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    Published on: April 28, 2014

    by Kevin Coupe

    Great piece in the Chicago Tribune over the weekend in which is posed 100 questions that business leaders should ask themselves … posed by a wide variety of business leaders who have learned about these questions through experience.

    You can read the entire list here. But here are 10 that particularly resounded for me…

    • How can we become the company that would put us out of business? - Danny Meyer, CEO of Union Square Hospitality Group

    • How likely is it that a customer would recommend our company to a friend or colleague? - Andrew Taylor, executive chairman of Enterprise Holdings

    • Who, on the executive team or the board, has spoken to a customer recently? - James Champy, author and management expert

    • Among our stronger employees, how many see themselves at the company in three years? How many would leave for a 10 percent raise from another company? - Jonathan Rosenberg, adviser to Google management

    • What did we miss in the interview for the worst hire we ever made? - Alberto Perlman, CEO of Zumba Fitness

    • Is our strategy driving our strategy? Or is the way in which we allocate resources driving our strategy? - Mark Johnson, co-founder, Innosight

    • If our company went out of business tomorrow, would anyone who doesn't get a paycheck here care? - Dan Pink

    • Do you have an implicit bias for capital investments over people investments? - Tom Peters

    • If you could go back in time five years, what decision would you make differently? What is your best guess as to what decision you're making today you might regret five years from now? -Patrick Lencioni

    • If you had to rebuild your organization without any traditional competitive advantages (i.e., no killer a technology, promising research, innovative product/service delivery model, etc.), how would your people have to approach their work and collaborate together in order to create the necessary conditions for success? - Jesse Sostrin, founder, Sostrin Consulting

    The very definition, I think, of an Eye-Opener.
    KC's View:

    Published on: April 28, 2014

    The New York Times - and pretty much every other media outlet - wrote over the weekend about how at Amazon, following a Q1 report that revenue was up 23 percent, "operating income fell 19 percent, to $146 million. Net income was a modest $108 million. Perhaps more unnerving was the company’s forecast for next quarter: flat revenue and a loss that might be as big as $455 million."

    The story continues: "Shares plunged, dropping nearly 10 percent, or more than $30, to just over $300 at Friday’s close. They hit a record high of $408 earlier this year.

    "This is the second quarter in a row that Amazon’s results have set off selling. Amazon shares plunged 11 percent on Jan. 31, after fourth-quarter revenue and profits were lower than analysts’ forecasts. But this time, revenue beat forecasts, suggesting that it’s the minimal profit that’s worrying investors."

    For the record, it wasn't just outside investors affected by the stock price drop (which was, when you think about it, caused in part by outside investors). It was also Amazon CEO/founder Jeff Bezos. According to the Boston Globe, the plunge "cut the value of Bezos’ stake in the company by nearly $2.8 billion in just one day."

    Now, we don't spend a lot of time writing about stock prices on MNB. But here's how the Times assesses Amazon's specific situation:

    "Stock prices are a reflection of investors’ predictions of future profits, which is why there’s always an element of gazing into a crystal ball. The future earnings of mature companies with long track records can be forecast with considerable accuracy, but for newcomers, especially in untested technologies, it’s mostly sophisticated guesswork.

    "Amazon isn’t a newcomer, but it has long had a powerful story driving expectations: the notion that it will become the global Walmart of Internet retailing. Walmart has been one of the most successful companies of all time and something of a holy grail for investors. Anyone lucky enough to have invested $1,000 in shares at the time of its 1970 initial public offering and have held them is now worth many millions.

    "Walmart’s headiest growth is probably behind it, and Amazon is still expanding revenue by the 23 percent it reported this week. Still, the comparison to Walmart goes only so far. Walmart’s operating profit margin is 5.6 percent. Amazon’s is a minuscule 0.7 percent. Walmart has been consistently profitable since its earliest days, but for Amazon, bumper profits have always been just beyond the horizon."

    If profits are just beyond the horizon, the Amazon landscape has become increasingly crowded. There is its traditional retail business. Its Marketplace business, which serves as a portal for other retailers. Its web services business. Its video business, which is now funding original content to attract viewers who might otherwise be using Apple's iTunes and Netflix, It is forging exclusive deals to show HBE programming. Its Amazon Fresh grocery business, which recently has introduced the Dash, a piece of equipment that enables expedited ordering, also seems to be positioning the company to start making its own deliveries in many markets, eschewing the services of FedEx and UPS. Last week, it announced Prime Pantry, which is designed to ramp up its grocery business. And this doesn't include the possibility of delivering products via drones.

    The question that is being posed - and, to some degree, being answered by the investor class, at least in the short term - is whether Amazon is not paying attention to what is really important: generating profit. It always has been an act of faith that profit was less important to Bezos than creating a sustainable and dominant 21st century business model, and to a a great degree, investors were willing to make that leap with him. But now, two decades into Amazon's lifespan, investors may be losing their enthusiasm. Or, at least, their patience.
    KC's View:
    This is one of those stories about which I got emails even before I had a chance to comment on it.. Here's one:

    Investor patience appears to be wearing thin on the issue of Amazon profitability.  It is internally as well. Some mfg’s in the S&S program are now getting asked some pretty hard questions about profitability. Amazon’s CRAP program (can’t realize a profit) signals a renewed focus on managing profit internally. It makes for interesting challenges for many in the MNB community who’s justification is to manage “fair but equal” trading programs between bricks / clicks retailers.

    Whether Bezos and the Board care about stock price is another matter entirely. It’s not unfathomable to imagine that protecting stock option grants given employees might weigh heavily in the decisions needed, don’t you think?


    I'm sure there are a bunch of folks out there for whom the drop in Amazon's stock price came as a rude shock last week; Bezos probably can absorb a two billion dollar loss, but not many people can say that.

    Let's be clear. I don't own any Amazon stock, so I don't have any financial skin in the game.

    I do think that this is something that Bezos and the Amazon board have to take seriously. Amazon's ability to expand and innovate is tied to its ability to get investor support, and if that seems to be waning, then the company will be restrained by economic realities.

    It will be interesting to see if Bezos - who tends to be selective about his public appearances - makes the calculus that he needs to do some sort of public relations tour on behalf of his dream. That's probably what some within the company will be suggesting, but it will be up to Bezos to decide whether he needs to tend to his company's public image.

    For a moment, let's go beyond the stock price issue. One of the remarkable things about Amazon is the degree to which it has worked to avoid legacy issues. From the corporate culture and its choice of products and services to its approach to research and development, Amazon has worked very hard to make sure it is not trapped by old or traditional ways of doing things. "It's always Day One," Bezos likes to say … though investors, for the moment, apparently don't feel the same way.

    Whatever Amazon does to address the stock price and profitability issue, I think it is key for the company to make sure that it does not veer away from its fundamental value proposition - that it needs to be a nimble and aggressive 21st century retailer, making it easier for people to buy virtually anything without having to leave their homes or workplaces. There have been a bunch of stories out there lately about whether it would make sense for Amazon to acquire Sears … but to me (and I could be wrong on this), that would be such an old world approach to retailing that it would be totally out of synch with what Amazon is and wants to be. That is analyst thinking, not Amazon thinking.

    Now, I do think there are things that Amazon is doing to increase profits. Raising the price of its Prime annual membership, for one. I think that in its own way, Pantry Prime may be a way to move people from Subscribe & Save to a program that could be more profitable. I suspect that there may be other initiatives in the hopper as well.

    There were a few references in stories over the weekend to a possible tech bubble, that we could see a collapse in the stock prices of a wide variety of tech companies (Google and Netflix among them). I simply cannot see that happening, though there certainly could be some webs and flows. These companies are not Webvan, nor are they Sears or Kmart … they are forging new paths, often through unfamiliar territories, and I continue to believe they are taking the economy to the promised land.

    Not that it's always gonna be easy.

    The opening line of the Times story posed the following question:

    Is a 20-year honeymoon coming to an end?

    Well, y'know something?

    The consumer's relationship with Amazon isn't a honeymoon. For many of us, it is an enduring relationship … a first and last resource when looking to buy something … and, more often than not, a source that surpasses the promises it has made.

    To think of it as being an extended honeymoon is to look at Amazon in entirely the wrong way.

    Published on: April 28, 2014

    The Wall Street Journal reports that the outsized impact that the recession seemed to be having on men appears to be ending, as "the number of married couples where a mother is employed but the father isn’t slipped to just over 1.45 million in 2013 … down from about 1.5 million the prior year and a peak of nearly 1.79 million in 2009."

    The story goes on to point out that "the number of married couples where the father was employed but the mother wasn’t rose to 7.21 million last year - or about 31% of such couples - from 7.19 million in 2013. In 2007, there were 7.6 million such families."

    And, the Journal writes, "The job market for male workers has been improving. During the downturn, job losses among men outnumbered those among women by 2.6 to 1. That’s because men dominate employment in goods-producing industries like construction and manufacturing that were particularly hard-hit during the recession. Health-care and education jobs were relatively more stable. Since the labor market bottomed out, men’s employment has outpaced women’s. While still not back to pre-recession levels, construction has added more than a half-million jobs from its recent low point, and manufacturing has recovered 626,000 since factory payrolls cratered."
    KC's View:
    I just hope that the guys who ended up spending more time at home over the past few years discovered something … that it awakened in them an awareness that the job can't be the most important thing.

    Right after I saw this story, I saw a piece online about some state legislator who got in trouble last week when he said that the reason men make more money than women is because they work harder and longer hours. And all I could think to myself is that this unfortunate fellow must not have any sisters, daughter or wife … because it would not be my experience that women don't work as hard or as long as men. They often manage it better, and integrate it into their lives more effectively … but their work ethic is every bit as strong as that of most men I've met. (It's like the old story about Ginger Rogers…that she was as good a dancer as Fred Astaire, especially because she had to make it look effortless and do it backwards and in heels.)

    Published on: April 28, 2014

    The Philadelphia Inquirer reports that Acme Markets is "unilaterally" terminating its contract with the United Food and Commercial Workers (UFCW) union, effective at the end of the month, citing health care costs.

    According to the story, a 10 percent increase in payments to a joint employer-employee fund is due on May 1, but the increase is "mandated not by the contract but by a separate board of trustees overseeing the health and welfare fund." Acme's parent company, Cerberus-controlled New Albertsons Inc., says that health care needs to be part of a negotiated contract, not "unilaterally implemented."

    The union says it is considering all its options in responding to the company's move; it says that Acme is looking to avoid its responsibilities.
    KC's View:

    Published on: April 28, 2014

    The New York Times the other day had an interview with Evernote CEO Phil Libin in which he defined how mobile is changing the way people don't just use technology, but how they interface with information.

    “We used to interact with personal computers daily, for two or three hours at a time,” he says. “With laptops, we started interacting three or four times a day for 20 minutes each. Mobile phones made that into sessions of two minutes, 50 times a day.”

    In the future, when connected appliances and wearable computers become commonplace, he says, “we’ll be having sessions of 10 seconds each, a thousand times a day.”

    The Times quotes Libin as saying that he is "designing jobs that don’t exist yet," and trying to find people "who know how to build interfaces for a world where computers understand context, what you need to see next."
    KC's View:
    Marketers in all venues need to be doing the same thing … because if they don't, they may be caught behind with no reasonable hope of catching up.

    Published on: April 28, 2014

    The Wall Street Journal reports that Microsoft plans to start producing - or funding the production of - original programming that wold be exclusively available to Xbox users.

    First up: a series produced by Steve Spielberg that will based on "Halo," the popular videogame.

    According to the story, "Microsoft is producing TV-like series in an effort to broaden the appeal of the console beyond videogame devotees. Shows will include a reality-style series about soccer and a documentary about a landfill with discarded Atari games." Other internet companies getting into the original production game include Netflix ("House of Cards"), Amazon ("Alpha House"), Hulu and Yahoo!.
    KC's View:
    The one thing that the Journal does that I really disagree with is characterize all this original production as wholly unoriginal, simply because everybody is doing it. A lot of companies may be testing the same waters, but they'll be doing it in different ways, bringing different sensibilities to the concept.

    I just think it is interesting to see how content and venue are melding together … and how companies looking to build sustainable models are realizing that they need to control the entire supply/value chain. Which is a lesson for a lot of companies.

    Published on: April 28, 2014

    Bloomberg Businessweek reports that "thanks to Walmart’s first-ever Global Compliance Report, we … know how much the company has spent on improving its anti-corruption program and financial controls: more than $109 million. That figure will grow, too. In February, Walmart estimated that its bribery probe and compliance costs would total $200 million to $240 million for the year."

    The story goes on: "What has Walmart got for the money? According to the report, it now has a 2,000-person compliance infrastructure that includes a new global chief compliance officer, a global anti-corruption officer, and 10 chief compliance officers for specific markets, as well as regional officers and one for global e-commerce. The company also has executives with expertise in money-laundering regulations, licenses and permits, food safety, and 11 other areas. It has begun appointing monitors in all its international markets."
    KC's View:
    Just wait until the indictments come down. If they come down. Which probably becomes less likely with every passing day, as lobbyists have a chance to game the system.

    Published on: April 28, 2014

    • The Charlotte Business Journal reports that "Harris Teeter is the first in the country to offer U.S. Department Agriculture-certified Very Tender beef. The Matthews-based grocer started labeling its Harris Teeter Reserve Angus beef brand with that certification this week. It will apply to cuts such as rib-eye, strip-loin, short loin, tenderloin and top blade."


    NamNews reports that it is indicative of broader consumer trends in the EU that "the fast-growing discounter Lidl has become the first food retailer to rack up 10 million Facebook fans in Europe after only launching a social media presence outside of Germany (in the UK, Spain, Ireland, Holland, Croatia, Romania and Finland) just over two years ago … In contrast, Carrefour came in second place with 6.3 million Facebook fans. Tesco was third with 4.4 million, whilst its main rival Aldi has just 1.6m."
    KC's View:

    Published on: April 28, 2014

    MNB fave Glen Terbeek had a question, prompted by a story run by MNB last week:

    Why do retailers wait until a new entrant forces them to get better?  Shouldn’t they continue to improve their offering even without the pressure of outside competitive forces?  In other words, continually compete with themselves.

    Check out the first question posted in this morning's Eye-Opener. I'm with you.




    Regarding the ongoing competition between Netflix and Amazon, and a Netflix price increase, one MNB user wrote:

    I’ve been with Netflix since 2003 and I will never leave.  Their streaming service is WELL worth $8/month regardless of their original programming (though it's OUTSTANDING).  When you consider that cable providers, Amazon and ITunes are charging $4-6 to stream ONE movie, $2+ more for a month of unlimited movies and TV shows for the whole family with the ability to watch on two devices simultaneously is actually a STEAL!  People really need to open their eyes to how much more Netflix is really giving for that $8.  I’d happily pay $20 to be honest.



    Responding to comments made by Safeway last week, one MNB user wrote:

    Probably just me, but I don’t think I’ve ever heard a retailer announce they are raising prices particularly by saying the plan is “to boost results” by doing so.  Don’t get me wrong I understand the need to do so but not quite sure I get the strategy involved in bringing it to people’s attention.

    And another:

    I’m not sure how it makes sense for retailers to “hold the line” as you say in passing along increased cost of goods. It’s all a matter of how they do it. First, there is a reason prices go up. Steady, or increasing demand on a dwindling supply or supply source that can’t keep up with demand.  If demand does not soften, cost of goods will continue to rise unabated. The only countermeasure is to slow demand or increase supply until supply and demand find a happy place to live.  In my experience, consumer demand slows when prices rise to a point where folks change their purchase habits. Once that happens cost of goods/retails recede. So, are consumers better of seeing immediate retail increases in times of intense inflation forcing downward pressure on cost of goods at the start, or are they better off with retailers exacerbating the issue by keeping prices artificially low, sacrificing margin and maintaining upward pressure on cost of goods?
     
    It is my experience that when retailers try to hold the line on inflation, they do so for only so long then they raise retails well above where they should be to capture margin, and when sales slow to the point that cost of goods recede, they keep retails artificially high for as long as they can in order to make up for margin lost on the front end of rising costs which in turn begins to harm suppliers, especially farmers and ranchers.  
     
    Of course I realize that I’m oversimplifying the issues here as there are both long and short term supply issues working today, but I’m always a fan of treating the issue rather than the symptom. Consumers tend to become pretty interested in the reasons behind their wallet getting dinged, which usually serves to get to the root of the problem….especially the long term self-inflicted causes.
    KC's View: