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    Published on: February 21, 2014

    by Kevin Coupe

    The Huffington Post has a piece that consists mostly of pictures purported to have been taken at JC Penney stores around the country, by a 17-year employee who took the photos as evidence of "the deterioration of the once-mighty retail giant as it seeks to regain its former glory … The images are defined by disorganized displays, broken signs, empty shelves and messy departments."

    You can see them here.

    Now, it is hard to know whether the scenes depicted in these photos are, in fact, taking place in JC Penney stores everywhere, just as it is hard to know what the employee's motivations are in supplying the photos to Huffington Post, as opposed to, say, showing them at a managers' meeting.

    My guess … informed by my own biases … is that there are probably are a lot of stores that are in lousy shape … but I'm also open-minded enough to think that it is at least possible that the reason these displays are so awful is that they've just endured a big day of non-stop customer traffic and sales. It's possible, though I'm dubious. (I also am willing to bet that there are some JC Penney stores out there that are in great shape, because they have great managers and great staffers who take pride in what they do.) As for motivations, I think it is probably fair to say that it reflects lousy morale at a company that has had more than its share of problems, both in the executive suite and on the front lines.

    But the real point is that the pictures exist, and they're out there. There's no room for retailers that will tolerate situations like these, and I'm not sure how many people would be shocked to find JC Penney stores to be in this kind of disarray.

    This may or may not be an Eye-Opener.
    KC's View:

    Published on: February 21, 2014

    Walmart said yesterday that its Q4 profit was down 21 percent, as earnings went from $5.6 billion to $4.43 billion, on net revenue that was up 1.4 percent to $128.79 billion, and same-store sales that were down 0.4 percent.

    The Bloomberg story about Walmart's results said that the company's new CEO, Doug McMillon, promised "to accelerate openings of its better performing smaller-format stores" as a way of addressing the poor results. The story says that "Wal-Mart plans to double openings of  its Neighborhood Markets and Walmart Express, to 270 to 300 in the U.S. this year.  That’s because as Walmart U.S. comparable sales dipped as a whole, while Neighborhood Markets saw 5% growth. The smaller-format Express on a comparable basis also saw gains in the mid-single digit to double-digit percentage. While the company’s supercenter traffic has been hurt by consumers’ not making the mid-week fill-in trips, those smaller stores have seen increased fill-in purchases.

    The company also "blamed a shorter holiday season, winter storms that led to closings of over 200 stores companywide and a cut in food stamp benefits that led to a decline even in its traditionally strong grocery business," Bloomberg writes. And the current quarter isn't expected to be much better: "Continued winter storms have led to a sales decline so far this month and that the global retail landscape remains challenging, hurt by low inflation, relatively high unemployment and 'fragile' consumer confidence.

    "'The retailer also expects increased health-care costs because it’s seen increased enrollment from employees that see its plans as better options than what’s available in the market,' Walmart U.S. chief Bill Simon told reporters on a conference call."

    McMillon, Bloomberg writes, "promised continued investments on the online and mobile front and leveraging Wal-Mart’s physical stores to generate growth. Online sales last year rose 30% to more than $10 billion, though it still pales against the retailer’s total sales of $473 billion. One area Walmart may be eying more closely: online grocery delivery.  The company said its grocery delivery test expansion to Denver in October has gotten a great response."
    KC's View:
    I'm not sure the degree to which Walmart is persuading the investment community. There are folks out there who already are predicting that Bill Simon could lose his job pretty soon if there is not a turnaround.

    Here's what I think.

    Walmart has plenty of money … so it can afford to do what is necessary to get things right, both in terms of pricing and format. The problem is that Walmart's competition isn't standing pat … from Amazon to dollar stores, they're all moving forward, sometimes more nimbly than Walmart can.

    I also have had a chance to peruse some Neighborhood Markets and Express stores recently, and I have to be honest…I find them to be uninspired, offering very little in the way of differential advantages. That's not to say that people aren't shopping there, but they don't strike me as being very well thought out, and certainly not very well maintained.

    If this is what Walmart is counting on to improve its fortunes, they may have bigger problems in Bentonville than they know.

    Published on: February 21, 2014

    The Wall Street Journal reports that Amazon is in negotiations to add J. Crew, Ralph Lauren and Lord & Taylor stores to its Marketplace site, along with Abercrombie & Fitch and Neiman Marcus.

    According to the story, "Amazon wouldn't sell the goods directly; the listings would be links to the retailers' own sites. The arrangement would generate traffic for the retailers, while providing Amazon with more customer data and a new enticement for its Prime shipping program as it plans to raise rates … For the retailers, an accord would represent something of a deal with the devil. Amazon, with data on nearly 240 million customers and a willingness to lose money on new initiatives, is widely feared as a competitor, even among merchants that sell goods on the site."
    KC's View:
    One of Amazon's biggest weapons in offering as robust online shopping experience is its Marketplace of outside retailers…which is responsible, experts say, for a significant percentage of its revenue.

    Published on: February 21, 2014

    • Facebook has announced that it will buy WhatsApp, a messaging company that supplies a replacement for traditional text messaging, for $19 billion in cash and stock.

    The Wall Street Journal writes that WhatsApp "has seen its use more than double in the past nine months to 450 million monthly users. That makes its service more popular than Twitter Inc., the widely used microblogging service which has about 240 million users and is currently valued at about $30 billion."
    KC's View:
    To be honest, I'd never heard of WhatsApp until Facebook bought it. To now find out that it is more popular than Twitter reinforces for me how much I don't know.

    And here's the other passage from the story that grabbed my attention:

    What isn't clear is how much revenue WhatsApp makes—the company declined to comment on its sales. It charges 99 cents a year after one year of free use and doesn't carry ads. On a conference call, Facebook Chief Executive Mark Zuckerberg said he doesn't think ads are the right way to monetize messaging systems.

    Nobody ever told me that generating revenue wasn't one of the central goals of operating a business….

    Published on: February 21, 2014

    USA Today reports that Procter & Gamble plans to divest its worldwide bleach business, delivering on a pledge by CEO AG Lafley to get out of non-core businesses. (P&G is not in the bleach business in the US.)

    In a meeting with analysts this week, Lafley also announced the reorganization of the company's global business units, "reshuffling its market development organizations and renaming them sales organizations. The switch includes consolidating Eastern and Western Europe, while India will be combined with the Middle East and Africa."

    According to the story, "Lafley said the company 'wasn't ready to make announcements' about selling other unnamed businesses. Iams pet food, Duracell batteries and Braun small appliances top many analysts' short lists of candidates for sale."

    • President Barack Obama this week announced "the development of tough new fuel standards for the nation’s fleet of heavy-duty trucks as part of what aides say will be an increasingly muscular and unilateral campaign to tackle climate change through the use of the president’s executive power," the New York Times writes. "he new regulations, to be drafted by the Environmental Protection Agency and the Transportation Department by March 2015 and completed a year later so they are in place before Mr. Obama leaves office."

    The story goes on to say that "the limits on greenhouse gas pollution from trucks would combine with previous rules requiring passenger cars and light trucks to burn fuel more efficiently and pending rules to limit the carbon emissions of power plants. Cumulatively, experts said the à la carte approach should enable Mr. Obama to meet his target of cutting carbon pollution in the United States by 17 percent from 2005 levels by 2020. But they said he would still be far short of his goal of an 80 percent reduction by 2050."

    The Times notes that while environmentalists have endorsed the President's plans, car and truck manufacturers have said that such rules could make vehicles more expensive and less safe, while Republicans have criticized the President for single-handedly imposing "what they consider onerous requirements on vast swaths of the energy economy when Congress has opted against its own intervention."
    KC's View:

    Published on: February 21, 2014

    • Daymon Worldwide said that it has hired Dave Berry to be its new CIO responsible for managing the company's global information systems and assessing "the company’s current IT infrastructure to determine how to better support the company’s growth in domestic and international markets," according to the story in the Wall Street Journal.

    Berry comes to Daymon from HomeServe, a provider of home emergency repairs, where he was CIO. Prior to that, the Journal writes, Berry "served in a number of interim CIO posts, including at Ascena Retail Group, TOMS Shoes, Polycom Inc. and smartShift. Before the interim stretch, Mr. Berry worked as CIO of fragrance maker Coty Inc. for 12 years."

    • Starbucks announced that Starbucks Canada executive vice president and president Annie Young-Scrivner has been named executive vice president and president of its Teavana business.

    At the same time, retail operations executive and Partner (Employee) Resources senior vice president Rossann Williams has been appointed senior vice president and president, Starbucks Canada.

    And, Teavana founder/CEO Andy Mack, having helped with the integration of Teavana with Starbucks, has decided to retire from the company.
    KC's View:

    Published on: February 21, 2014

    Yesterday, commenting on the ongoing debate about an increase in the national minimum wage, I wrote, in part:

    This is going to be an ongoing debate, and I suspect there won't be any sort of resolution before the November mid-term elections, and maybe not before the 2016 presidential elections.

    Does an increase in revenue compensate for lost jobs? I'd like to think that if companies were making more money because of higher sales, they'd be able to higher more people even though the minimum wage is higher … but life doesn't always work out that way. Besides, it isn't that simple - health care issues also are having an impact on hiring (whether or not it should - I found Michael Sansolo's column about this issue last week to be very persuasive), as is the broader trend toward a tech-driven efficient marketplace in which there may just be fewer traditional jobs.

    In the end, what worries me is the disconnect between people at the top of companies and the people on the front lines. The people at the top often are rewarded for eliminating people and paying people as little as they can get away with, and those rewards come in the form of big salaries and big bonuses. I'm no economist, but that doesn't strike me as a sustainable long-term economic/social/cultural model.

    It is more likely a recipe for disaster. Again, I'm not sure that a simple increase in the minimum wage is enough to solve the problem … it may well just be a band-aid that only momentarily (like through the next election cycle) covers up a more systemic and serious economic problem.

    MNB reader Tom Raterman wrote:

    You described, so well, a core problem facing all people in America.  As an older, unemployed person looking for a job, I am a bit more sensitive to many issues dealing with unemployment and related economic problems.  I don’t have the answers either.  But I am saving your words below, as a personal challenge, to stay focused on helping myself and others get out of this systemic and economic mess.

    Another MNB reader responded:

    I heard an statistic recently that the minimum wage is only earned by 1.6% of the workforce and that increasing the minimum wage is equivalent to a wage redistribution among the poor where some poor people will make more while others will lose their jobs and eventually inflation will rise to the benefit of neither.  Interesting take on the debate and one I mostly agree with.
    Another way of looking at this minimum wage theory is to consider it valid.  Those in favor say that $15 an hour minimum wage is good for the worker and the country. So why stop there?, take it up to $20, but why stop there?  Why not $30 or $50 an hour?  I think you’re getting my point.  But isn’t that what they are arguing?  People wanting to see the minimum wage increased need to ask themselves at what point, at what threshold does the argument become invalid?  Entry level positions lead to advancement and I worry about how many of those opportunities will disappear for hard working folks looking for a way to get in to a company in order to get ahead.  Plus companies will compensate, how many white collar jobs or mid-level managers are going to get axed?  If you think that since you don’t make a minimum wage you won’t be affected your nuts!
    I’m sorry but I was taught the way out of poverty was education not Uncle Sam.  Money spent on our education system and tackling graduation rates would be a much better discussion that would lead to even greater results.  The question shouldn’t be why people are making so little but why are so many so ill prepared for the workforce.  People succeed in bad situations all the time but only when they choose to.  Whether it’s bad schools, single households, low motivation or societal, or all of the above, that’s what needs fixing if there’s ever going to be a time when companies want to hire more Americans.
    Incidentally it wasn’t that long ago I was earning $10 an hour as a store-level department manager for a local grocery chain.  I never worked so hard for so little but it was by choice.  And I left to pursue other opportunities that have paid off very well for me, in part because I had that $10 an hour job because I learned a ton working there that no amount  of book knowledge can teach.

    From MNB reader Bryan Nichols:

    I am not necessarily for or against an increase in the minimum wage—I can see the pros and cons—but the issue I recall from working in retail during past increases in the minimum wage is that many hourly employees near or over the new minimum wage expected (often demanded) a similar increase, creating a lot of disgruntled employees who believed many of his or her coworkers received a wage increase they had not earned.  The problem was not so much the effects of the minimum wage increase as the upward pressure on all wages.  The simple fact is that most companies measure wages as a percent of sales, and when wages go up without an increase in sales or productivity companies must rework the economics of the business—and that often means fewer jobs and fewer hours for employees—resulting in poorer service or quality—and the downward spiral  begins.

    From another reader:

    What about those of us that started at minimum wage and worked their way up through perseverance and hard work?  Taking on extra shifts, never calling in sick, having open availability?  Do we automatically get a raise as well?  Living in the Pacific Northwest, where we already have the highest minimum wage in the country, we have already had one town institute a $15.00 minimum wage and the mayor of our major city promises the same.  As a victim of the rapidly changing economy and retail landscape I have had to start over a few times as business has changed (my early career was in the retail music business which is now non-existent) .  I am the single wage earner in my household and while I am not currently struggling, if the $15.00 minimum wage passes I can see what little security I have developed being eroded away as prices skyrocket.  The money for these higher wages had to come from somewhere and we all know that the large corporations are not going allow the higher wages to eat into their profits and huge bonuses and are most likely going to raise prices and lay-off employees.  I certainly don’t know what the answers are, I sympathize with these people trying to support their families on minimum wage jobs and having to work numerous jobs just to survive and I do have friends that are currently working two jobs to pay the bills and we are in the same age range as you.  Raising the minimum wage is truly nothing more than a band-aid to a truly dysfunctional economic system.

    And from another:

    The argument that we would lose jobs if the minimum wage was increased puzzles me.  This supposes that existing companies are over staffed now.  My experience is that companies only hire the employees they need.  We might see costs increase to cover the increased labor costs but how can a business that is already minimally staffed expect to suddenly decrease their FTE’s and still handle the business they are doing now.  I don’t see people stopping their purchasing habits.  The end result may be a little inflation which generally is good for business.

    MNB user Michael Phelan wrote:

    The complaints from some about the possibility of lower wage earners choosing to work fewer hours if healthcare becomes more affordable demonstrate a lack of knowledge about how Americans and American families are getting by these days.
    If the boot were on the other foot and a wealthy person decided to not do as much consulting work because they happened to receive an investment windfall, there wouldn’t be an argument.
    For many in the middle class and working poor, the new healthcare law is just that windfall.  If they want to reduce their childcare expenses or spend more time with their family or return to school instead of working that second (or third) job, who are we to judge them? 
    Why has beating up on poor people become a blood sport in this country?

    From another reader:

    I think you nailed it with you comment about the disparity between workers and those at the top.
    We have a great and growing problem in this country that a shrinking middle class is struggling to tread water, while a working class no longer sees a realistic prospect of earning a comfortable living or getting ahead through hard work. The Democratic response is incomplete, lacks anything new, and is not likely to have much effect. The Republican response it to oppose the Democrats and ignore the problem, while calling for additional deregulation and tax cuts for the wealthy. It is not only the economy that is broken.

    And another:

    On the minimum wage debate. I agree that it would be great if there was more alignment between higher salaries/bonuses for execs and the pay of their workers. But that discussion is a waste of time. The amount of $ expended for exec pay for a large company is negligible when spread across the rank and file.
    Your comment “Does an increase in revenue compensate for lost jobs? I'd like to think that if companies were making more money because of higher sales, they'd be able to higher more people even though the minimum wage is higher.” … Why would a for-profit company plow all revenue gains back into workers’ pay? That’s not the capitalistic model. There is no guarantee or in fact likelihood that companies would achieve higher sales from people who get the higher minimum wage. In fact, it’s more likely that  an increase in the minimum wage would lead to reductions in the work force in companies big and small. The math just doesn’t work!
    We need jobs spawned from a robust economy and this will ultimately come from private enterprise creating them, not government intervention. Government does not have a great track record in running much of anything. Why would we want government to establish the rules for how companies pay employees? Not sure our founders would approve…..

    I'm not saying that company should invest all revenue gains into employee pay. But a company that does not feel the ethical responsibility to invest at least a percentage of those gains into wages for people on the front lines, as opposed to the salaries of the people in the executive suite, strikes me as one that is ethically lacking and strategically misguided.

    Clearly, there are a lot of divergent opinions here. And as I said, I'm not entirely persuaded that a minimum wage increase is anything other than a band-aid, though sometimes you need a band-aid to stop the bleeding whole considering what to do next.

    One thing I would argue with, however, is the notion that we cannot increase the minimum wage because the people now working for us started at a lower minimum wage; sometimes, this gets translated into "I didn't make that kind of money when I started, so why should they?"

    Which strikes me as nonsense. The world changes, and it strikes me that the rules have to change to keep up. When I started working in retail stores, I made $1.45 an hour - the minimum wage - and slowly worked my way through private high school and college, paying every penny of my tuitions. But I could do that, because my high school tuition was about $600 a year and college tuition was just a few thousand dollars and I bought my first car for under a grand. Clearly, times have changed.

    People who work hard and full-time, and most people do, ought to be able to support themselves and their families on those wages. I find it fascinating when the people who say they put a high premium on hard work don't seem to put as high a value on front lines people being rewarded for that work.
    KC's View:

    Published on: February 21, 2014

    Sometimes, when I walk into a restaurant or bar, I just feel at home. Or at least, even more at home than I usually do, which is often.

    Some places just have the right vibe. A great wine list, and an equally impressive beer list, or maybe, even better, they make some of their beer themselves. A menu that offers some unusual choices, and then, when the food is served, a discovery that some of the flavor combinations are utterly unexpected. A friendly bartender, who I get to know by name within just a few minutes of sitting down. And then, somehow, the whole ends up being greater than the sum of the parts.

    That's the way I feel about the Cask & Larder, described as a Southern Public House inWinter Park Florida.

    The beer was utterly unique: Lineage Coffee Gold, an ale that is infused with coffee flavoring, but with a light touch so that it never is overwhelming. There were crusted oysters, served with a healthy coating of bourbon, brown butter and orange zest. And crab toast, with smoked artichokes, heirloom tomatoes, and pretzel bread. There was an utterly amazing catfish sandwich, crusted in cornmeal and served with collard slaw and bacon-poppy seed mayo. And, finally, handpies, which are sort of like empanadas made from oxtail, bone marrow and cranberry-chutney.

    They were extraordinary meals, and highlighted by the kind of hospitality you'd expect to find at a Southern Public House - Larry, a wiz behind the bar, and Kelly, the manager who seemed to be everywhere, making sure that people were having a good time.

    I went to Cask & Larder twice in three days, just because there was more that I wanted to try. If you are in the neighborhood, you need to hit the Cask & Larder. Let everybody else go to nearby Disney World and Universal; the Cask & Larder is my idea of an E-ticket ride.

    No movies or TV shows to review this week … I'm just two episodes into the second season of "House of Cards," and I don't want to write about it until I'm done. Plus, this weekend has the season finale of "Downton Abbey." So there will be lots to catch up on next Friday…

    Dave Barry's new collection of essays, "You Can Date Boys When You're Forty: Dave Barry on Parenting and Other Topics He Knows Very Little About," is always amusing, and often laugh-out-loud funny as it looks at a wide range of subjects in a way that always seems recognizable. He may be a 65-year-old man of long writing experience, but that doesn't mean he is any less exasperated/chagrined/amused by the world around him, and that shows whether he's addressing the challenges of having a teenaged daughter, talking about what women want (in a hilarious dissection of "Fifty Shades of Grey"), or writing about what it takes to be a professional, published author. Buy it or download it, and enjoy.

    One wine to recommend this week … the 2010 Cecchi Chianti Classico, which this week, was the perfect thing to wash down a pepper-and-onion pizza.

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


    KC's View: