business news in context, analysis with attitude

Published on: May 9, 2013

This commentary is available as both text and video; enjoy both or either. To see past FaceTime commentaries, go to the MNB Channel on YouTube.

Hi, Kevin Coupe here, and this is FaceTime with the Content Guy.

While out in the Pacific Northwest recently, I ventured north from Portland to visit Seattle. For one thing, I owed Morgan a visit. Longtime MNB readers will know that Morgan is the incomparable bartender at Etta's, a wonderful restaurant across the street from the Pike Place Market where the crab cakes are sublime, the wines are excellent, and Morgan always knows what to say and what to pour. I've aid it often - when in Seattle, make sure you stop at Etta's. Ask for Morgan. And tell him that Kevin sent you.

But I also had another item on my agenda. I wanted to check out Hointer.

You may recall that we've written about Hointer before on MNB. It is a jeans store, selling primarily men's jeans. But unlike most jeans stores, where there are stacks and stacks of various styles in a wide range of sizes, Hointer simply hangs one pair of each style from metal rods, with a description and a QR code easily available. You download the Hointer app to your smartphone, and then use it to identify the jeans you'd like to try on, and in what size. The app tells you which dressing room to go into, and once you're there a magical robotic and computerized system delivers them to you via a slot so you can try them on. Once you are done, you put the ones you don't want into another slot, where they are taken away by the system. You then can use a self-checkout system to pay, and it is all seamless because the computer knows which jeans it delivered, which ones you kept and which ones you sent back. You can then leave ... and never talk to a salesperson. Ever.

At least, I think this is how it all works. They say that computers and robots are doing all the work, but the whole system is behind a big white wall so you can't see what is happening. I asked the one employee who was there, a very friendly fellow, but he basically said that what happens in the back room has to stay in the back room.

Now, I get that this is the secret sauce of what makes Hointer unique. But for all I know, they could have had leprechauns and elves behind the wall, scurrying about collecting and distributing the jeans. Which, when you think about it, would actually be a much better story.

What this tells me is that Hointer, which was created by former Amazon supply-chain Vice President Nadia Shouraboura, isn't really about experiential retailing. At least not how I define it. I like seeing how the machinery works. I like going to Stew Leonard's, for example, and seeing the milk bottling line. I like going to a restaurant and seeing an open kitchen. I like supermarkets that have open back rooms. It inspires confidence, and brings me into the process.

Sure, Hointer is an experience ... but I could not shake the feeling that the real audience is not the guy going in to buy jeans, but the venture capital group that might think about investing in the technology and using it in other categories. Or the folks from Amazon or Google or eBay, who would love to find a way to reinvent the physical shopping experience is a way that would be in synch with their e-commerce roots. It isn't a coincidence that Hointer opened a second store in Palo Alto, and has another store planned for downtown Seattle.

I don't want to undersell the experience. There is something very cool, very "Star Trek" about the experience; since I can't see behind the wall, maybe they're using a replicator to materialize the jeans out of energy.

Now, I'm probably not Hointer's ideal customer. I've been wearing the same style of LL Bean jeans for something like 25 or 30 years. Not the same size, but the same style.

That said, I have a confession.

I bought two pair of jeans.

Maybe the retailing experience is more than I give it credit for.

That's what I'm thinking this Thursday morning. As always, I want to hear what you're thinking.

Published on: May 9, 2013

by Kevin Coupe

Companies like Walmart and McDonald's get a lot of grief for employing low-wage employees, with the suggestion that they somehow are exploiting these workers.

Which is why this story from the Washington Post is so Eye-Opening ... because it indicates that there is another entity that employs a lot more low-wage employees: the federal government.

The writes that a report from a public policy organization Demos "estimates that taxpayer dollars fund nearly 2 million private-sector jobs that pay $24,000 a year — about $12 an hour — or less. Those workers owe their incomes to government contracts, Medicare and Medicaid spending, and federal infrastructure funds, among other public sources. In contrast, Demos estimates that about 1.4 million workers earn that amount or less at Wal-Mart and McDonald’s, which are two of the largest employers of low-wage workers.

"The findings highlight inequality within the government contracting industry; as chief executives of major contractors rake in millions, many contract employees are struggling to get by, according to the report from Demos, which advocates for worker-friendly policies. It is a situation that could be worsened by the budget pressures of sequestration, which is pushing the federal government to spend fewer dollars and pursue lower-priced contracts."

I find this interesting ... and I also think there will be a lot of folks out there who will say that they'd rather see this sort of report than one that says all these folks are being paid high wages with federal tax dollars.

BTW ... I saw a story the other day that said, in essence, that sequestration is forcing government agencies to be smarter and more innovative in how they spend their budgets. Now, I can see the arguments on both side of the sequestration issue, and the blanket nature of the mandate probably is forcing some unfortunate choices. But if it is forcing bureaucrats to be innovative and make smarter decisions ... well, that doesn't seem like a bad thing to me.

Published on: May 9, 2013

Bloomberg reports that Coca-Cola is saying that it is taking a more energetic approach to dealing with obesity "by adopting clearer calorie-count labels, promoting diet drinks and renewing a pledge not to market to children under 12," the Financial Times reports.

Without offering a timeline, Coke is saying that it will "encourage consumers to adopt more active lifestyles and apply all the measures in the 200 countries where it operates. The company has tried to take a lead in the war on obesity, running ads that encourage consumers to burn more calories and highlighting its low-calorie and no-calorie drinks," FT writes.

However, the voluntary ban on advertising to kids seems to have some limitations. The Wall Street Journal writes that Coke "now plans to only advertise to audiences where no more than 35% of viewers are children, similar to what it does in the U.S," which is a little different than a blanket ban. And Bloomberg writes that "Coke first promised to stop marketing to children in 2007."

Bloomberg also reports that "Chief Executive Officer Muhtar Kent has been working to counter the perception that the soft-drink maker contributes to America's obesity epidemic. Coca-Cola earlier this year introduced advertisements highlighting the company's low- and zero-calorie products and suggesting people pay attention to how many calories they consume in order to manage their weight. It also has been working on introducing smaller portion sizes of its products and said it will continue innovating drinks made with natural zero-calorie sweeteners like stevia."

Published on: May 9, 2013

The New York Times reports that "the revolution that has swept the food industry is expanding to retail: origins matter.

"With fair-trade coffee and organic fruit now standard on grocery shelves, consumers concerned with working conditions, environmental issues and outsourcing are increasingly demanding similar accountability for their T-shirts. The issue has been brought to the forefront by the garment factory collapse in Bangladesh, which killed more than 800 people.

"And some retailers are doing what was once unthinkable, handing over information about exactly how, and where, their products were made."

You can read the full story here.

Published on: May 9, 2013

The Wall Street Journal reports this morning that Walmart is investing the equivalent of $16.3 million "to strengthen food-safety management in the retailer's China-based stores, as Chinese officials crack down on violations in response to public outrage over a string of food scandals," using the investment over three years "to expand food inspection, supply-chain management and supplier training."

The story goes on to say that "mobile food-safety labs, which Wal-Mart has been pilot testing for the past six months in China, will be expanded to run third-party food-quality tests at 70 stores across China's southern Guangdong province, up from 33 stores."

While China has been wrestling with a number of food safety issues - ranging from melamine in milk to rat meat being passed off as lamb - Walmart has had its own issues there: "According to a report Wednesday in China's state-run Xinhua news agency, officials in the southern city of Nanning accused Wal-Mart of using expired eggs in baked goods sold to consumers," the Journal writes."

Published on: May 9, 2013

The Chicago Tribune reports that Wrigley has decided to pull its Alert caffeinated gum from store shelves, ceasing all production, sales and marketing efforts, as the US Food and Drug Administration (FDA) conducts an investigation into what impact consumption of additional caffeine will have on children.

According to the company, the goal is to "give the FDA time to develop a new regulatory framework for the addition of caffeine to food and drinks."

The Tribune notes that "the world's largest gum manufacturer has underscored that Alert exceeds all guidelines for disclosure and that consumers wouldn't be buying the product by mistake. Alert was merchandised away from gum and candy, alongside products including 5-Hour Energy Shots."

Published on: May 9, 2013

• Bloomberg reports that "a group of bankers advising the Federal Reserve urged U.S. regulators to consider preventing Wal-Mart Stores Inc. from offering some financial services.

"The Federal Advisory Council, a body of bankers that includes PNC Financial Services Group Inc. (PNC) and BB&T Corp., said at a Dec. 19 meeting that Wal-Mart’s sales of prepaid cards warranted greater federal oversight."

The story goes on to say that minutes from the meeting "outline bankers’ views on Wal-Mart’s entry into services that they traditionally provided to consumers, as well as their concern that a new competitor might face less stringent oversight by the government.

"The council urged the Fed to consider limiting payment-related services to 'regulated banking institutions,' or at least step up its study of the business. It also said the Consumer Financial Protection Bureau, created by the 2010 Dodd-Frank law, should supervise non-bank companies that provide financial services."

Published on: May 9, 2013

...with brief, occasional, italicized and sometimes gratuitous commentary...

• The Minneapolis / St. Paul Business Journal reports that since Supervalu has not been able to find a replacement for CFO Sherry Smith, who it already had announced would be leaving the company at the end of the month as part of CEO Sam Duncan's executive suite shakeup, it will pay her a retention bonus of $300,000 to stay in her job through the end of July. That's in addition to her usual salary.

The Smith family just got a much better August vacation than it was expecting...


• Reuters reports that "Earthbound Farm Organic, the largest grower of organic produce in the United States, is exploring a sale of the company," and "has hired Barclays to sell the company in a deal that could be worth $600 million to $700 million."

According to the story, "Earthbound Farm grows and packages items including salads, vegetables and fruit. Founded in 1984 on a 2.5-acre backyard garden in Carmel Valley, California, it has since expanded to 26,000 acres. The company was the first to sell pre-washed bagged salads, which are now available in 75 percent of all U.S. supermarkets, including retailers such as Costco Wholesale Corp, Walmart Stores Inc and Whole Foods Market Inc."

Published on: May 9, 2013

• Internet Retailer reports that Staples Inc. has hired Faisal Masud, vice president and general manager of Groupon Goods, as its vice president of global e-commerce, a new position.

The story says that "Masud’s new job puts him in charge of building Staples' digital channels, including mobile commerce. Staples has said it wants to triple the size of its e-commerce and information technology staff by 2014 as part of a general effort to focus more on the web."

Published on: May 9, 2013

We've been getting a lot of email about the US Senate vote to allow states to force online retailers to collect sales taxes.

MNB user Mark Woodrow wrote:

The internet tax bill is not going to make internet companies collect the same taxes as brick and mortar. Consider this scenario – you are in Portland and decide to buy a sweatshirt. The local shop owner asks you where you live, figures your sales tax based on CT and whatever the local sales taxes are where you reside, and then later remits the tax to CT. (And later is audited by CT.) That would be the same tax. This basically creates two sets of rules depending on how a transaction happens. The big guys will be able to handle reporting and auditing requirements, but for smaller players in niche markets, it will be a real hassle. This is also a very fundamental shift between out-of-state taxing authorities and businesses.
 
The states can’t get their citizens to do the right thing – pay their “use taxes”. So they are forcing out-of-state companies to do the work for them.
 
The reality is that with the states getting really creative on what creates nexus, we are already 2/3 of the way there. And with Amazon dropping the fight and now encouraging the tax,  it is probably going to happen sooner or later. But it is not the same tax as the brink and mortar guys.

One MNB user wrote:

How will the small operators deal with this tax distribution nightmare.   To your point, Amazon has the resources and the effect will be minimal. This a tax grab in sheep's clothing.

Another MNB user wrote:

One comment that I keep hearing in the media is that online sellers need to collect sales tax, "the same way their bricks and mortar competitors do".  However, that's not entirely accurate.  When I buy something at a B&M store, I pay the local sales tax for the area regardless of where I live, whereas online sales tax needs to be paid according to where I live or the location where the goods are being shipped.  A B&M retailer doesn't have to ask me where I live and then try to figure out the local tax rate for my house, they only worry about the local tax rate for where the store is located. I'm not against buyers on the internet paying taxes, but I think there is a substantial difference in burden between the two.

And another:

Somehow the Internet Tax Bill doesn't pass the smell test.  How can, for example, the state of Virginia demand that an online retailer in California, collect sales tax for them?  The onus on paying sales tax is on the consumer, not the online business.  If a state cannot figure out a way for their constituents to pay their "use tax", that is a state problem.  The feds have no business in this... as usual.  Then there is the issue of the small online retailers trying to figure out over 9000 tax rates throughout the country.... city, county, transit, special use, state, etc.  Something like this could force them out of business as they do not have the resources like that of, oh say, Amazon.  Of course, that probably explains why Amazon is behind this - lobbying the government to eliminate their competition for them.  The states (and the feds for that matter) don't need more taxes.  They need to simply get their fiscal house in order.  Term limits anyone??

And still another:

The internet tax is just another blatant cash grab by a bloated, wasteful, and spend-crazy US government.  Go ahead and tax internet purchases, but then reduce the current federal income tax rates to make it a net wash for taxpayers.  It is time for us to tell Washington that enough is enough and that it already takes enough (actually too much!) of our hard earned money.

From yet another MNB reader:

While I agree with you that a tax collected by internet resellers, such as my company, isn’t the big issue here that the brick and mortar stores say will make it “fair”.  The obvious issue is overhead.  Can an electronics brick and mortar store compete with an internet company that has no stores, thus little overhead?  How will that be made fair should this pass?  If this bill makes it “fair” then can the brick and mortar stores begin to ask their customers where they live and charge the correct sales tax for that state and send that payment to the buyers state?  What then happens with the state this customer was in and the tax collected?  They just lost that sales tax revenue because it wasn’t “fair” that they didn’t pay their states sales tax rate.  Take SD, they have no sales tax.  Will a brick and mortar store in CA ask this same customer from SD where they live and charge no sales tax when they prove they live in SD?  I think not.  If the consumer has decided to get an item online and they don’t pay the sales tax in their state, why is that now my companies problem?  Who isn’t being fair here?  Is it possible that the customer is taxed to death as it is and frankly finds no way to report this on their complicated tax form only a lawyer can understand?

While you think it’s fair for us to collect and pay sales tax to 49 other states as part of our small business, I question your logic.  What ever happened to consumers paying their own tax?  Also, this will be in court should it pass because of inter-state commerce clause in our Constitution.  I find it odd you think it’s “fair” for a small company of 10 full-time and 4 part-time employees to now collect and pay sales tax to 49 other states but you don’t insist on the same for the brick and mortar stores.  How “fair” are you being?
 
As I saw your story again on this topic it brought to mind a saying when I was growing up from my parents, “life is not fair”.  I really hope you have thought this out when you make your comments and take a side.  You seem to ignore the companies who are hiring, like mine, in your fairness rants.  Is it fair that we small business internet companies now have to be tax collectors for the I.R.S.?  (yes I saw they will have software in this bill for us which ignores many key issues in this debate) What am I missing here?

To be fair ... I "rant" about a lot of stuff, but I don't think my comments on this issue rise to that level.

I've just said that after years of being able not to collect sales taxes, it strikes me as fairer to ask online companies to begin doing the same thing as bricks-and-mortar companies.

I think many of the points made in this emails are entirely legitimate. True, small online retailers will have an entirely different burden than small bricks-and-mortar retailers, and it is equally true that Amazon is better positioned to deal with this issue than many because of its size and infrastructure. In fact, I've made the point here that this could turn into yet another advantage for Amazon, which hardly needs one these days.

As for the anti-tax sentiment ... I get it. But I'd also point out that organizations like the Food Marketing Institute (FMI) and the National Association of Chain Drug Stores (NACDS) - hardly bastions of tax-and-spend liberalism - are supporting the internet sales tax legislation. And I'm willing to pay sales taxes for internet purchases if that money will support the improvement of roads, investment in education, that sort of thing. But reasonable people can disagree reasonably on this. I think.

You're right , life isn't fair. I'm just think that it is important to try to make things as fair as possible, and paying sales taxes on internet purchases just seems fairer than not.

But I'm not ranting about it.