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    Published on: November 22, 2004

    Interesting piece in the Washington Post last week about the Bush administration’s proposed tax code overhaul. In addition to considering changes that “would drastically cut, if not eliminate, taxes on savings and investment,” there was another scenario that caught MNB’s eye:

    “The changes are meant to be revenue-neutral. To pay for them, the administration is considering eliminating the deduction of state and local taxes on federal income tax returns and scrapping the business tax deduction for employer-provided health insurance…”

    The White House stresses that no final decisions have been made on what changes need to be made to the tax code, just that President Bush is committed to a fairer and simpler system that will encourage economic growth.
    KC's View:
    If the administration and the Congress agree to eliminate the business tax deduction for employer-provided health insurance, we have to believe that there will be a lot of employers out there that will stop offering it. After all, getting a tax break is one of the reasons these companies offer health insurance.

    There will be retailing companies that are managed by financial types that will see only the financial benefits of eliminating health care insurance coverage of employees,. These companies will not realize the impact that such a move will have on employee morale, on the quality of employee that they hire, and on the ability of the stores to provide products and services to customers. These are the companies that see employees as costs, not as assets…and they will look only to cut costs.

    We believe that this is a prescription for labor chaos in retailing, setting the stage for angrier confrontations between chains trying to cut their costs and organized labor trying to remain relevant. In such a confrontation, labor will lose…chains will lose…and customers will lose.

    We’re not saying that a tax code overhaul isn’t a good idea. We are saying that this particular change, if enacted, could have enormous impact on Main Street USA.

    Published on: November 22, 2004

    In the UK, according to the Guardian, Tesco is being accused of censorship because it is asking magazine publishers to submit their publications for approval before they are put on sale.

    The Tesco policy seems to mostly be affecting so-called “lads” magazines that feature scantily clad women and suggestive headlines on their covers, though some satirical magazines also reportedly have been affected. Tesco has been requiring that some of these publications change their cover copy if they want to be sold at the store.

    Tesco reportedly has sent guidelines to publishers telling them what is appropriate for magazines sold in its stores. The Observer notes that other chains, such as Wal-Mart’s Asda Group, doesn’t censor magazines or attempt to influence editorial content, but simply does not carry certain titles because of concerns about content and tone.
    KC's View:
    We firmly believe that any retailer has a right to decide what publications to carry and what not to carry. But trying to influence coverage is a bad idea – bad for consumers, bad for publishers and editors, bad for democracy, and ultimately bad for the retailer because it puts this business into the position of making judgments it is not necessarily qualified to make, and for which it may eventually be judged harshly.

    Published on: November 22, 2004 reports that Pathmark Stores, which went on the sales block last month, isn’t getting very much interest, and may ultimately be unable to find a buyer.

    While the company says it has had a few offers, the firms that normally would drive such a sale – private equity firms such as Kohlberg Kravis Roberts (KKR) – have decided not to bid.

    The problem seems to be that while Pathmark operates in the population-dense New York metropolitan area, it also has a lot of tough competition and its same-store sales have been either flat or down.
    KC's View:
    The competition may be ample, but not nearly as tough as in other areas of the country; after all, Wal-Mart doesn’t have many supercenters competing against Pathmark.

    It may be that the best thing Pathmark has going for it is its real estate.

    Published on: November 22, 2004

    • The Houston Chronicle reports that the family of a woman from Beaumont, Texas, is waiting to find out if she died from Creutzfeldt-Jakob disease, which is the human variant of mad cow disease. And, if she did die from this malady, the family hopes to find out if she contracted it by eating infected beef.

      The Chronicle reports, “There are two forms of the disease. One type is called variant Creutzfeldt-Jakob disease and is linked to mad cow disease. It can be contracted by humans if they eat infected beef or nerve tissue, and possibly through blood transfusions. The more common type of Creutzfeldt-Jakob disease, known as classic CJD, is responsible for about one in 10,000 U.S. deaths each year, and its cause is unknown 85 percent of the time.”

    • President George W. Bush made a commitment over the weekend to Canadian Prime Minister Paul Martin that he would reopen US borders to Canadian live cattle imports. The border was closed after a case of mad cow disease was found north of the border.

      The process could take four-to-six months.

    KC's View:

    Published on: November 22, 2004

    • The San Francisco Chronicle reports that union activists protested outside 38 Northern California Safeway stores last week, looking to rally support for employees engaged in labor negotiations with the retailer. The union asked shoppers to sign cards pledging to support the workers in the event of a boycott or strike.

      Safeway spokesman Brian Dowling described the effort as not helpful, as well as "inaccurate and misleading.''

      The contract between the two sides in Northern California expired on September 11, but have been extended as the two sides continue talking.

    • The Associated Press reports the United Food and Commercial Workers (UFCW) has reached a tentative agreement with Kroger, covering 12 stores in Ohio and West Virginia. Terms of the deal were not announced; the workers are expected to vote on the contract today.

    KC's View:

    Published on: November 22, 2004

    USA Today reports this morning on the success of the Apple Stores around the country, which are helping to redefine that the computer maker’s image in the marketplace and relationship with consumers.

    “Thanks to brilliant marketing, savvy neighborhood locations and a revival of the company's fortunes sparked by the hip iPod digital music player, Apple stores are hot,” the paper reports. And as noted here on MNB on numerous occasions, one of the best features of the Apple Stores are the Genius Bars that are included in each unit – places where savvy employees are available for on-site, often cost-free hardware and software assistance. “The concept has become so successful that 100,000 people visit the Geniuses every week,” the paper reports.

    "Half of the people who walk into the stores are Windows users," analyst Charles Wolf tells the paper. "They come in not because they want to switch but because the stores are different and so inviting. Do they walk out with a Mac? Probably not. But they do leave with an iPod, which they might not have done otherwise."

    Apple stores are on track to generate $1.2 billion this year, according to USA Today. Apple's fiscal 2004 revenue was $8.3 billion.
    KC's View:
    We’ve said it before and we’ll say it again. These are great stores, and a great example of how a company with a relatively small market share can aggressively, ambitiously redefine itself. And it is one of the best, smartest and most compelling shopping experiences in the country.

    Published on: November 22, 2004

    • Interesting piece in the Los Angeles Times about how a Wal-Mart Supercenter is altering shopping habits in California’s Coachella Valley, where even people who don’t approve of Wal-Mart because of its labor and expansion policies find themselves shopping there because its prices seem to be better than those of any other supermarket retailer.

      “Dozens of shoppers interviewed in La Quinta, about 20 miles southeast of Palm Springs, said Wal-Mart's prices were the lure,” the LA Times writes. “Indeed, an informal survey by The Times of 20 grocery staples showed that the Supercenter's prices were the lowest overall, beating out Stater Bros., Ralphs, Vons and Albertsons.”

      For the moment, at least, the biggest impact seems to on the three major chains – Ralphs, Vons and Albertsons – all of which continue to be hurt by the after-effects of last year’s Southern California grocery strike. The Times suggests that Stater Bros. is managing to be more competitive by having “relatively low prices, big produce sections and full-service meat counters.”

    • The Wall Street Journal reports this morning on a phenomenon noted previously here on MNB - the fact that Wal-Mart keeps being used as an example in the mainstream culture…though not always in a positive way.

      The company has come in for criticism for its labor policies on the drama “Without A Trace,” and was lambasted on “South Park” for turning customers into greedy zombies.

      Over on “The Daily Show, Jon Stewart said that Wal-Mart was opening a store near some ancient ruins in Mexico -- "which marks the first time the chain moved into a community that was already in ruins."

      And this doesn’t count the number of times that Wal-Mart is probed on television news and magazine shows.

      The WSJ suggests that when the media criticizes Wal-Mart, it may be just another example of a chasm between “culture” and “reality” – that the entertainment business doesn’t understand the importance of Wal-Mart to the heartland.

    KC's View:
    What we found most interesting about the WSJ article was how Wal-Mart spokesperson Mona Williams portrayed the “South Park” episode as ultimately sympathetic to the retailer.

    Because the show identified the heart of Wal-Mart as being a mirror, suggesting that no matter what its impact, the company is only giving customers what they want, Williams said, "’South Park’ confirmed that the power behind Wal-Mart is the consumer. Even if I don't agree with the way they do things, there is frequently a lot of truth in their satire.”

    Talk about rationalization. There’s no way that the “South Park” episode can be seen as a positive reflection of Wal-Mart…rather, it suggests in not-very-subtle terms that Wal-Mart is a reflection of some of the worst of human impulses.

    Published on: November 22, 2004

    • Tuesday marks the day in Canada when Parliament will vote on a national ban on trans fats – a ban that seems to be gaining political support from various sides of the aisle. The Canadian media notes that if the bill becomes law, it could prevent numerous US packaged grocery products from being sold north of the border.

    • In the UK, researchers are conducting a study to find out whether a supplement called Diindolylmethane that is found in cabbage may help fight the occurrence of cervical cancer.

    • The Food Marketing Institute (FMI) has testified before the US House Government Reform Subcommittee on Criminal Justice, Drug Policy and Human Resources against proposed regulations on the sales of hundreds of cough and cold remedies.

      At issue is an Oklahoma law, which other states and the federal government are considering, that requires these products to be removed from store shelves and sold only by pharmacies by reclassifying them as Schedule V drugs under controlled substances laws.

      Testifying on behalf of the industry and FMI, Marsh Supermarkets Senior Vice President of Government Affairs Joseph Heerens emphasized that the industry strongly supports sales restrictions on such cold and cough remedies. “But a Schedule V approach is very troublesome. That’s because the overwhelming majority of grocery stores in the United States do not have a pharmacy department.

      “For example, my company currently operates approximately 120 supermarkets in Indiana and Ohio, but only 46 of them have a pharmacy department. Therefore, under the Oklahoma model, more than 60 percent of our stores could not sell the pseudoephedrine products that our customers expect us to carry.”

      Nationwide, only about 15,000 of the more than 210,000 retail food stores have pharmacies, according to industry data — meaning that if the Oklahoma law were adopted nationally, consumers could not buy cough and cold products at nearly 200,000 outlets, ranging from convenience stores to conventional supermarkets. And even in those stores that do have pharmacies, availability would be limited by pharmacy hours.

    KC's View:

    Published on: November 22, 2004

    • The National Association of Convenience Stores (NACS) announced that Gray Taylor has joined its staff as vice president of research.

    KC's View:

    Published on: November 22, 2004

    • PriceSmart, the international membership club retailer, reported that its fourth quarter revenues increased 2.4 percent to $150.2 million from $146.6 million in the fourth quarter of fiscal year 2003. The Company's operating loss was $4.9 million compared to an operating loss of $25.7 million last year.

      For fiscal year 2004, total revenues decreased 7.7 percent to $609.7 million from $660.7 million in fiscal year 2003. The Company's operating loss was $16.2 million compared to a loss of $23.6 million last year.

    • The Arden Group, parent company to Gelsons Supermarkets, announced that third quarter sales reached $113.4 million, up from $101 million during the same period a year ago. Operating income for the quarter was $6.9 million, up from $4.7 million a year ago.

      Year-to-date, Arden reported total sales of $380.6 million, up from $301.2 million a year ago, and operating income of $28.7 million, more than double last year’s $13.4 million.

    KC's View:

    Published on: November 22, 2004

    We got the following email in response to last week’s piece about the possible elimination of mandatory Country of Origin Labeling (CCOL) regulations by the new Congress:

    I think there is some confusion in regards to COOL and industry. The issue with industry is not COOL itself (although it has not been demonstrated to be an issue for most customers, so it isn't a high priority for retailers). Various products already have COOL. The issue is how the USDA would make it overly burdensome. The section on just fish and shellfish alone is 44 pages long. Some of the other issues that were debated:

    **If you have 150 grocery stores and self-distribute, why do you need COOL records at every store when you already have them at your distribution center?
    **Does an Idaho potato still need to be labeled as a product of the USA?
    **At what point do ingredients/final products, need to be labeled/not labeled with COO?
    **Why are retailers held responsible for mistakes by a supplier?

    Also, don't forget that violations would carry a maximum fine of $10,000. If people are trying to lie about a COO to increase sales, they deserve the fine. But a $10,000 fine for an innocent mistake or missing a minute details of COOL, that is an unwelcome liability.

    Actually, we agree that more of the onus should be put on suppliers, not retailers.

    We also continue to get email about the Sears-Kmart deal.

    MNB user Evelyn Camp wrote:

    Being an incurable shopper, my view of the situation that Kmart and Sears find themselves in has very little to do with what location. Many chains enjoy very successful mall locations as long as the mall is up to date and viable. I believe that we just have better choices of where to shop, and neither has made their stores interesting to the shopper. Even though I read at least half of the shopping inserts that I receive, I seldom read either of theirs.

    Another MNB user wrote:

    Anybody who thinks this Kmart-Sears deal is about retail synergy or growth or competing with Wal-Mart is dreaming. Lampert is going to squeeze money out of this Sears holding company like a toothpaste tube. And like toothpaste - no money will be put back into the tube at all.

    Obviously, the tube itself represents the employees and suppliers who will be crushed, twisted and bent into unbelievable contortions and ground up until the last possible molecule of profit can be wrung out and then they will be tossed without a thought into the trash while the investors move on to another tube to repeat the process anew.

    MNB user Gary Harris wrote:

    I worked for Sears back in the heyday of the 70’s, when they were the number one retailer in America. I still remember being told at my orientation meeting that while Sears at the time only accepted their own charge cards (the old white Sears Revolving Charge and the Easy Payment contract account) 2/3 of the American workforce owed Sears money. Not a bad market position, given the relatively limited use of charge transactions at the time.

    I worked in their paint department, and they sold more paint than anyone on the planet. Weatherbeater and Easy Living were relatively new products back then, but the Sears name and guarantee made it easy to trade folks up. (sale prices obviously helped, too!) I remember toward the end of my time there (1979) how things started to change. Departments were merged. Our Paint Department Manager was now also responsible for Electrical, Housewares, Luggage, and the Candy Counter. Tough to focus and keep up on new products and industry trends when you’re so diversified in your responsibilities. The efficiency gained by consolidating generic management duties was out weighed by a loss of expertise, and then passion for the product lines and brands that made Sears unique.

    At the other end brand development faltered, leaving an opening for national brands and even new, boutique brands to come into play. When survival required Sears to bring those other brands on board with their own, the writing was on the wall. The bloom was off the rose at Sears, so why not shop where prices are cheaper and service may not be better, but isn’t a whole lot worse either.

    It’s been sad to watch this from the sidelines. My brother-in-law worked for 30 years as a service technician in the local Sears Service Center, and bemoaned year after year the continuous, inexorable move away from focusing on the customer. He was forced to retire in their most recent downsizing, and opened a small repair service of his own. Now, for the first time in a long time he’s able to provide the kind of personal, caring service that he first learned at Sears, but hasn’t been able to deliver because of the changes put into effect since ‘Satisfaction Guaranteed, or your money back’ was scraped off the front of the store.

    And maybe MNB user Mark Rechtin had the best line:

    The Kmart effect: Now when I go to Sears to buy my Craftsman tools - they will be out of stock...

    Regarding Loblaw’s anti-Wal-Mart strategy in Canada, MNB user Art Turock wrote:

    Playing defense is especially important for market leaders. When a threat registers on the radar screen, the #1 player like a Loblaw's needs to strike= quickly and decisively to curb an encroaching player. Sam Walton took action when he saw Sol Price and Price Club originating and realized they were a threat to the Wal-Mart Division One General Merchandise stores. In response, Wal-Mart created Sam's Club.

    As Monday morning quarterbacks, we can see where the large supermarket chains of the early 1990's missed a window of opportunity to defend their share vs Wal-Mart.
    KC's View:

    Published on: November 22, 2004

    In Week 11 of National Football League action…

    Dallas 10
    Baltimore 30

    St. Louis 17
    Buffalo 37

    Arizona 10
    Carolina 35

    Indianapolis 41
    Chicago 10

    Pittsburgh 19
    Cincinnati 14

    NY Jets 10
    Cleveland 7

    Tennessee 18
    Jacksonville 15

    Detroit 19
    Minnesota 22

    Denver 34
    New Orleans 13

    San Francisco 3
    Tampa Bay 35

    San Diego 23
    Oakland 17

    Miami 17
    Seattle 24

    Atlanta 14
    NY Giants 10

    Washington 6
    Philadelphia 28

    Green Bay 16
    Houston 13
    KC's View: