business news in context, analysis with attitude

Lots of reaction to last week's piece about how Charles Conaway, the former chairman and CEO of Kmart who has been accused in many quarters of negligence while presiding over the company's financial ruin, asked the US Bankruptcy Court to allow a Kmart insurance company to help pay for his defense costs in a number of securities lawsuits. Conaway claims that the insurance policy is not part of Kmart's bankruptcy estate. Dow Jones reported that there are policies that could make available well over $100 million in coverage for directors and officers of the company.

Our comment: " What a joke. Exorbitant salaries and benefits, loans that didn’t have to be paid off, and now the guy doesn't even want to pay his own legal expenses. And all the while tens of thousands of Kmart employees are being laid off from their jobs, and will have to exist on unemployment and the faint hope that they'll be able to find new work in an unforgiving economy. We can only hope that the judge laughs him out of the courtroom."

One member of the MNB community wrote:

"It would be interesting for the US Bankruptcy Court to determine if and when -- exactly -- did former Kmart CEO Conaway and his management team actually set up this $100 million defense insurance slush fund. Or was the insurance put in place for and by a prior board or executive team?

"It would benefit the Court, and current Kmart stakeholders, and the Kmart insurance subsidiary to know if the legal insurance was actually set up to protect these particular individuals. Or would the knowledge that there was indeed legal protection at hand for his executive team have made Conway et al more aggressive in their management style because they believed their legal fees would be covered to the tune of $100 M in event of any legal suits or SEC investigations launched against them.

"Yes, it's understandable that most senior management teams set up coverage for themselves for legal fees. Yet this smells shady, shady, shady to me! I'd hate to be one of the stakeholders of the Kmart insurance firm having to pay out up to $100 million in fees to these less-than-fiduciarily-responsible individuals. Given the penchant for unbridled greed, I'd even be wondering how much of the insurance monies might float back into their own pockets?"

Excellent question.

Another MNB user wrote:

"It is difficult to find sympathy for the former Kmart executive who played in a high stakes game and lost. People who take high responsibility, high pay, high-risk jobs must be willing to suffer the high-stakes consequences.

"Somehow, these powerful people have manipulated things in their own favor to eliminate consequences with golden parachutes and side agreements to cover all their losses. Those people are insulated from the real world to such an extent, that there is little evidence that thousands of layoffs have any impact on them except how that affects the company bottom line. The little people who suffer the lay-offs do not have golden parachutes or side agreements to pay their rent, buy groceries or gas. In today's tight job market, these people truly suffer. Unemployment benefits do not last forever. These people were not even tossing the dice, but they still lose as a result of the game. Corporate America's answer to the things that come out of bottom line adjustments would be "Business is business". That is no consolation to those people who do not know how life will go on."

Not everyone feels this way, however. MNB user Marie Griffin wrote:

"Your view on Chuck Conaway's request to have the insurers of bankrupt Kmart pay for his legal representation is hard-hearted and simplistic. Isn't it up to the legal system to decide to what extent Chuck is personally liable for the Kmart mess? Accepting a high salary does not make one guilty of anything. Until the full story on the legality of the loans is exposed in a court of law, who are you to pass judgement?

"The Kmart Chuck walked into was already 10 years into its downfall. The untenable strategy of fighting to be "number 2" after Wal-Mart led to the bankruptcy that was long predicted and, in fact, inevitable. So, too, were all those layoffs. What does that have to do with the totally separate discussion as to whether an insurance company should deliver upon its promises to a person who functioned in a corporate role, not as a private citizen?

"Chuck should be backed with counsel that is up to the task at hand--and that means bucks. Let the jury pass judgement based on the facts."

Hard-hearted? Us? (Actually, our kids accuse us of that all the time…)

So many questions…let's see if we can answer most of them.

Who are we to pass judgement? Well, to begin with, that's sort of what we do for a living. We're neither judge nor jury…except, maybe, in the court of common sense.

Conaway may in fact be guilty of nothing according to the law. Who knows? And sure, Kmart had troubles before he got there.

But it seems to us that the evidence is pretty clear that he and his cohorts profited mightily even as the corporation was going down the tubes, and that their compensation was linked not to company performance, but to the sweetheart deals that they managed to land for themselves. And we happen to think that there is a connection between the sweet deal that a CEO has and the raw deal that affects a laid-off checkout person who happens to be a single mother with three kids. Maybe not a legal connection, but certainly an ethical one, a moral one.

Let him have his counsel. Let him make his excuses. Let him defend his behavior. And sure, let him have the best defense possible.

It's still a joke. Not a funny one, but a joke.

MNB user Ron Dunbar didn’t seem to think we were all that bad…

"I love your response on this one!!... Could not of said it better myself... Joke is right..."

In one of the responses cited in the "non-winners" story we had on Friday, one of our users defined the "future store" as "a conventional supermarket design with independent owners managing their own categories directing entire focus on customer wants and needs. One independent in the heart of the store will carry a traditional grocery mix that evolves on a one to one need with customers. The perimeter will be much like a mall food court with shopkeepers that cater to the market niches. Shops like Sausage maker, Local Fish Market, and all ethnic groups related to the area will be represented."

One MNB user responded:

"There is a store like this on my block, in Portland OR. It's called City Market. It's only about the size of an average convenience store but one corner is produce, one is fish, one is meats, and one is an Italian deli/bakery/pasta and each one is run by an independent local company.

"There's a small section in the middle of basic groceries and I'm not sure who is in charge of that. And then a single (well, two of them) cash register. The prices are much higher than at the chain groceries but the quality, and knowledge of the counter staff, can't be beat."

And more on loyalty marketing. MNB user Don Sutton wrote:

"When the dust and the pro/con verbiage have settled, loyalty marketing programs can be summed up in one simple sentence: operations that do a good job with the program reap benefits, those that don't - don't.

"There will always be customers that like it and customers that don't. Those who do present a golden opportunity for the operation sharp enough to give them what they want and they, in turn, will reward the operation. Keep it simple. You can listen to the winners gloat or the whiners make excuses.

"Your choice."

The interesting thing about loyalty marketing from our point of view is that consumers always have a choice whether to invest in a store and program with their dollars. Retailers, e think, don't really have a choice -- it is more a matter of which kind of program to develop, not "if" a program should be developed. The really hard part is when retailers with a program communicate to shoppers who don’t want to use one that they are not somehow being relegated to second-class citizenship.

But let's let another MNB user speak for the consumer population that doesn't embrace the loyalty card concept:

"A question was raised, 'What is the fear?' regarding loyalty card resistance. Speaking for myself and several of my friends, it is not fear at all, but IRRITATION. I consider my hard-earned cash to be my "loyalty" to my local market. I hate coupons with a passion, I hate cards I have to carry around and keep track of and dig out of my overstuffed wallet (with just such detritus, not money!) to prove that I deserve that lower price. I am my local stores' BEST customer because I pay "full price" for everything and I spend 95% of my grocery dollars there.

"In this age of digital information, there is NO EXCUSE for paper coupons as a way of "getting an understanding of regional buying habits." And if the data from the so-called loyalty cards is supposed to be anonymous at the macro level, then it is meaningless to track my personal purchases over the course of the month or year. Besides, all that data would do (as keyed to me personally) would show what I was buying at that particular store, not what I buy in a global sense (I might not like vegetables... or I might be getting my produce down the street because I like their department better).

"That "hole" in my buying habits might be useful to the store, but I don't get the impression that stores are doing that level of analysis of data! In terms of analysis and collection of data, with scanners and digital inventory control, there is no reason that "cart transactions" couldn't be tracked as opposed to "buyers". This would entail NO effort/irritation on the part of the customer, no irritating "double standard" in pricing on the shelf (man, that fries me!) and would yield the same amount of effective data.

"Bottom line - I am not responsible for the store's understanding, or lack thereof, of its clientele.

"Whew, now I feel better..."

And we have further discussion about whether airlines' frequent flier programs are a good example of loyalty marketing, in the form of a follow-up to an exchange we had on Friday:

"I was not using the airlines' financial troubles as evidence that their frequent flyer programs don't work or are otherwise bad examples of successful programs (though the two aren't mutually exclusive). What I was really trying to get at - and I would hope we all agree on this point - is that "a loyalty marketing program that's of any value (is supposed to be - should be) part of a company's overall marketing / business strategy that leads to, or at least maintains, profitability (for the company)." If you're using loyalty marketing, isn't that the point?

"If we are looking for programs of "excellence", I would hope we could come up
with an example, or examples, of loyalty marketing programs that have a proven track record of success that reaches beyond the realm of being successful unto themselves. Where are the examples of companies with "excellence" in loyalty marketing that have a proven track record that shows a contribution to the company's overall success, profitability, good will, customer retention, etc...?

"It just seems to me that a better example could be given of excellence in loyalty marketing, other than the airline industry, that doesn't have this strange dichotomy between "success" and overall, bottom-line "value" to the company involved."

Another perspective on loyalty marketing from a member of the MNB community:

"I still don't get it. Invasion of privacy or not, Loyalty Cards are supposed to offer me, the consumer, some value. It appears that most of the big chains offering the cards have just applied the information provided by the cards to their advantage, not mine, which I might point out, is extremely annoying. I don't see any real value there! I feel like it's some kind of sham when the checkout person says, "You saved XXX dollars today by using your ______ Card." It is indeed less spent than if I hadn't used it, but it's more expensive than Wal-Mart, Meijer, and my favorite little 3-store chain. It says to me that the prices of the stores offering Loyalty Cards are too high to begin with.

"The observation has been made in MNB that Wal-Mart, in particular, gets people in the door by offering low prices to begin with. No Cards. Meijer basically does the same, and I'm sure other small national chains do too. So does my favorite little 3 store Chicago chain, Caputo's. Caputo's is actually my preference, but they're not close, so for single items that I really need, I'm forced to go to Jewel (Albertson's). What always amazes me when I shop at Caputo's, is that I can walk out with a whole banana box full of groceries for $35. I have to compare this with my neighborhood Jewel, which is close to where I live and so gets my necessity and impulse purchases, and where I'll go for 3 or 4 items, and end up spending $35, even with my Preferred Savings Card. I know Jewel is taking advantage of centralized buying and distribution, but where's the value going?

Granted, Caputo's is luring me because it's still like a neighborhood market, with wonderful produce and a huge selection of ethnic goods, but I find extreme value there AND I find great selections, too. They get me there without the card . . . they've lured me by not only the shopping experience, but because I know they're pulling me there by value before I even get in the door.

"I have to add, I'm insulted that the formula usually presented by MNB heralding Wal-Mart as the future of shopping, always insisting that it's obviously price that's dominating the retail landscape, is really missing the point and grossly underestimating me, the consumer, and my stubborn insistence to shop where I want. Sure, I want value, but I won't shop Wal-Mart just because of what they are. They almost seem un-American or un-democratic to me because they've gotten so big and taken over so much of the market that I fear that there just plain won't be any choice left . . . they'll take over everything.

"Competition seems to me to be the preferred choice. Where's the choice when everything is Wal-Mart? The truth is, I want EVERYTHING! Give me the value, give me great food, give me a good shopping experience, make it fun, make it interesting, make it a part of life that's enjoyable, on and on and on."

We certainly didn't mean to insult you. Listen, we're pro-competition. We're pro-diversity. We're pro-fin and pro-great food. We would prefer to think that the retail landscape can be full of great and differentiated shopping experiences that offer the consumer real alternatives.

But we think the evidence is fairly clear that most retailers in the food business are trying to figure out how to out-Wal-Mart Wal-Mart. We don’t think it is Wal-Mart or even consumers who make it a Wal-Mart universe. In a lot of ways, it is Wal-Mart's competition that does so.

Another MNB user with a different perspective on Wal-Mart wrote:

"Maybe the best Loyalty program is one that has no coupons, no card, nothing but "Low Prices, Always".

"Seems that Wal-Mart is the one organization that is attracting the most customer loyalty as shown by the increasing numbers of customers shopping there.....Always!

"You can't argue with success!"

We continue to get email in response to a piece we had about the power of category management to corrupt the way retailers ought to be running their stores…by allowing vendors to determine selection and inducing retailers to focus only on efficiency and not marketing innovation.

MNB user Steve Grossman wrote:

"The major problem with the majority of retailers is that they are focused on talking cost out of everything not seeing how to generate the most sales. Reverse auctions are the prime example. If there is just enough money to cover costs, where are the funds for R&D or product development?

"Retailers today will take what they perceive to be the most profitable program based on guarantees from the manufacturer and pass on the better program would has better potential of generating more sales and dollars, taking the safe way out. Buyers or category managers really have little time to manage their business, because the retailers look at the cost rather than investment. The thought is go with on vendor program verses many or multiple sources because of time and effort to manage multiple vendors in a category. One of the hardest things to do today is get a single item from a new manufacturer placed. It is just too time consuming and costly, so says the buyer and management."

On the subject of our story last week about Dr. James Hill of the University of Colorado, a well known obesity researcher who said that many Americans could avoid weight-related health problems by simply cutting back on 100 calories a day, MNB user David Whitsel wrote:

"Dr. Hill is right on. Changing habits is the key to dieting success. If you try to do it all at once, than you are bound to fail. To change a bad habit into a good habit you need to repeat that behavior at least 7 times until it becomes a new habit. When you try to do it all at once, you overload the system and are bound to fail. I am living proof, I have lost over 250 lbs. in 2 1/2 years by changing habits, one at a time. Slow and steady is key.

"Diets fail because the insist on deprivation. You have to eat what you enjoy, just in moderation.

"It can be done, just takes a little discipline and patience."

Congratulations to you, David. That's terrific…and you’re an inspiration to a lot of us…
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