that "Ron Johnson, who did fantastically in the job in the past, is now unemployed again."
There are competing philosophies about Ron Johnson at work here - that of Thomas Wolfe, who said you can't go home again," and that of Robert Frost, who wrote in "The Death of the Hired Man," that "home is the place where, when you have to go there, they have to take you in."
As much as I love the Apple Store, and as much as I admire much of what Ron Johnson has achieved, I suspect in this case that Wolfe will win out.
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Bloomberg Businessweek reports that "Wal-Mart Stores Inc. and Starbucks Corp. are among 19 retailers opting out of a $7.25 billion antitrust settlement with Visa Inc. and MasterCard Inc. over fees charged to merchants to process credit-card transactions."
While the settlement was tentatively approved by a federal judge last November, with a final decision expected in September, it has come under fire from trade associations such as the National Grocers Association (NGA) and the National Retail Federation (NRF) and retailers that contend it will not only not fix a broken system that allows the card companies to exploit retailers and consumers, but also prevents them from ever again suing the card companies and banks.
The card companies, however, maintain that these are "tired arguments" with no basis in fact.
This is beyond my understanding. I cannot comprehend how any judge could approve a deal that has been rejected by so many companies and institutions that are party to it.
• The Seattle Times reports that Microsoft yesterday announced the release of Xbox One, described as "a powerful new version of its Xbox console that will bring sci-fi controls to home entertainment and run a new generation of ultrarealistic games ... The console will compete against Sony’s upcoming PlayStation 4 and Nintendo’s Wii U, though the broader competition is for the attention of consumers whose dollars and leisure time are increasingly taken by tablets, phones and inexpensive apps and games.
"Unlike previous versions of the Xbox that initially targeted game enthusiasts, the Xbox One is designed from the start to be both a game and entertainment system that adds Microsoft’s technology to users’ televisions, including motion-control, voice recognition and online entertainment services."
The story notes that "Microsoft sees the Xbox One as the heart of the living room, where the TV and video services can be controlled with voice commands and gestures recognized by the Kinect sensor. The console also blends broadcast and online services, such as fantasy football games that surface during live broadcasts of games."
Proof positive of Microsoft's ambitions for the new Xbox: Steven Spielberg has already signed on to produce a live-action series that will be available only via the Xbox system (in much the same way that "House of Cards" only has been available to Netflix subscribers).
Yet another example of the reshaping of the competitive wars, and how battles are now being fought in sometimes unfamiliar territory, because to not do so is to offer the competition an opening. Which one never can afford to do.
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Interesting analysis on GoBankingRates.com, which compares the savings to be garnered by using Amazon's Subscribe & Save program with those available by shopping at Costco.
The conclusion: Amazon "does appear to save money for individuals who are able to find the products they need and who also know they will only purchase these products no more than once a month.
"Consumers who don’t fall into the above category, may do better to stick with Costco or other discount programs that don’t place restrictions on purchase frequency and product availability."
For companies competing with Amazon - and almost every company is, at some level - the analysis is worth reading here.
I've generally found the Subscribe & Save savings to be pretty good, but when I think about it, I probably use it more than Costco because I can make purchases without ever leaving my desk, send things to parents and/or children who need them, and avoid the parking mess that usually takes place at my local Costco. That ability - plus the opportunity for automatic replenishment of regularly used products - is a huge plus.
On April 22, 2013, MNB wrote about Time Magazine’s cover story: “Just caught up with a Time piece about how and why Walmart has decided that a "made in America" initiative makes sense, noting that "the same forces that are making the U.S. a more hospitable place for manufacturing —higher shipping costs and wage rates overseas among them—have prompted the company to reevaluate its sourcing on a variety of products." It is worth reading, and you can do so here.
And KC commented: "Clearly, Walmart believes that it can use a made-in-America program to clear up some supply issues without raising its prices, which marks a real sea change in how the company works. And, at a time when the company has taken some hits because of issues like foreign bribery, a made-in-America initiative also can have a positive PR impact"
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Yesterday, MNB took note of a New York Times report that Apple Inc., even as it became the nation's most profitable technology company, "avoided billions in taxes in the United States and around the world through a web of subsidiaries so complex it spanned continents and went beyond anything most experts had ever seen ... Congressional investigators found that some of Apple’s subsidiaries had no employees and were largely run by top officials from the company’s headquarters in Cupertino, Calif. But by officially locating them in places like Ireland, Apple was able to, in effect, make them stateless — exempt from taxes, record-keeping laws and the need for the subsidiaries to even file tax returns anywhere in the world."
Apple CEO Tim Cook appeared before the Senate Permanent Subcommittee on Investigations yesterday to address those issues, and as Slate explains it, "Cook's point is that Apple pays a lot of U.S. corporate income tax, employs a lot of Americans, and all things considered if Apple vanished off the face of the planet or pulled up its stakes and moved to Taiwan that would be bad for America. The Subcommittee's point is that Apple engages in a lot of creative accounting tactics to minimize its corporate income tax bill. The most striking fact is that this isn't just a matter of shifting profits to lower-tax jurisdictions, but that some of Apple's profits aren't taxed by anyone anywhere due to jurisdictional gaps."
I'll leave the discussion of this to "Your Views," below...
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• USA Today reports that Kroger is now offering an electronic version of its customer loyalty card via a mobile application that "allows customers with loyalty cards to download electronic coupons, renew prescriptions, keep track of fuel rewards, create a shopping list and see weekly advertisements."
• Kings Food Markets has announced that it will launch its Local Fresh 24/7 program for the second year. The program, which originally premiered last May, is described as allowing "Kings customers to experience the benefits of a local farm stand in the convenience of their neighborhood food market by delivering locally grown, farm-fresh fruits, vegetables and herbs to its aisles within 24 hours of being hand-picked ... Kings works with a network of small and mid-sized, regional farmers to deliver all featured products fresh from the farm to its stores within 24 hours. Local farmers supplying the program pick only the freshest, most seasonal products in the morning, and through an expedited distribution process, they are delivered to Kings’ stores and prepared for sale the next day.
"The program was exclusively launched by Kings and was developed in partnership with Massachusetts-based Red Tomato, a non-profit organization committed to better connecting farmers and consumers."
I have to say that the folks at Kings seem to be doing an excellent job of working to make the retailer relevant again, after years in which it seemed to be just a footnote with a proud history. Good for them.
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• John E. (“Jack”) Lewis, a former editor of Progressive Grocer Magazine and president of Marketing Resources, Inc., as well as managing director of the 1992 Marsh Super Study that eventually became the source of a Harvard Business School case study, passed away last week. He was 86.
Yesterday, MNB posted an email from Supervalu CEO Sam Duncan in which he informed employees that the company would be reinstating a bonus program for the 2014 fiscal year, based on performance, but not merit increases or 401k matching.
This outraged one Supervalu employee, who felt that this was yet another case of top execs taking care of themselves and not the folks on the front lines. And he said that while he has been working overtime giving 110 percent to helping the company turn things around, he now feels that he would be better served by working on his resume.
I asked: How many good and hard-working Supervalu employees feel the same way?
One MNB user responded:
In your piece titled Bonus Round” in your May 21st edition, you included a response by a subscriber and Supervalu employee which compelled me to take up arms… well a keyboard anyway. I too have worked for Supervalu for many years (much of that time on “the front lines”. I too work long, hard hours and log on from home... Hey… it’s a tough and demanding business). I too have a family to care and provide for. I am entitled to ZERO work-from-home days. The plea for sympathy because of 10-12 hour days (which are the norm), loss of locker room towels (uhhh… we don’t have a locker room on the “frontlines”), free coffee and paper plates (uhh… really?) and work from home days now being limited to two (which is a privilege not a right or guarantee) is nearly infuriating. And ummm… higher insurance costs?... I am also less than thrilled about that, but insurance costs have gone up nearly everywhere (particularly in our industry). It is an unfortunate fact of life. If you don’t like higher insurance costs, speak loudly with your votes. Supervalu was in dire straits, and we are not yet out of the rough waters. Regardless of a bonus announcement, having to sacrifice towels, free coffee and paper plates and suffer the indignity of only being able to work from home two days per week seems a relatively small price to pay.
Like many, I took a significant “hit” in the recent Supervalu “reorganization”. I was fortunate enough to retain my job. Full disclosure: Although my pay and bonus structure are diminished as a result, I am still a bonus eligible employee. I am not as you suggest “at the top”, nor I am particularly near the top. I am however a hard-working leader within Supervalu. I did not expect a potential bonus this year, but I made the decision to stick it out and fight for the success of my company. I did not and do not expect that to be an easy fight. I did and do expect to have to make sacrifices along the way. I am obviously excited about Sam’s announcement and Supervalu’s move to reward performance. As importantly, the announcement shows Sam’s and the Board’s commitment to aggressively pursue our common goals, and to get Supervalu back on track. Please also keep in mind that the bonus is PERFORMANCE-BASED. If we do not perform… there is no bonus. This is not a hand-out. To the commenting subscriber. With all sincerity, I wish you well in your job hunt. Please depart quickly and professionally. We neither need nor want this type of attitude within a company working hard to rebuild.
Kevin, and all contributors to our beloved MNB: Please keep up the outstanding work. I love the coverage, and I even enjoy the occasional slant and rant.
From another reader, a different perspective:
I do not understand how the top management can add bonuses the week before the last of the 1100 people (laid off) are let go for “reduction of force” and not think they will be looked at as greedy and uncaring.
The question is, how many good and hard-working Supervalu employees feel the same way?
A lot! Morale just took another ride to the crapper. When Sam took over he said a lot of things that sounded very down to earth and I thought the insanity was going to stop. Instead we got “play it again Sam”. It wasn’t very romantic either. What a disappointment. More of the same – “retention” bonuses (oh puhleez what fantastic work is this woman going to do for a few weeks that’s worth $300 grand), bonuses for the hierarchy, but the same old tired song and dance about “no money” for raises for the grunts who did their very best to keep the Titanic upright during the storm. Don’t be serving me PB&J while you are feasting on lobster in the board room and expect me to feel like part of the team.
And yet another:
It is fine to have incentives for good managers, but stupid to not have something for employees who make it happen....and even more so to write an email that points it out!
And still another:
First and foremost, as a former SUPERVALU executive, I want to thank you for your continued coverage of the company. From what I have seen inside the company, your coverage is very fair and objective. I completely agree with sentiments stated in today's MNB. 401K matches and salary increases should be re-instituted far sooner than the bonus program. Hundreds of highly qualified and talented people have left SV due to non-competitive pay and benefits among the ranks, while the executives continue to take as much from company coffers as they can with the Board of Directors fully sanctioning the activity.
I'm sure the emails will keep coming, from both sides of the issue.
I do think that it is clear that Supervalu continues to have a perception problem. A friend of mine yesterday said that one of the prime tenets of management ought to be that "the more you give, the more you get back."
Supervalu, at least among many people on the front lines, is not seen as very giving, except to the people at the top.
That's a real problem.
Regarding Apple's tax issues, we got the following email from MNB user Denis Zegar:
I am usually in complete agreement with your business assessments and opinions, until now. I have to take exception to your viewpoint regarding Apple's tax policies. As a former Senate tax economist and lobbyist, I appreciate the labyrinth of IRS hurdles all businesses have to navigate. In a global economy, where price competition is unfairly tilted toward developing nations, US multinationals must take advantage of every bottom-line producing revenue source, including finding every advantage an obsolete tax code provides. Over the years business lobbyists have carved out niche provisions that afford their industry or company special consideration. The tax code has become our nation's nightmare. Like in physics, for every action there is a reaction. Apple is reacting to global and domestic actions that, if not countered, would put them at a major disadvantage.
So as an Apple shareholder I am glad that Apple is trying to protect shareholder value and retained capital. What I am not happy about is how lobbyists and money have so distorted the tax code over decades of special exceptions. This is the same tax code that enables GE not to pay any taxes, but get back tens of millions of dollars in refunds. I can't help but to be reminded what the late Sen. Russell Long, former Chairman of the Senate Finance Committee once told me about tax loopholes. "Don't tax me, don't tax him, tax the guy hiding behind the tree." In other words, your tax loophole is my salvation. Simplifying the tax code will take the proverbial act of congress. But it will also take the support of business as well. Currently, Fortune 500 companies are clamoring for a reduced corporate tax rate, but are still fighting to retain specific tax provisions (i.e., loopholes). Robert A. McDonald, P.& G.’s top executive, testified before a Congressional committee last year about the need " to cut the United States tax rate without ending tax breaks and shelters," to remain competitive in a hyper competitive global marketplace.
I think Apple is being singled out for doing what every other well run company must do -- seek to maximize bottom line profits using every legal means to do so. To do otherwise would be irrational behavior that the unforgiving marketplace would severely punish. Too much time is spent on debating marginal rates while ignoring effective tax rates. I believe Mr. McDonald and other CEO's would be willing to give up their special exemptions, if they could be assured of a corporate rate that would parallel their effective rate without all the machinations and administrative costs that goes with remaining globally competitive.
From another reader:
To be clear, I am in favor of limited and smaller government, and think one of the best ways to prevent the government from overreaching is to limit taxes. Every person and entity is entitled to pay and should pay the lowest tax rate they are legally obligated to pay under the code. In addition, companies don’t really pay taxes in the bigger picture—customers pay taxes as part of the cost of doing business with companies because the tax is included in the cost of the goods or services. Could it be that Apple more effectively spent its revenue to innovate and create products and jobs than the government would have done with the funds? I am confident that I am a better steward of my income than the government is with my tax dollars.
Let me be equally clear.
First of all, in response to Denis Zegar's email, I'm glad he disagrees with me ... because nobody should agree with me all the time. But I actually think we disagree in this case less than he thinks.
I wrote yesterday that " that the real problem is a US tax code that is outmoded, unfair and in many ways, incomprehensible. (Apple seems to agree with this, by the way. It just seems to have found ways to comprehend the tax code in a way that saves it billions of dollars.)"
You're right. Apple seems to have done nothing illegal, and simply was protecting profits and its investors in ways that were entirely in line with the tax code of various countries.
Which is nothing more than some companies do by moving their companies to one state or another, and that some governors encourage by offering all sorts of benefits.
The real problem is the tax code. Denis makes an excellent argument. I refuse to accept the position that all taxes are bad, though I would agree that the tax code needs to be fairer and flatter, and that everybody should pay their fair share - no more and no less. (We can have a legitimate debate about what "fair share" means, and how the money should be used.)
But here's what I really think.
I need to move MNB out of Connecticut.
Maybe to Washington State, where there is no state income tax.
But maybe I really ought to be thinking about Ireland....