business news in context, analysis with attitude

Published on: May 20, 2013

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Published on: May 20, 2013

by Kevin Coupe

It has been well chronicled here on MNB how companies like Netflix and Amazon have been competing for customers not just in their traditional segments of content delivery, but also by creating unique, differentiated and proprietary content that will make them more attractive to customers. We've been paying attention not just because it signifies a change in business dynamics for these companies, as they define their competition in an ever-broadening sense, but also because it serves as a strong metaphor for retailers who should should be seeking differential advantages through unique products and services.

And so it is interesting to note that Amazon.com last week announced "that it expanded its licensing deal with NBCUniversal to add past seasons of TV shows to its Prime Instant Video subscription service," according to LA Biz. "The new additions of exclusive content include episodes from NBC’s fantasy drama 'Grimm,' USA Network’s courtroom drama 'Suits' and spy drama 'Covert Affair.' They are currently available for unlimited streaming access to Amazon Prime members. Later this year and into 2014, Amazon will add NBC’s thriller 'Hannibal' and Syfy’s futuristic drama, 'Defiance'."

The story goes on to say that "the battle for access to content, especially exclusive content, has been heating up as of late among the subscription video-on-demand providers. Netflix recently lost over 1,000 titles due to licenses expiring and content providers are now jumping into the game with their own proprietary platforms for their own programs, making it more difficult to get the latest movies and TV shows on other services. Amazon is probably the closest competitor to Netflix, with Hulu and Redbox Instant trailing far behind in titles available and subscriptions."

It cannot be overstated. This is a great metaphor for what every business has to do - find the points of difference, establish competitive advantages, identify products and services that are unique, and then work constantly to reinforce these advantages in the mind of the consumer. And then, of course, because no advantage is unassailable, do it again and again and again.

I only have one reservation about this move by Amazon ... which is that it is getting exclusive streaming rights to programs originating on NBC, a network that almost nobody watches. So it is good that they are getting stuff from USA and Syfy as well.....

Published on: May 20, 2013

The Wall Street Journal reports that Walmart, which last week reported disappointing earnings for the last quarter, said that it spent $73 million in its first fiscal quarter of 2014 on an internal probe into allegations that the company has engaged in bribery of foreign officials as a way of greasing the wheels of global growth.

The probe originally was launched as a response to New York Times stories about systemic and systematic bribery in Mexico, but has been expanded by the company to include its operations in China, India and Brazil.

In addition to the internal probe, there also are investigations into Walmart's possible violations of the Foreign Corrupt Practices Act being conducted by the US Congress, the US Department of Justice and the US Securities and Exchange Commission (SEC).

The story reports that Walmart says "it spent about $44 million on the investigations, and another $29 million on a global compliance review and organizational changes."

Walmart reportedly spent $157 million on the matter during the last fiscal year, and said it expects to spend between $65 million and $70 million during the second fiscal quarter.

Published on: May 20, 2013

The Financial Times reports that Tesco, which has been unable to get the kind of traction in China that it had hoped to, now is looking for a joint venture partner there that will allow it to grow while minimizing its financial exposure.

Less than three years ago, the story notes, Tesco promised to spend billions of dollars to open hundreds of stores there, but has more recently "scaled back these ambitions" and remains in the red there. Now, while Tesco maintains that China is "strategically important," it also says that it has "adopted a more cautious stance."

According to the piece, "Analysts said the list of the most suitable partners would include China Resources Enterprise, the state-controlled group that owns the Vanguard and Ole supermarket chains. The Chinese conglomerate also has a brewing joint venture with SABMiller." Tesco is not commenting on the report.

Published on: May 20, 2013

InvestorPlace.com reports on the Initial Public Offering (IPO) filed last week by Sprouts Farmers Market, the company owned by Apollo Global Management, and why it seems like a potentially strong growth company.

Here's how the site frames the story:

"As of now, Sprouts has 157 locations in eight states.

"What sets it apart is a small-box format; Sprouts has an average store size of 27,500 square feet. That’s not huge, but still enough room to have a wide assortment of fresh produce, seafood, dairy items, frozen foods, wine and even body care products.

"There are several benefits to such a small-format approach. First of all, it means that lease rates are generally less and allows for more efficiency in terms of moving products, which is critical for perishables. On top of that, a small format is easier to locate in urban centers, where its not easy to find space — just ask a big-box giant like Walmart.

"In terms of the performance, Sprouts has been no slouch either. Last year, net sales came to $2 billion, up 16%, and net income was $19.5 million, which compared to a loss of $27.4 million in 2011. In fact, Sprouts has generated positive comparable store sales for 23 consecutive quarters. In 2012, the growth was about 9.7%.

"Going forward, the growth ramp should continue, especially as consumers look for healthy foods. According to the Nutrition Business Journal, the market should grow at an annual rate of 10% until 2020. The vitamin and supplement market is also expected to show decent growth, with an average rate of 7% during the same period.

"But grocers like Sprout are not just benefiting from the general health movement. Consumers are also looking for locations that provide a better shopping experiences, with easy-to-shop floor plans, open-air atmospheres and more. It also helps to have highly trained employees. Because of such factors, traditional grocers have seen an erosion of market share, which has gone from 73% in 2005 to 67% in 2012."

Published on: May 20, 2013

The Arizona Republic reports on the arrest, conviction and sentencing of Robin Ramirez, a Phoenix woman who engineered what is described as "the largest counterfeit-coupon enterprise in US history."

The piece, which goes into a great deal of specificity about how she committed her crimes and achieved a whopping 91 percent profit margin, can be read in its entirety here.

Published on: May 20, 2013

Bloomberg reports that Walmart and Seattle's Best Coffee, the value-driven coffee chain owned by Starbucks, are forging a strong relationship with the opening this week of eight new Seattle's Best locations in Walmart parking lots in the Dallas area.

According to the story, "There’s no indoor seating at the 523 square-feet (49 square meters) shops and customers order from their cars at the drive-thru or at a walk-up window."

Walmart and Seattle's Best see the hook-up as being strategically advantageous for both of them, since they each focus on customers who are value conscious.

Frank Sica, vice president and general manager of Seattle’s Best, tells Bloomberg that the two companies have a "strong relationship," though he won't go into specifics about what that means for future expansion.

The story notes that "Starbucks, which has owned Seattle’s Best since 2003, has been trying to boost U.S. sales by expanding beyond its traditional coffee cafes."

Published on: May 20, 2013

• CNBC reports that Yahoo has reached an agreement to buy the blogging service Tumblr for about $1.1 billion in cash. A formal announcement is expected in the next few days.

According to the story, "The acquisition is the biggest yet under Yahoo's chief executive, Marissa Mayer, as she attempts to reinvent the once-embattled Web pioneer's fortunes. Under her, the company is seeking to make up for years of missing out on the growing use of social networks and mobile devices.

"Buying Tumblr is intended to help address that shortfall. The six-year-old company is one of the most popular blogging services, with over 108 million blogs. Buying the company could provide a wealth of user-generated content."

Published on: May 20, 2013

• Bloomberg reports that "the Thomson Reuters/University of Michigan preliminary index of consumer sentiment increased to 83.7, the highest since July 2007, from 76.4 in April, a report today showed. Separately, the Conference Board’s gauge of the economic outlook for the next three to six months climbed 0.6 percent in April, more than forecast."


• The Salt, on National Public Radio (NPR), reports that at the end of the month, a four decade ban on importing Italian pork-cured products called salumi will be lifted.

"The U.S. Department of Agriculture has announced that the Italian regions of Lombardy, Emilia-Romagna, Veneto and Piedmont, and the provinces of Trento and Bolzano, are free of swine vesicular disease," the story says. "Imports of pork products from those areas, says the USDA, present a low risk of introducing the disease into the U.S. The disease was first detected in the 1960s and can survive cooking and even long curing.

"Up to now, only a few Italian pork products were approved for import to the U.S.: prosciutto di Parma and prosciutto di San Daniele, as well as mortadella — which was also banned until 2000.

"Starting soon, as long as they receive USDA approval, hundreds of artisanal products will arrive on American tables. It's not yet clear, however, what standards the producers will have to meet and what the costs will be. But even without a ban, Italian cured meat producers must pay hefty fees as part of the process of getting certified for importation."

Mangia!

Published on: May 20, 2013

• Starbucks reportedly has hired Deverl Maserang, who led Global Value Chain for Chiquita and Fresh Express, to be its executive vice president responsible for supply chain operations worldwide.

Published on: May 20, 2013

Last week, MNB took note of a San Francisco Business Times report that Robert Edwards, the new CEO of Safeway, says that while the company is still testing its Fast Forward payment system, and it will be 'many months' before it is rolled out to the entire company, he is already getting calls from other retailers hoping to license the technology. Fast Forward allows customers to link their Safeway loyalty cards to their checking accounts, which enables them to make payments while bypassing traditional credit card and debit card transaction fees."
One MNB user responded:

Time Out.
 
I would like Robert Edwards to explain to me (his customer), what benefit there would be to be able to use my Safeway loyalty card, linked to my checking account, to purchase stuff at Safeway.

The article mentions that it would enable me to bypass credit card and debit card transaction fees. I'm not sure if I'm somehow special, but I've been using credit cards and debit cards at grocery stores for fifteen years and have never had a transaction fee. Moreover, I -- like millions of other Americans -- actually use my debit card to get "cash back" precisely to avoid ATM fees. And I'm sure I'm not the only one to have ever bought a single bottle of water to avoid ATM fees.
 
Moreover, like most males I carry a wallet. And the last thing in the world I want taking up shelf space in there is another stupid "Loyalty" card. Which is why most stores let you use phone numbers.
 
So Mr. Edwards, please do tell me what kind of innovation you plan to offer me?   Or, could it be the fact that this technology might allow YOU to avoid fees?!?!?

I get your point about cards.

However, I would like to gently challenge your assertion that you've never paid a transaction fee.

You may not have seen the fee on your receipt, but transaction fees do drive up prices. You're paying that fee, one way or another. Drop fee levels for the retailer, and ideally prices can come down.

Now, if fees go down and prices stay artificially high, then the retailer can be fairly accused of misleading the shopper to whom it has suggested that transaction fees are partially responsible for high prices. That makes the retailer vulnerable.

But I think you need to think about transaction fees in a broader context.




Regarding the impact of sales tax collection on e-commerce companies, and my assertion that many of these e-tailers will continue to thrive because of selection, price and free shipping, one MNB user wrote:

I'd it were not for the free shipping...my crowd would stop shopping the Internet for sure!

From another reader:

It’s easy to say that tax payers should be owning up and paying their taxes for online purchases. It’s not happening though. My suggestion would be to face reality and recognize all those people not paying the taxes due are only proving the laws as written don’t work. It’s not cost effective for any of the groups accountable for collecting the taxes to invest heavily in collecting them when the perfectly obvious answer is to force the business – just like all the brick and mortar stores – to collect the taxes due. The fact the internet retailer does business in multiple states, counties etc. is a major benefit of being an online retailer. The fact they will need to navigate the tax landscape sounds to me like a cost of being and being rewarded as an interstate retailer.




In response to Kate McMahon's column last week about JC Penney, one reader sent the following email:

Kate McMahon's column supports my suspicion that JCP (oops I mean JC Penney) was impatient in solving their long-term decline. I just don't understand how they make money and survive going back to what wasn't working.

No argument here.

MNB user Tom Murphy wrote:

The challenge in today’s retail space is trying to understand ROUGHLY where the consumer is headed and going there.  This is fraught with mistakes and new lessons as JC Penney has learned, but going back to where the consumer was or where they currently are…is a recipe for guaranteed disaster.  Today’s great retailers, e.g., Amazon, Nordstrom, etc. would not be here today and retail would not be as supportive of consumer demands without pushing the envelope.  The trick is not to forego this risk, it is to recognize when you are too far detached from reality and adjusting accordingly…and quickly!




We had a story last week about how JC Penney is bringing back abandoned pricing strategies, including artificially marking up prices so that items can be put on sale and make the reduction look bigger than it actually is.

I commented:

I know that I may not be in the majority on this one, and I'm not part of JCP's target consumer, but y'know what I call the practice of marking up prices only so they can then be artificially reduced to make it look like the sale is more than it actually is? A lie.

MNB user Jan Fialkow responded:

In the early/mid '80s, I was assistant copy chief for the in-house advertising department at Zayre stores and then copy chief  at Child World/Children's Palace. At that time, the law — which was rather rigorously enforced — said that in order to put an item on sale, the "regular" price had to be in effect for a minimum of 30 days. The process of changing a price was labor intensive. All items had to re-ticketed with sale stickers by store personnel; all in-store signage had to be redesigned, reprinted, shipped to store and changed at store level; all registers had to be changed at store level to reflect the sale price, etc. 

Aside from all the issues of traffic generation, loss leaders, pricing, MUCs, goods-on-the-water, etc., etc., etc., putting an item on sale demanded that a lot of store-level people work a lot of hours. And as I said, the FTC had those pesky consent orders and levied stiff fines for transgressions by major advertisers.  

The rules are no longer enforced. Advertising an item as "on sale" when the savings are off a manufacturer's suggested retail price rather than off the retailers regular price is common. I once threatened to report a major retailer (now defunct) here in Florida for advertising a computer at 50% off  when it was being sold at the retailer's everyday price (50% was off msrp) and the department manager laughed at me and wished me good luck finding someone who would follow up on something so trivial.

Computers make it child's play to mark up and then quickly mark down merchandise. A few key stokes can now do what once took huge numbers of in-store personnel to accomplish. Pricing in stores changes so often consumers have no idea from week to week what an item cost. I'm not  a Luddite — you'll have to pry my iPad… But sometimes I do question if all the trade-offs have been worth it.

Another reader chimed in:

I totally agree with you - Lies and liars– Mendacity!  I’m one of the apparently too few who was attracted to the new JCP look as well as their pricing strategy, in part because I hate those fake sales.  Although Penney’s sat in the local mall for decades, my teenage daughter and I ventured in for the first time after seeing the gorgeous ad circulars in the Sunday papers and loved the fresh, clear look of the store and the straight-forward shopping experience.  (Having a mini Sephora shop inside didn’t hurt either!)  Reading about their corporate machinations and seeing the pathetic ‘Sorry’ and ‘Thank you’ ads and hard reverse,  I regret that tired old Penney’s just didn’t give JCP enough time.

And another:

Correct me if I'm wrong, but why would you do the same thing you were doing before that wasn't working? Isn't that a definition of insanity - doing the same thing and expecting different results? The new, now former, CEO may have taken too big of leap, but seriously, go back to the olden ways of yore and cross your fingers?

And still another:

Section 5 of the FTC Act prohibits all "deceptive and unfair acts and practices".  Unfortunately enforcement, especially in the area of deceptive pricing, is near zero.  Ask yourself, has anyone ever paid full price for a mattress?

If they did the fines alone might make a significant dent in our national debt!




The following email references a commentary I did about the seeming irrelevance of things like return address labels to young people who only use email and texting to communicate. MNB user Jim Knudsen wrote:

I am sure I am not the only older person to comment on this, but… 
 
It is my opinion that there is a significant difference between an mailed thank you note and an email.   A thank you email strikes me simply as a convenience for the sender.   Compare that to something that takes a little thought and effort for the sender and gives the receiver something more substantial.     
 
In addition, as you have observed, many people do not even use or check email regularly anymore.   Perhaps a thank you text would be even easier.
 
I know,  I know…this is an old guy comment.




Finally, an MNB user last week made reference to the famous car chase scene in Bullitt as an example of how really good movie-making can trump computerized special effects. Which led MNB user Steven P. Darr to write:

That reference to Bullitt ... Didn’t know there was a cycle crash caused by someone passing a barrier.  I watched that film repeatedly when it came out.  Ever notice that the hubcaps from the Dodge Charger giving chase came off repeatedly?  A bit of a continuity issue but still my favorite car chase scene, ever!

Bullitt is one of those movies I try to watch every year or two, just for inspiration. The best special effect in that movie is Jacqueline Bisset, and computers had nothing to do with it.