retail news in context, analysis with attitude

Published on: December 19, 2011

by Kevin Coupe

There have been a bunch of stories over the past few days about how anonymous donors are stepping up and paying off layaway accounts that consumers can’t pay for themselves. In states such as Nebraska, Michigan, Iowa, Indiana and Montana, retailers that have layaway policies - allowing people to put aside products and pay for them over time - are finding that Santa Claus is getting some help this year.

At an Indianapolis Kmart, for example, the Associated Press reports that a “woman in her mid-40s ... paid the layaway orders for as many as 50 people. On the way out, she handed out $50 bills and paid for two carts of toys for a woman in line at the cash register,” saying that she was doing in memory of her husband, who recently passed away.

And there are similar reports from a number of Walmart stores around the country.

These stories come as the AP also notes that “a record number of Americans — nearly 1 in 2 — have fallen into poverty or are scraping by on earnings that classify them as low income.

“The latest census data depict a middle class that's shrinking as unemployment stays high and the government's safety net frays. The new numbers follow years of stagnating wages for the middle class that have hurt millions of workers and families.”

When I read these various stories over the weekend, I thought about the opening moments of Love Actually, my favorite Christmas movie, in which Hugh Grant (portraying the Prime Minister of the UK) speaks as the audience watches a variety of people interacting at Heathrow Airport...

Whenever I get gloomy with the state of the world, I think about the arrivals gate at Heathrow Airport. General opinion's starting to make out that we live in a world of hatred and greed, but I don't see that. It seems to me that love is everywhere.

Often it's not particularly dignified or newsworthy, but it's always there - fathers and sons, mothers and daughters, husbands and wives, boyfriends, girlfriends, old friends.

When the planes hit the Twin Towers, as far as I know none of the phone calls from the people on board were messages of hate or revenge - they were all messages of love.

If you look for it, I've got a sneaky feeling you'll find that love actually is all around.

Not only do you find it at Heathrow Airport, but at layaway counters in places like Nebraska, Michigan, Iowa, Indiana and Montana. And I have a sneaky feeling you can find it in a lot of other places as well...

Published on: December 19, 2011

In Minnesota, the Star Tribune had a piece over the weekend about Supervalu, which despite the fact that it has had a tough couple of years - sales are down, and still suffering from the bad timing of its 2006 acquisition of much of the Albertsons chain - maintains that “it is stronger and better positioned today than it was a year ago.”

The story says that “To be fair, Herkert inherited a mess. (Former CEO Jeff) Noddle overpaid for a weak chain, saddling Supervalu with more than $6 billion in debt and putting it in more direct competition with Wal-Mart and Target. Albertsons stores were often the most expensive in their local markets, and many were badly in need of an upgrade.

“To complicate matters, nearly a quarter of those stores were in markets that ended up being hardest hit by the foreclosure crisis.”

Alfred Marcus, a professor at the University of Minnesota's Carlson School of Management, tells the Star Tribune that “Supervalu's biggest problem is that most of its traditional retail banners, including Cub, fail to excite or interest consumers. They will rarely be able to compete with Wal-Mart on prices, and they present consumers with run-of-the-mill offerings that suffer next to the likes of a Costco or Whole Foods.”

In addition, Supervalu has found that an aggressive schedule of store remodelings has not moved the needle on attracting shoppers as much as expected.

Published on: December 19, 2011

The Washington Post reports that members of the US Senate and House of Representatives who object to any new regulation of food/beverage advertising targeted at children have demanded a cost-benefit analysis that will delay any restrictions.

A finalized proposal was supposed to be completed more than a year ago, the Post writes, has run into a lot of push back from the food and beverage industry despite the fact that “the administration has stressed repeatedly that the plan is voluntary and meant to serve only as a guideline. But the industry says the initiative amounts to a backdoor regulation that will in effect wipe out advertising to children, eliminate millions of jobs and infringe on commercial free speech.”

The new call for a cost-benefit analysis was part of a spending bill passed last week that was designed to keep the government running. But apparently, at least in this case, not running in certain directions.

Published on: December 19, 2011

In Texas, the Austin American-Statesman has an interview with Whole Foods CEO John Mackey, in which he talks about how the company has “roared back from the recession, rebounding in sales and profits and once again becoming a Wall Street darling.”

Some excerpts:

• How Whole Foods did it... “We threw ourselves into the task of making the shift from strong growth to a sudden recession: We cut spending, slowed and reduced new store openings, and made sure we had enough cash in the bank.

“We renewed our focus on value, and really worked to show everyone that we have great prices throughout our stores. We also increased our innovation and introduced several new programs to differentiate ourselves from our competitors. Some of these include our 5-Step Animal Welfare Rating Program , our Seafood Sustainability Program and our healthy eating and wellness initiatives.”

• What Whole Foods learned... “To minimize our debt and to make sure there is a lot more cash in the business than we think we might need. We've become much more conservative in managing our capital and preserving our cash and liquidity.”

• Regarding ‘income inequality’... “For me, I think the issue is less about inequality in the distribution in income and more about the inequality in the distribution of free market capitalism, of economic freedom.

“I think they're partly protesting against a kind of capitalism that I don't believe in either: ‘crony capitalism,’ whereby some businesses get special deals with the government, such as many Wall Street companies received with the financial bailouts.

“I was opposed to these bailouts, and I believe that crony capitalism is doing great harm in our society and we need to do everything we can to root it out.

“However, I'm also a very strong proponent of ‘conscious capitalism,’ which I believe is where the future of business is headed.

“When business is done consciously with a higher purpose and it works to create value for all of its major stakeholders — customers, team members, suppliers, investors and the larger community — it is a very beautiful and good thing.”

Published on: December 19, 2011

The Seattle Times had a couple of stories over the weekend about Costco’s changing leadership, which takes place in January as Jim Sinegal retires and is succeeded by Craig Jelinek.

Some excerpts:

• Jelinek on whether he might change corporate policies on pay and benefits... “We're not going to change it.

“Now it's fashionable to pay good benefits if you can, and we get credited for something people used to say was a no-no. Nothing changed about the way we did business. We just stayed to our principles — it's what we do, take care of customers and employees and the people who are selling us merchandise, because it's important that your suppliers make money.

“You need to run your business for the long term, and the only way you're going to be around for the long term is if you take care of employees and customers. If you don't, bad things are going to happen to you.”

• Sinegal on pay and benefits... “It's not altruistic. This is good business, hiring good people and paying them good wages and providing good jobs for them and opportunities for a career. If you accept the premise that we pay the highest wages in our industry [hourly workers average more than $20 an hour, including bonuses] and have the richest health care and benefit plan in our industry and the lowest price on merchandise and run the lowest-cost operation, then it must follow we're getting better productivity.”

• Jelinek on his new role as CEO... “My view is your first responsibility is to protect your customer, to continue to have the best value possible out there for the customer. You have to protect your employees. The last thing I want to do is become a casualty like [some other] companies.

“The only way that will happen is if you start to change your core values of what you represent. If you start to do that, you'll start to have distrust with employees about who you are, and you'll start to change the culture of your company. That's the one thing that you don't want to do.”

• Sinegal on the future... “I would hope that 10 years from now, Costco would have sales of probably close to twice what they are right now and that they're significantly more profitable and that we have an even bigger presence internationally than we have today, that we have twice as many members shopping with us, and that we have established ourselves as a leading consumer advocate in the countries where we do business.

“We think our mere presence in a community lowers the price of goods for everybody, even if they don't shop with us, because competition is a very good thing. Sometimes we moan about competition, but if we didn't have good competitors out there, we would get very lazy and not be a very good company.”

Published on: December 19, 2011

• Walmart has a lot of interesting stuff happen to it. A woman who makes meth in its back room. People get shot and killed in its stores and parking lots. But the crisis management folks in Bentonville had to shake their heads and wonder “what’s next?” when this happened the other day...

The Associated Press reports that “thousands of migratory birds were killed or injured after apparently mistaking a Wal-Mart parking lot, football fields and other snow-covered areas of southern Utah for bodies of water and plummeting to the ground in what one state wildlife expert called the worst mass bird crash she'd ever seen.

Crews went to work cleaning up the dead birds and rescuing the injured survivors after the creatures crash-landed.” The story says that volunteers “helped rescue more than 3,000 birds, releasing them into a nearby pond. There's no count on how many died, although officials estimate it's upwards of 1,500.”

Published on: December 19, 2011

Interesting line from Geoffrey Canada, president/CEO of the nonprofit Harlem Children’s Zone, who told the New York Times yesterday:

“Innovation sticks for about 18 months. So let’s say you put a great innovative program in place. You put the right people on it, you get everything organized, and then if you don’t come back and do anything with it for 18 months, that program’s half as good as when you started it. They just start decaying.

“And I think one of the challenges for us in this business, in management generally, is that nobody wants to keep going back and doing the same thing over and over. Everybody wants to get this brand-new idea and really get it going, instead of paying attention to the other things that are fundamental to our business. If you don’t go back and check on a regular basis, those things begin to decay, and you end up constantly having to reinvent something that you already did. Getting a team of people who really understand how essential that is to staying great is one of the real challenges.”

Published on: December 19, 2011

...with brief commentary in italics...

• USA Today reports that the US Congress moved over the weekend to slow the mandated move away from the incandescent light bulb to more energy efficient varieties. According to the story, “the Senate and House passed a massive spending bill, which President Obama is expected to sign this week, that includes a measure barring the Department of Energy from enforcing more efficient light bulb rules. Those rules, requiring bulbs use at least 25% less energy, do not ban all incandescents but phase out Edison's bulbs in favor of the more efficient halogen incandescent, the CFL (compact fluorescent lamp) or LED (light emitting diode.)”

The story says that the bill delays enforcement for one year, but opponents of any sort of mandated change say they will seek a permanent change in federal policy.

I repeat what I said about inappropriate amendments in my commentary about the ‘advertising to kids’ story above.

• Information Week reports that Costco is getting into the health IT business “with a nationwide rollout of a cloud-based electronic health record (EHR) designed for small physician practices ... Costco is pricing its MyWay package at $599 per doctor per month, or $499 for physicians who become ‘executive members’ of Costco. The package encompasses not only the EHR, but also an integrated practice management system, a patient portal, training, implementation, maintenance, and claims submission. Hardware is not included, but the remotely hosted software does not require an onsite server.”

Published on: December 19, 2011

Got a lot of email over the weekend about Friday’s long piece about Main Street and E-Street, the price of e-books, and the implications for broader retail. I commented, in part:

We’ve been having this conversation at home for months, where Mrs. Content Guy - who loves her Kindle but is generally agnostic about whether she reads physical or e-books - objects to the fact that e-books aren’t dramatically cheaper than the physical variety, since there is no ink, paper or shipping involved.

My position on this - and she does not really agree with me - is that this has been a natural progression, and that e-books now are being sold for their convenience and portability, not their price advantage. I actually think this is a good thing - the value we put on books should be based on the thinking behind them, and the talent that went into the writing, not the format in which we read them.

Now, let’s examine this in a broader retail context. Could it not be argued that one of the ways that some retailers get into trouble is by putting too much emphasis on the cost of product, by engaging the competition in pricing battles that ultimately cannot be won but that manage to diminish the value of what the retailer has to offer? Sometimes, by telling shoppers that everything has to be cheaper, cheaper, cheaper you drive expectations to the point where that becomes their primary point of reference, which makes it harder to offer products and services that aim higher.

Back to Amazon. The pioneering e-tailer has made no secret that it wants to make money on content, not hardware. Hence, the lower pricing on Kindles and higher pricing on books. And when you think about it, pricing a Kindle at under $100 instead of more than $300 easily could make a difference in whether one buys a Kindle; pricing an e-book at, say, $13.99 instead of $9.99 may be less of a decision-swayer. So I think that Amazon is making a good decision here. (Besides, charging more for e-books is potentially better for writers, while charging more for Kindles has no impact on we ink-stained wretches. So I have a dog in this hunt.)

One MNB user wrote:

Several weeks ago Amazon sent an email to those who had purchased the Kindle version of Walter Isaacson's bio on Steve Jobs.  Seems that there was a change in the photographs--if you wanted the updated book, you were to reply to their email.  Several days later, the new book was delivered to my Kindle.  The photographs have been reformatted so that the tag lines are on the same page--Steve would have approved!

Hence one of the advantages of e-books.

MNB user Theron J. Knapp wrote:

I buy your arguments that e-books should be more expensive, but only once they straighten out the ownership issue.  When I finish paper book, I can give it to a friend or family member to read, donate it to Goodwill, or sell it on Amazon as a used book.  My e-book cannot do any of these things and even if I buy my kids Kindle’s, they cannot share a book unless I put all the devices on my account which means I will get recommendations for their likes and dislikes.

A perfectly legitimate concern. This is something they ought to fix.

Another MNB user wrote:

We’ve been having the same discussion on the cost of e-books at our house, having just recently purchased an e-reader.  I don’t believe e-books should cost as much as hard copies for a lot of reasons, mostly because it removes the cost of printing, warehousing, shipping, and retailing involved. 

However, I’m interested to know what the cost/retail pricing structure looks like for e-books.  Who is keeping the profit not used to pay for printing, warehousing, shipping, etc.?  Is Barnes & Noble simply pocketing $6 more dollars per copy of the e-book vs. paperback or are these funds being distributed back to the actual writer/publisher?  Do retailers pay $9.99 for paperback and $8.99 for the e-book – and get to determine mark up in both cases?  Or is the cost of the e-book $3.99 and publishers/writers make the same on either paper or virtual copy?   If more profit is being driven to the writer I’m all for paying the same price for an e-book.  For now, I will make the 2 e-books I have purchased last as long as possible.  I’m also waiting for our library to offer “e-book virtual library cards”.

MNB user Stewart Sundholm wrote:

Great post re: e-books and pricing.

Here's my question - who in the 'supply chain' (author, publisher, amazon - in this case) earns the extra profit? If the Author/content generator is seeing a better payday since there's no paper, ink, shipping costs, etc - that would seem to be a good thing.

FYI - there's quite a few sites offering books published before 1923 (that is, in the public domain) for free - and it seems more and more libraries are doing e-lending.

MNB user Rosemary Fifield wrote:

"This price was set by the publisher" is directly under the pricing information on an ebook Amazon page.  Publishers set the prices on their ebooks, not Amazon.  In his book, How to Price ebooks for the Kindle, Stephen Windwalker talks about how the big publishing firms are threatened by the success of ebooks. What better way to make people start questioning the value of the Kindle and Amazon'a intentions than to insist that their books cost too much as an ebook?

From another MNB user:

Kevin, I agree with your commentary on the value of books vs. ebooks - the value is in the content, the effort, style, etc. that went into writing the product.  But important in my mind, regarding Amazon, Barnes & Noble or any publisher deriving higher value (profit & margin) from an ebook over a traditional book is that the writer must be able to share in that greater value.  I would find it repugnant if only the retailer is reaping the benefit of higher margins for ebooks since there's a lower cost of goods, & it would be a factor in my purchase decision process.

MNB user Mark Wright wrote:

Count me with your wife on this one - the costs incurred in production and distribution of of an e-book are dramatically lower than those of physical books, and there is no logical reason (other than making money) for e-book sales prices to be anywhere near those of physical books.

I'd be willing to bet that the payments made to authors for their content have not increased at the same rate as the costs for paper, ink, printing, distribution and promotion of physical books, and that the reasons a hard-cover book is priced at $19.99 or $25.99 have a lot more to do with the physical aspects than with the content.   If you disagree, just do the math - how much do you get for each of your books that is sold?  What's the percentage of retail price - 1%, 10%?  

So, if the cost of the content is whatever they pay you, then why should your wife and I have to pay the publishers a physical book price for digital content?  There are absolutely costs involved, but it should be very clear to all concerned that the publishers, especially those involved in the cartel that sets ebook prices and prohibits discounting by retailers, ARE fixing prices, ARE charging a premium for convenience and ARE going to get bitten on the behind as this plays out.

You have had fun lately ranting against those evil, rotten, nasty bankers taking hidden fees and profits from the pockets of us poor innocent consumers - wouldn't it feel about the same if you substituted the word "publishers" for "bankers"?

I get your point.

On the other hand, the e-book infrastructure actually make sit possible for me to write and publish a book without the participation of a traditional publisher.




Regarding the decision in the Netherlands to eliminate one day of mail delivery - a move that we seem unable to make in the US - one MNB user wrote:

It is pretty clear that the onset of the digital age has had victims along with all the benefits. Newspapers, book stores, bank branches, music stores, and the Post Office are examples of some of the victims. In each case, a more effective digital format replaced the older analog product. The Post Office has the advantage of being government subsidized so there is a high tolerance for inefficiency and politically inspired “solutions”. All the other privately run victims have made the painful adjustments . It is time that the USPS .... and their Federal enablers... realize that the time has come to adjust service to user demand . The Dutch have made the adjustments. Canada suspended Saturday service about 30 years ago. No reason we can’t figure out how to do it too.

And another MNB user wrote:

Kicking the bucket down the road in an American Political institution.  I’m surprised by the number of successful business people that go in to politics and fail.  Successful businesses cater to the majority of their customers.  Most Americans agree we do not need a 6 day a week delivery.  Maybe we should go to the normal Congressional workweek for mail deliveries, Tuesday/Wednesday/Thursday.

The USPS should not go to a 5 day a week delivery, but a 4 day a week schedule – Monday, Tuesday, Thursday and Friday immediately.  In five years, go to a Monday, Wednesday & Friday schedule.  It’s not like we are not going to receive our mail. 

I did a little study on the mail that I received last week:

• 2 bills – have to figure out how to have them email or direct debit, my bad.
• 11 credit card applications.
• 27 catalogs and sales flyers from department stores, etc...
• 8 post cards from local stores.
• 1 local newspaper.
• 23 requests for end of year charitable donations.
12 Christmas cards.

In October/November before the election, we received over 86 pieces of political Propaganda, yes, I saved them to count.

If any of these items were a day or two late, do I really care.

After all this is the Twenty First Century.

They should also raise the rates on bulk mailers, which would reduce the amount of trash in the landfills and cover some costs.




Regarding the list of wines recommended on MNB in 2011 that we posted on Friday, one MNB user wrote:

You are going to live forever with all that resveratrol in your system!

...and these are only the wines you recommend...how big is the list that didn’t make the cut?

MNB user Marty Jarvis wrote:

Thanks for the 2011 wine list. Our stores are hosting a wine event in Lincoln in February. Hopefully, I’ll be able to sample some of your suggestions.




On another subject, one MNB user wrote:

Kevin – I loved your review of the Muppets’ movie and agree with it wholeheartedly!  I, too, thoroughly enjoyed it and teared up at a couple of points!  The Muppets are a fun, wholesome, happy group and I’m thrilled they are back.  My son and I are still cheerily singing “Ma Na Ma Na.”

And, from MNB user Rob Johnson:

Thanks for the write-up on the new Muppet Movie.  Unlike you, I got to take my daughter who is now 10 to the movie and she enjoyed it immensely.  Until the movie trailers started appearing, she had no idea who the Muppets had their own television show and made movies.  It’s almost a travesty that a generation of children have not been exposed to this wholesome, refreshing entertainment.  Since we went to see the movie, we have been looking for additional Muppet movies and just a few nights ago we watched The Muppet Christmas Carol.

Hopefully, a new generation of fans have been created and we can look for more Muppet entertainment soon.




And, on a more somber note, MNB user Linda Wish wrote:

Your “View” on the passing of Christopher Hitchens was both sharp and insightful.

It says as much about you as it does about him. Well done.

Thanks. I appreciate that.

Published on: December 19, 2011

In Week Fifteen of National Football League action, the only remaining undefeated team lost, the only team without a win won, the two New York teams might as well have stayed home, and a Rocky Mountain QB’s prayers apparently were not answered...

Dallas 31
Tampa Bay 15

Miami 30
Buffalo 23

Seattle 38
Chicago 14

Carolina 28
Houston 13

Tennessee 13
Indianapolis 27

Green Bay 14
Kansas City 19

New Orleans 42
Minnesota 20

Washington 23
NY Giants 10

Cincinnati 20
St. Louis 13

Detroit 28
Oakland 27

Cleveland 17
Arizona 20

New England 41
Denver 23

NY Jets 19
Philadelphia 45

Baltimore 14
San Diego 34