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    Published on: June 10, 2011

    by Kevin Coupe

    Interesting piece in the Wall Street Journal this morning that illustrates how the retail landscape is changing, and how traditional assumptions now need to be reconsidered.

    The story notes how, at most malls around the country, major department stores traditionally have served as anchor tenants, getting preferred lease rates because they were seen as driving customer traffic.

    These days, however, that isn't so much the case. At many malls, the store that generates the most traffic and serves as a magnet for consumers is The Apple Store.

    The Journal writes, “Apple stores have overtaken many traditional anchors by revenue. In Apple's fiscal year through September, it had sales of $34.1 million per retail store. Macy's much larger stores generated $29 million on average in sales last year, and J.C. Penney, just $16.1 million, estimates Michael Exstein of Credit Suisse.

    “And yet, Apple isn't getting anchor privileges.

    “Steve Sakwa of ISI Group estimates Apple pays $50 to $80 a square foot in annual retail rent. For a store with 6,000 square feet, Apple would pay as much as $480,000 annually. That compares with the $439,000 per leased store that J.C. Penney paid last year, Mr. Exstein estimates. Department stores are often 20 times larger than an Apple location.”

    Which raises the following question: If you owned a mall, what is the one store you’d like to have in the mix - Macy’s, JC Penney, or Apple?

    Then, take the question from another direction. In your store, is there a product or category that you are giving too much attention to, that no longer merits the benefit of the doubt? What is it ... and what are you doing to face reality?

    Think about it. Eyes-open.
    KC's View:

    Published on: June 10, 2011

    USA Today has a story about the Whited family of Marietta, Ga., which it uses as a template for a broader American story: “While their total income far exceeds what most American families make, in a post-recession nation still adapting to higher food and gasoline prices and a still-shaky employment picture, their ultra-value-conscious shopping habits square perfectly with millions of other American families who can't let go of the tough lessons learned from the Great Recession. America's largest and most familiar retailers - from Walmart to Target to 7-Eleven - have been forced to bend to this new reality.”

    Here’s one of the ways that the paper frames the broader story:

    “Nearly 45% of consumers say they have become ‘more practical and realistic in purchases,’ according to a May consumer survey by BIGresearch. That's up from 43% May 2010 and up from 37% five years ago.

    “Few things are more practical than the use of coupons. Before the recession, 22% of households reported using them. During the recession, the figure ballooned to 35%. But now, even with the recession supposedly in the rearview mirror, an even higher 37% of consumers say they use them, Nielsen reports.

    “Nor is it just lower- or middle-income consumers who clip coupons, but higher-income shoppers, too...”

    This trend is translating into not just higher coupon usage, but also more private brand sales and a greater emphasis on value, not just by the likes of Walmart and Target, but also by up-market retailers that focus on specialty foods and c-stores like 7-Eleven that traditionally have made convenience their biggest selling point. No more.

    One interesting case cited by USA Today: “Seattle's Best Coffee, the value brand owned by Starbucks that is growing at a double-digit pace. A bag of Seattle's Best coffee at the grocery store typically costs as much as $2 less than its big sister Starbucks brand.

    “The brand's entire strategy is quality for the masses. Eighteen months ago it was sold in just 3,000 locations, but the brand is now sold in upwards of 50,000 locations, including Burger King, Subway and AMC Theaters.”

    The continuing recessionary mindset, it seems, is creating opportunity as well as challenges.
    KC's View:
    The interesting thing about this is that all this value shopping and value retailing appears to be taking place at the same time as suppliers are constantly talking about raising their prices because of the rising cost of goods. Which would mean that increased prices will mean that shoppers will have to be even more careful and selective about what they buy, and that discretionary purchases will become even more rare than they have been.

    The question is, who will market most effectively to this mindset? Will it be Walmart or Target? Winco or Kroger? Costco or...someone else that isn’t even on the radar at the moment? (This is a question that must be asked by retailers in every segment.)

    Will it be you?

    Published on: June 10, 2011

    The Des Moines Register reports on how Hy-Vee is teaming with celebrity chef Curtis Stone to help drive a new initiative designed to improve people’s health and lives through their food choices. Some excerpts:

    "It's crystal clear: If we can get families to eat together, the world would be a healthier and happier place. And it wouldn't be bad for business either," says Ric Jurgens Hy-Vee’s CEO, citing three studies that show children who eat meals with their families become healthier adults, with decreased risk of substance abuse. "Adolescents who never eat meals with families are much more likely to be overweight than those who have five to seven meals a week with their families. Families who share their meals every day consume higher amounts of calcium, fiber, iron and, by the way, less fat. It's significant."
    “Jurgens said Hy-Vee and other businesses are working with Gov. Terry Branstad to launch a campaign to help Iowa become the healthiest state in the nation. Details are expected to be released this summer.”

    “Stone said he's working with Hy-Vee on a ‘long-term plan about shifting what consumers are eating,’ such as buying seasonal fruits and vegetables that usually taste better and cost less.
    ‘It's not preaching, but taking them by the hand and giving them gentle education. We don't want to force ourselves on anybody. We just want to make sure people know about their options,’ he said.”
    KC's View:
    No surprise that Hy-Vee and Ric Jurgens would be at the center of such an initiative. Jurgens once told me that when it comes to issues like this one, his goal is to change the world.

    You have to love that in a CEO.

    Published on: June 10, 2011

    The Los Angeles Times has a piece about quick response codes, or QRs, described as “barcodes for the digital age ... that convey far more information, and which can be scanned by consumers with smartphones and tablet computers to open a Web page, play a video or even place a call.

    “The technology has been around for years, but only recently has it been embraced by U.S. retailers and other companies looking for fresh ways to connect with customers. The number of QR scans recorded by the industry's leading code maker has soared to 2 million a month, nearly double the rate last year, and up from 80,000 a month in 2009 ... Their widespread adoption in the U.S. has paralleled the growth of smartphones and tablets with high-quality cameras and apps; Nielsen Co. projects that about half of all Americans will own smartphones by year's end.”
    KC's View:
    Now, some may be skeptical about this technology. Another paragraph from the Times story:

    “Consumer awareness still lags behind. Only 5% of total smartphone owners in the U.S. have scanned a QR, according to Forrester Research. But it's on a sharp curve upward. About 25% of Android phone owners and 7% of iPhone users tried out a QR in the second quarter of 2010, and that number is expected to rise this year, Forrester said.”

    The worst thing anyone can do is dismiss this sort of technology, or relegate it to back-burner position. Because this is the kind of thing that can mushroom overnight...

    But this can be a good thing, because QRs can be a forum in which to provide the kind of transparency that we often talk about here on MNB - almost limitless amounts of nutritional and safety information, recipes, cooking tips, etc ...

    Published on: June 10, 2011

    Advertising Age reports that Procter & Gamble “quietly has added ‘shop’ or ‘shop now’ buttons to Facebook fan pages of several brands in recent weeks, including Tide, Gillette, Olay, Gain, CoverGirl, Luvs and Febreze, with several more expected to come on line in the weeks ahead.

    “Fulfillment of items purchased within Facebook on the P&G brand pages comes through P&G's own e-store that opened last year (PGestore.com), but the layout leaves room for other retailers to join as alternatives. Walmart.com is considering linking with P&G's Facebook pages as an option, said a spokeswoman for the retailer.”

    The movie is a second try at using Facebook as a shopping platform; the first used Amazon as an exclusive fulfillment partner. Ad Age says that P&G “was concerned about backlash from other retailers, particularly Walmart, being shut out of its Facebook pages, and the Amazon platform had technical issues that made for a poor user experience.”
    KC's View:
    This new effort has the potential of being more retailer-agnostic, but somehow I have the sense that this is more a concession of the moment. I think that one of the major trends of the next decade will be manufacturers looking to find ways to disintermediate traditional retailers that they may not feel have their best interests at heart.

    The question will be how these traditional retailers will move to address this trend.

    Published on: June 10, 2011

    The Associated Press reports that Borders Group “says it may have to close dozens of its best-performing stores due to a requirement of its bankruptcy financing if their landlords don't agree to extend a lease-negotiation period.”

    According to the story, bankrupt Borders “has extension agreements for 365 stores. But it said in a court filing Thursday that it is still negotiating extensions for 51, many of which are among its top-selling stores, including one near Penn Station in New York. The affected stores are in 23 states and include 10 at airports across the country.

    “The company's special bankruptcy financing requires it to start closing the stores where it has not obtained extensions by June 22. But Borders said it has asked its lenders to waive that requirement until a hearing about the sale of the company on July 21. The lenders are considering the request, Borders said.”
    KC's View:
    Watching the Borders story unfold is watching a really great car wreck - it serves as such a cautionary note to other retailers that may think that they have an unassailable business model, when what they really have is a model built on a house of cards.

    Published on: June 10, 2011

    • The Associated Press reports that State Rep. Law Shawn Ford, a Chicago Democrat, plans to reintroduce legislation that would ban the use of artificial trans fats by the state’s restaurants.

    The difference between this one and the old version, which did not generate enough support to become law: this one won’t apply to doughnuts.

    AP says that Ford plans an education effort “to raise awareness about the artery-clogging effects of trans fats before reintroducing the bill later this year or next year.”

    • Coinstar announced a deal with Safeway that will install approximately 1,400 Coinstar coin-counting kiosks in Safeway's stores in the United States and Canada by the end of 2011. Coinstar kiosks are expected to be installed in Safeway stores and its banners including Vons, Dominick's, Randalls, Tom Thumb, Genuardi's, Pavilions, Carrs and Pak N' Save. Installations are planned to begin this month.
    KC's View:

    Published on: June 10, 2011

    On the subject of swipe fee reform ... which finally looks like it might actually happen ... one MNB user wrote:

    I could care less about swipe fees…this argument is only about which industry gets to fleece the consumer with swipe fees…banks…or retailers. In the end the consumer will pay one or the other. Don’t play this issue like it will benefit consumers ... Meanwhile, as the banks and retailers argue over who gets consumers’ swipe fee money…nothing is being done to create jobs. Don’t retailers and bankers understand that if they create jobs, then they will both get additional revenues from the newly employed…and additional swipe fees to boot!!
     
    Sorry for unloading,


    If not here, where?

    Another MNB user wrote:

    Since my career has always been in retail, I’m prejudiced in favor of the retailers in this fight. I’ve seen the negotiations between our finance and the card processors.

    The card companies have a virtual monopoly and they know it.

    They never had to worry about their fees. What can the retailer do…not take their cards? We see time and again retailers who are forced to limit or modify in some way, their acceptance policies simply because of these fees.

    Some retailers accept only debit cards because the fees are lower.

    Some opt to carry only one card or the other, based on exclusivity arrangements with the competitive card.

    Many C-stores, and others have begun charging a few cents more per gallon to off-set these fees.

    In each of these examples the customer is ALWAYS the loser.

    In our area I actually heard a commercial touting why these card fee limits were BAD for the customers, and people should reach out to their legislators and tell them to “Stand-up” to the “large retailers”…these ads were sponsored by some mortgage and banking consortium. I’m happy to see the 45 Senators with a backbone stand up for Joe Q public for a change.

    It will be interesting to see who ultimately wins the battle with consumers though. It will depend upon who does the better job telling their customers how THEY have  been impacted on this legislation.

    As a customer, as a retailer, I firmly believe WE came out on top of this one.


    MNB user Philip Herr wrote:

    I think retailers may want to watch for the next move made by banks before slashing prices. There is a loophole that is likely to become “Plan B” for banks. Specifically, banks can charge any fee for debit cards that are PREPAID. Right now that occurs for a very small proportion. But what’s to stop banks from coming up with a design to encourage existing debit card members from converting to a prepaid format? Perhaps they offer to maintain customer rewards only for prepaid cards. So keep a balance of several hundred dollars on the card and continue to get rewards. Hell, they will probably promise not to “ding” the customer if they overdraw their limit – they will just decline the purchase.

    So customer continues to get exorbitant rewards for debit (no change), bank gets to charge higher swipe fees (no change) and retailers continue to pay high exchange fees (no change).  Looks like there was some brilliant lobbying going on when the bill was written.





    Regarding the Amazon sales tax debate, MNB user Paul Sakariassen wrote:

    Let’s be real about this, the primary reason Amazon is in favor of a national solution is that it will never happen.  Local taxing entities who use the sales tax as means of funding for local infrastructure or local public facilities are never going to agree to give up the control over this type of revenue generation.  Mr. Bezos’ motivation to keep things as they are comes from the comparative pricing advantage that he gets versus bricks & mortar retailers that he competes with. In this day, with everyone on a tight budget, 6,8 or 10% automatic discount is quite an incentive for the consumer. What Amazon facilitates, with customer culpability is the loss of local tax revenues that could benefit the general public in the communities the customers live in and probably spreads the resultant burden across the whole community in the form of higher property taxes.  There is no altruistic desire on the part of Amazon to work towards a national sales tax reform solution, just a strategy of stall and delay.

    And MNB user Scott Svarrer wrote:

    I agree with Amazon CEO Jeff Bezos.  When I first heard that states are pushing for Amazon to collect sales tax I thought, “How in the world do they expect Amazon to keep track of all the different sales tax laws?”  One of my responsibilities is to know the sales tax laws of five states to make sure items are set up correctly.  Believe me, it’s not easy.  It’s crazy to expect a business to keep track of more than 7,500 state and local tax laws.  Bezos is right to resist this effort and I hope he prevails. 
     
    A national tax solution would be a good compromise but it has to be a simple solution.  For instance, there should be no tax on any item that has a nutrition, supplement or drug facts panel.  All other items should be taxable at the state’s sales tax rate.  No county or local tax rates should be imposed.  Yes, people will complain that candy should be taxable and toilet tissue should be tax-free, but that’s just too bad.  If states want tax revenue from internet sales, there should be a system in place that does not put undue hardship on businesses that do not operate in their state. 
     
    Kevin, I disagree with your statement that the “revenues could be divided between the federal and state levels.”  I don’t think the federal government should collect any of it.  There should be no federal sales tax involved in internet sales because that would leave the door wide open for them to increase the national tax at their discretion.





    Responding to yesterday’s video commentary about customer service, MNB user Bryant Bradanini wrote:

    I believe that your viewpoint of making customer service a priority is dead on.  However, the type of service that I prefer is "Genuine" customer service, meaning that it is a real belief that the customer needs are important.  I cannot stand the robot-like delivery of most retail employees.  The scripted "Hello, did you find everything today?  Did you know that beef jerky is 2/$1?"  frustrates me because I don't think that they really care.   I've even heard stories about certain retailers sending their employees to Smile School to learn how to address every customer that comes within 20 feet.    I would prefer to deal with an employee that can actually read my body language, communicate with empathy, and respond in such a way that makes me feel important.   You cannot learn compassion and caring from a book.

    MNB user Kevin Nolan wrote:

    A comment regarding your ‘Face Time with the Content Guy’ editorial about the Gri.pe site…..

    What goes around, comes around!  I'm just guessing here but, the companies that will be griping the loudest about this new website’s unfairness will most likely be the very companies that did nothing for their customers when they had a legitimate complaint about the products & services provided by that company, leaving the customer feeling like they had been “Corporately Bullied!” 

    To coin another phrase from the Content Guy’s era….Power to the People!


    I feel so old.

    MNB user Pat Kline wrote:

    As a poor farm kid from Minnesota, I find it difficult to offer sophisticated strategy on how to change the down-bound train of poor service. I do though have some advice, take a trip to NYC and walk into just about any convenience store with hot/cold salad bar-or restaurant for that matter. These people will in almost every case exhibit a high degree of professionalism reflective of someone with a career, most bad service is done by those with a (bad?) job.

    Interesting differentiation.
    KC's View:

    Published on: June 10, 2011

    Let’s just come out and say it.

    Woody Allen’s new movie, Midnight in Paris is wonderful, the kind of movie that inspires feelings of romance and joie de vivre. If you’re like me, you’ll come out of it and want to see it again, in part because it is so good, and in part because you want to see what references you may have missed the first time around.

    ALERT! SPOILERS AHEAD!

    It is hard to write about Midnight in Paris without giving away a bit of the plot, but at this point the movie has gotten so much publicity that it probably is safe to do so.

    The film focuses on Gil (Owen Wilson), a creatively dissatisfied Hollywood screenwriter visiting Paris with his fiance, Inez (Rachel McAdams). He’s looking for a little inspiration and even muses about moving to Paris to work on his long-delayed novel; she’d rather shop and hang out with friends and her parents, who also happen to be in Paris.

    Late one night, while walking the streets of Paris, Gil suddenly finds himself transported back to the 1920’s, and encountering the likes of F. Scott and Zelda Fitzgerald, Ernest Hemingway, Pablo Picasso and Gertrude Stein. It is the Paris of his dreams and yearnings, and he finds his creative juices to be stimulated; he’s also stimulated by Marion Cotillard, playing a woman who has been the mistress of a series of great painters and who finds him fascinating.

    Anyone who has walked through Paris and been captivated by the city’s magic will instantly a kind of wish fulfillment in this movie; Allen taps into something visceral with his screenplay and direction, and he does so without special effects of any kind. Paris is one those cities where you can recreate the past with a few old cars and some wardrobe, and he makes the transformation utterly seamless and convincing.

    Midnight in Paris may not be quite as extraordinary as Annie Hall and Manhattan, but it is a very, very good movie - funny, charming, and filled with terrific performances. Among them are Wilson, who plays a character that would have been played by Woody Allen himself 30 years ago, but who makes it all his own; Kathy Bates, who is fabulous as Gertrude Stein; and Corey Stoll, who creates a brief but indelible portrait of Hemingway.

    Go see Midnight in Paris. It amply demonstrates the magic not just of Paris, but of creative and inspired moviemaking.




    I also saw X-Men: First Class last weekend. And while I guess it was okay, with some decent performances, the best I can say about this latest comic book-inspired movie is that it wasn’t as bad as Thor, but doesn’t even come close to being as interesting and ambitious as Batman Begins and The Dark Knight, which transcended the genre.




    I have a couple of nice and refreshing white summer wines to recommend to you this week:

    • 2009 Bontanica Chenin Blanc from South Africa, which has a nice minerally thing going for it;

    • 2009 Torbreck Woodcutter’s Semillon from Australia’s Barossa Valley, which has the distinctive tang of citrus.

    BTW...this wine is not one of the MNB wine club selections, but it is still available from Nicholas Roberts Ltd., which powers our club. The folks at Nicholas Roberts were supposed to ship the June wine club selections this week, but decided to delay it a week because of the extreme heat affecting much of the country. But now they’re aiming for next week, and to get more information, about this new MNB offering CLICK HERE.




    Final note. Happy Birthday to Ali Coupe, who turns 17 today and who continues to amaze me by how self-possessed and strong someone her age can be. You took my breath away by how beautiful you were when you went to your prom this week, but that shouldn’t be a surprise, since you take my breath away a lot.



    That’s it for this week. Have a great weekend, and I’ll see you Monday.

    Slainte!
    KC's View: