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    Published on: July 18, 2005

    A temporary injunction preventing the import of Canadian cattle into the United States has been overturned by the US 9th Circuit Court of Appeals.

    Officials of the two countries already have begun the certification process, and US Secretary of Agriculture Mike Johanns said he hoped it would take “days, not weeks” to resume cattle trade between the two countries.

    The original ban was put into place in May 2003 after a case of mad cow disease was found in Canada. However, since that time a lot of changes have taken place in the mad cow universe – a case of mad cow disease was found in the US in an animal that originated in Canada, and then, just recently, a case of native mad cow disease was found in an animal born in Texas. The border was supposed to be opened several months ago, but a ranchers group - the Ranchers-Cattlemen Action Legal Fund (R-Calf) - fought for a continued ban because of what they said was a fear of mad cow disease,

    Some questioned their sincerity, noting that a continued ban of Canadian cattle kept prices high for US cattle. US beef packers have favored elimination of the ban because of a shortage of beef that has hurt their profits.

    R-Calf has not said it whether it will appeal this new decision.
    KC's View:
    This court decision is likely to help the Bush administration in one other area – its ongoing negotiations with Japan to get that nation to open its borders to US beef. Those borders have been closed since the first case of mad cow disease was found in the US, with the Japanese argument arguing that the US needed to have more stringent testing; it also was hard to argue that Japan should open its borers to US beef when the United States had its borders closed to Canadian beef.

    We hope that when another case of mad cow is found in the US and/or in Canada, it will not be evident that this most recent decision was a result of political expedience as opposed to concern for public health.

    And we think it is a matter of “when” and not “if.”

    Published on: July 18, 2005

    The New York Times over the weekend reported on what has become an old complaint about Costco – that it pays its employees too much at the expense of its shareholders. “Costco's average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam's Club. And Costco's health plan makes those at many other retailers look Scroogish,” according to the NYT.

    Costco CEO Jim Sinegal begs to differ. He “rejects Wall Street's assumption that to succeed in discount retailing, companies must pay poorly and skimp on benefits, or must ratchet up prices to meet Wall Street's profit demands.

    “Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco's customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers' expense. ‘This is not altruistic,’ he said. ‘This is good business.’

    The Times notes that “at Costco, one of Mr. Sinegal's cardinal rules is that no branded item can be marked up by more than 14 percent, and no private-label item by more than 15 percent. In contrast, supermarkets generally mark up merchandise by 25 percent, and department stores by 50 percent or more.

    ‘They could probably get more money for a lot of items they sell,’ said Ed Weller, a retailing analyst at ThinkEquity. But Sinegal argues that this would be a slippery slope, that once margins are raised a little bit it would be hard to stop doing so…and eventually Costco would be vulnerable to attack by another retailer with lower prices and greater discipline.

    Sinegal says: "We're very good merchants, and we offer value. The traditional retailer will say: 'I'm selling this for $10. I wonder whether I can get $10.50 or $11.' We say: 'We're selling it for $9. How do we get it down to $8?' We understand that our members don't come and shop with us because of the fancy window displays or the Santa Claus or the piano player. They come and shop with us because we offer great values."

    The Times also reports that Sinegal is frugal about his own compensation. “Despite Costco's impressive record, Mr. Sinegal's salary is just $350,000, although he also received a $200,000 bonus last year. That puts him at less than 10 percent of many other chief executives, though Costco ranks 29th in revenue among all American companies. ‘I've been very well rewarded,’ said Mr. Sinegal, who is worth more than $150 million thanks to his Costco stock holdings.

    "I just think that if you're going to try to run an organization that's very cost-conscious, then you can't have those disparities. Having an individual who is making 100 or 200 or 300 times more than the average person working on the floor is wrong."
    KC's View:
    This is the second time in a week that we’ve had a story in which Wall Street analysts are criticizing a successful retailer for being too customer focused. (Last week, it was Amazon.com’s Jeff Bezos.)

    Sinegal, we think, makes a great point to the Times: "On Wall Street, they're in the business of making money between now and next Thursday," he says. "I don't say that with any bitterness, but we can't take that view. We want to build a company that will still be here 50 and 60 years from now."

    And the only way to do that is to pay attention to the customer who walks in the front door and trust that the customer who buys company share son the stock market will understand why this is the best strategy for both survival and growth.

    It is just remarkable to us when anyone suggests that the best way to run a retail company is to have a strategy that doesn’t put the customer first, second and third.

    Companies looking to differentiate themselves and thrive in a competitive environment need to ask themselves if they have the same relentless focus and discipline as Costco.

    Published on: July 18, 2005

    The Detroit Free Press reports that Meijer has decided to toughen its return policy, which for more than seven decades has not required a sales receipt in order to obtain a refund.

    According to the paper, “mounting losses to shoplifters and increasing competitive pressures have led to the retailer's decision to impose a stricter ‘no receipt, no return’ approach.”

    The company started testing the new policy in select stores last year, but will make it chain-wide by the end of the summer.

    Meijer has not detailed the extent of the losses it has been suffering.

    "As we open more stores, our stock losses continue to escalate," said company spokesman Steve VanWagoner. "We looked at all of our competitors and most of them have a similar policy."
    KC's View:
    Without judging whether the change in a 71-year-old policy is a good idea or not, we would observe that at a time when you’re trying to differentiate yourself, saying you want to have a policy similar to the competition isn’t always the best approach.

    The other question – that only customers can answer – is whether the original Meijer return policy is so central to its culture that any change proves to be offensive to shoppers.

    Because these kinds of cultural changes are to be undertaken with great care.

    Published on: July 18, 2005

    A retailer group that includes Albertsons, Kroger, Safeway, Ahold USA, and Walgreen has filed a lawsuit in US District Court for the Southern District of New York charging Visa International and Visa USA with setting rules that limit competition and allow it to charge inflated fees.

    The retailers say that Visa illegally bundles its products, forcing them to accept all of its products if they want to be charged lower fees.

    The retailers are seeking an injunction and triple damages from Jan. 1, 2004 to the present. MasterCard is not named in this suit, thought it was named in another recent lawsuit by a group of smaller retailers, charging that Visa, rival MasterCard and some banks conspired to keep rates high.
    KC's View:
    Usury used to be a crime, but the banks and credit card companies have raised it to an art form.

    Published on: July 18, 2005

    Whole Foods has announced that it will donate five percent of the net profits in 23 Southern California stores on Wednesday, August 17, to California Certified Organic Farmers (CCOF), a nonprofit, third-party organic certifying agency and advocacy group.

    CCOF, according to a press release issued by Whole Foods, is a nonprofit organization founded in 1973 that is one of the
    nation's largest and oldest third-party organic certifying agencies. “CCOF's purpose is to promote and support organic agriculture in California and elsewhere through a premier organic certification program for growers, processors, handlers, and retailers. The organization also established programs to increase awareness of and demand for certified organic product and works as an advocate for governmental policies that protect and encourage organic agriculture.”
    KC's View:

    Published on: July 18, 2005

    Scholastic Corp., published of the Harry Potter series of books, said yesterday that in the United States alone, a record 6.9 million copies of "Harry Potter and the Half-Blood Prince" were sold in the first 24 hours after the book went on sale at 12:01 am Saturday.
    KC's View:
    Amazon.com got some publicity over the weekend when it announced that it had decided to discount the book even more than originally intended – reducing its already discount price of $17.99 to $16.99, and crediting those of us who had ordered the book online at the higher price at the rate of $1 per copy. We got an email from Amazon to that effect over the weekend.

    Amazon probably made that decision because of the price war that was breaking out over the new book. But, it occurred to us, wouldn’t it be interesting if the retailer always knew it was going to cut the price by the additional buck, but engineered it this way so it would look supremely customer-oriented.

    Maybe that’s too Machiavellian to be considered a likely scenario. But it would have been smart business.

    Published on: July 18, 2005

    The Wall Street Journal reports on Ethel’s Chocolate Lounge, a new store that has opened in Chicago earlier this year, with a half-dozen expected to be operating by the end of the year.

    “Mars Inc., the closely held candy giant behind Ethel's, is betting that chocolate is the new coffee,” the WSJ reports. “Decorated with pink-and-brown striped wallpaper and whimsical lighting, the new chain is Mars's attempt to make lingering over a plate of premium chocolates in a café space as mainstream as drinking a morning latte at Starbucks. For a company best known for making mass-market products like Twix and Snickers bars, this means transforming a lowly commodity into a high-price luxury.”
    KC's View:
    The Journal refers to this trend as “Starbucks envy.” And they’re right.

    The big difference between coffee and chocolate, it seems to us, is that coffee has a functional role in how most people live…and Starbucks was able to raise the level of the game through canny marketing and merchandising, strengthening the bonds that connect retailer and customer. We can’t get through the day without coffee, and Starbucks traded in on that.

    Maybe it is just us, but we can get through the day without chocolate without much problem.

    Published on: July 18, 2005

    This month’s Xtreme Retail23, which reports on the latest issues, marketing analysis and trends focused on innovations in 23 different retailing segments, reports that “for years, barcodes have served as vital tools for tracking inventory, checking prices and identifying items. And because they are used worldwide, they have become the universal coding language for most retail products. The simple technology of the barcode has functioned at the business level for decades. Harnessing this technology at the consumer level, however, has not been possible on a grand scale until now.”

    The technology now exists that “provides mobile phones and other wireless devices with the ability to capture and decode the ever-present barcode,” which conceivably could allow consumers to “gain access to a complete list of the same product's availability and price variations at other retailers. Users can also download music samples, view movie trailers and sample the content of an item before deciding to make a purchase.”

    XR23 explores the implications of this technology, as well as reporting on a number of other technology stories.

    For see this month’s edition, go to:

    http://xr23.com/

    XR23 is published by Phil Lempert.
    KC's View:

    Published on: July 18, 2005


    • Reports in the Japanese media say that Seiyu, the retailer partially owned by Wal-Mart, is requiring all of its 350 foreign suppliers to sign a code of conduct promising that it will not use child labor, use environmentally friendly practices, and not practice discrimination.


    • The Orlando Sentinel reports that the Florida teachers unions are wrestling with a dilemma.

      On the one hand, because they are part of organized labor they are sympathetic to calls to boycott Wal-Mart because the retailer is hostile to unionization. The national teachers union supports a campaign to “educate” the public about what are perceived as Wal-Mart’s offenses.

      The problem is that “some say it's unrealistic to ask teachers, aides, cafeteria workers, bus drivers and other unionized school workers to boycott the behemoth retailer,” according to the paper. In some cases, Wal-Mart is the only local retailer selling certain items; in other cases, shopping at Wal-Mart is the best option because a lot of these employees don’t make a lot of money, and Wal-Mart has the lest expensive merchandise.

    KC's View:
    The teachers are going to have to wrestle with this ethical conundrum on their own…because it is unlikely that Wal-Mart is going to do anything to make it easier on them.

    Published on: July 18, 2005


    • The Chicago Sun Times reports that Whole Foods will open its 12th and largest store in the Windy City area in the new Southgate Market mall. The new 55,000 square foot store “will have larger selections of produce and prepared foods, and will include more specialty areas featuring items such as cheese, wine, beer, coffee and an olive bar, compared with Chicago's other Whole Foods Markets, a Whole Foods Market spokesman said.”


    • In the UK, Sainsbury reportedly is advertising for Asda managers being laid off by the company to consider coming to work for it.

      The newspaper ad reads: "One door closes, another 560 swing wide open. If the door to advancement has been closed off then why not knock on a door that's open to you - at Sainsbury's."

    KC's View:

    Published on: July 18, 2005


    • Safeway named Hank Cominiello to be president of its Eastern Division.

      Cominiello has been in the job as acting division president for more than six months; a 35-year veteran of the company, he previously was vp-retail operations in the division.

    KC's View:

    Published on: July 18, 2005

    …will return.
    KC's View: