business news in context, analysis with attitude

Published on: May 22, 2014

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.

There was a time when it was generally believed what was good for General Motors was good for the country, and vice-versa.

Well, these days we're seeing a General Motors that seems to be slowly, painfully twisting in the wind. And it isn't pretty.

Just this week, GM announced its 29th recall this year.

Let me say that again: its 29th recall this year.

Oh, wait … in between the time I started working on this piece and now, it announced a 30th recall. Who knows what will have happened by the time you see or read it?

That's more than 2.5 million vehicles that have been recalled for various reasons. And that doesn't even include the 2.6 million small cars recalled for having faulty ignition switches that are blamed for the deaths of 13 people.

GM is expected to declare recall-related costs of some $400 million this year alone.

GM says it has added 35 separate product investigations since the beginning of the year.

And GM already has been fined $35 million for violating federal safety laws.

Now, there is a lot of debate about culpability. Some of it is legal, as in, since GM has gone through bankruptcy, and this supposedly is an entirely "new" GM, can it be held responsible for the acts of previous administrations?

I have no idea how the courts might rule on such a question, but I would like offer one consumer's response. It is one of two words that often are used interchangeably, and are each two syllables. One starts with "bull," and other starts with "horse." Bankruptcy ought not be a way to avoid taking responsibility.

The numbers are off the charts, but to my mind, they all add up to one thing: a company that is in deep, deep trouble because of an unwillingness to do the right thing, to deal with reality.

We know, based on company memos, that as far back as 2008, employees were being instructed not to say "defect," but to say"does not perform to design." And, the memos said that employees were to avoid "judgement words," such as "Kevorkianesque,” “apocalyptic,” “Band-Aid,” “Challenger,” “Cobain,” “Corvair-like,” “death trap,” “decapitating,” “disemboweling,” “genocide,” “grenadelike,” “Hindenberg,” “impaling,” “rolling sarcophagus (tomb or coffin),” “spontaneous combustion,” “Titanic,” or “widow-maker."

I mean, who even has this internal conversation without someone - anyone - standing up and saying, have we all lost our minds? What the hell are we doing here?

(John Oliver, on HBO's excellent Last Week Tonight, had a great line about these words-to-be-avoided: He said that when demons have sex, these are their safe words.)

GM says that there are customers out there still interested in buying its cars, but that is really hard for me to believe. I can't imagine paying one dollar for anything that GM makes, and I don't even want to hear it if all these woes force the company back into bankruptcy and its managers come looking for taxpayer money and a bailout. Besides, the real problem, in my mind, is moral bankruptcy … and in this case, GM has proven that it is not too big to fail.

Here's the lesson, for all of us. Next time you have to make a business decision with any financial or ethical considerations, think to yourself, what would GM do? And then do the opposite.

As GM goes, so goes the nation? I hope not … because if this is any measure of our moral compass and sense of business and personal ethics, then this country is in even worse shape than I think it is.

That's what is on my mind this Thursday morning. As always, I want to hear what is on your mind.

Published on: May 22, 2014

The Boston Herald has a story about how Staples continues to face pricing issues, competitive pressures from Amazon and "shrinking demand for core office supplies," all of which added up to a recent quarterly performance in which sales and margins were down.

Staples chairman/CEO Ron Sargent tells the paper that company's efforts at reinvention - focusing on business solutions as well as office supplies - seem to be having some impact, with online sales actually up six percent in the last quarter. But overall, prices are acknowledged to be too high. “In terms of our biggest online competitors, I think we are probably still a little high in terms of exact price, but we are doing a lot more price-matching at retail,” Sargent says. “We are doing a lot more dynamic pricing where we are changing prices several times a day in our online business.”

But the problem, analysts say, is that any money Staples makes will need to be reinvested in lower prices, which makes the prospect for reasonable profits anytime soon unlikely.

Published on: May 22, 2014

Ad Week reports that an annual brand equity study commissioned by WPP and conducted by Millward Brown concludes that "after three years of owning the top spot in the 'BrandZ Top 100 Most Valuable Global Brands' study, Apple has slipped to the No. 2 spot behind Google. The manufacturer's brand value fell 20 percent year-over-year to $148 billion, due in large part to the company’s well-publicized recent lack of innovation. Google, on the other hand, has kept throwing money into a number of different initiatives including mapping, wearables, payments and social media to up its brand value 40 percent, representing $159 billion."

IBM is third in the rankings, followed by Microsoft. McDonald's is fifth, and the only non-tech company in the top five. Six through ten are Coca-Cola, Visa, AT&T, Marlboro and Amazon.

In the retail sector, Amazon is ranked at the top in terms of brand equity, followed by Walmart (which has the 22nd spot overall). Other retailers on the top-50 list include Starbucks at #31, Home Depot at #40, Subway at #43, and IKEA at #50.

Published on: May 22, 2014

GeekWire reports that "Amazon is significantly ramping up its use of warehouse robots from its Kiva Systems subsidiary — expecting to have 10,000 of the robots deployed in its warehouses around the world by the end of the year … That’s up from around 1,000 robots in Amazon warehouses currently … It’s part of a broader effort by the company to increase the level of automation to make its fulfillment centers more efficient."

Amazon says that the automation efforts won't reduce the actual numbers of humans it employs.

The robots are made by Kiva Systems, which Amazon acquired for $775 million in 2012.

Published on: May 22, 2014

The San Jose Mercury News reports that Walmart's Global eCommerce unit plans to double its employee count, from about 550 to 1,000, as it acquires a 107,000 square foot space in Sunnyvale, California.

The story notes that this move places Walmart's online efforts in the middle of California's technology epicenter: "Sunnyvale has become a hot spot for tech expansion: Google, LinkedIn and Apple have leased large spaces over the past year or two that represent their first office operations in Sunnyvale. The Twitter lease represented the social network's initial outpost in the Bay Area beyond San Francisco, where the company has its headquarters."

Published on: May 22, 2014

The Los Angeles Times writes about a report from the Chicago Council on Global Affairs concluding that "climate change threatens to undermine not only how much food can be grown but also the quality of that food as altered weather patterns lead to a less desirable harvest."

According to the story, "Research indicates that higher carbon dioxide levels in the atmosphere have reduced the protein content in wheat, for example. And the International Rice Research Institute has warned that the quality of rice available to consumers will decrease as temperatures rise, the report noted."

Which means, the council says, that "the US should embrace research into animal biology and plant management with the kind of enthusiasm it did space exploration in the 1960s," with the understanding that "the consequences of inaction could be severe … Scientists already have been investigating breeds of chicken and cattle that can thrive in triple-digit temperatures, grapes that are resilient to heat fungi and crops that won't whither as temperatures rise."

Published on: May 22, 2014

The New York Times has an interesting piece about Instacart, the online personal shopping service that has been expanding rapidly in recent months. An excerpt:

"Instacart might not sound like a novel service. It is one of several companies that is trying to revive a dream first floated, and then shelved, during the last dot-com boom — the dream of ordering your staples online and having them show up at your door a short while later. At least a half-dozen firms offer grocery delivery across the country, including Amazon.com’s AmazonFresh, FreshDirect, Peapod and services run by big grocery chains.

"But behind the scenes, Instacart is unusual and intriguing. It operates according to a decentralized business model that borrows from services like Uber, Airbnb and other firms in the so-called sharing economy. And it is not only potentially lucrative, but also could redefine how we think about the future of labor."

You can read the entire story here.

Published on: May 22, 2014

• Target said yesterday that its Q1 neat earnings were $418 million, down from $498 million during the same period a year earlier, on sales that were up 2.1 percent to about $17 billion. The company said, according to USA Today, that "the massive data breach it sustained over the holiday season last year cost the company a net $18 million in the first quarter – $26 million in expenses offset by an $8 million insurance claim."


• Reuters reports that Netherlands-based retailer Ahold has agreed "to pay $297 million to settle U.S. class-action litigation accusing its former U.S. Foodservice distribution unit of defrauding thousands of hospitals and restaurants through overcharges … According to the lawsuit, U.S. Foodservice used shell companies, sham transactions and phony invoices to inflate prices it charged 'cost-plus' customers from 1998 to 2005. With Ahold's approval, the shell companies pretended to buy and then resell food to U.S. Foodservice at a higher 'invoice cost,' which would be passed on to customers, the lawsuit said."

The story notes that Ahold "remained liable even after selling U.S. Foodservice, now known as U.S. Foods, in 2007 to a group led by private equity firms Clayton, Dubilier & Rice and Kohlberg Kravis Roberts. The settlement came after the U.S. Supreme Court on April 28 refused to hear U.S. Foods' appeal of the class action, which covered about 75,000 customers."


• Southern California's three major supermarket chains - Kroger-owned Ralphs, Safeway-owned Vons, and Albertsons - said yesterday that they have reached a tentative agreement with seven United Food and Commercial Workers (UFCW) locals there on a new collective bargaining agreement. Details have not been divulged, pending member ratification.


• The Associated Press reports that "more than 100 protesters were arrested after crossing a barricade outside McDonald’s headquarters in Oak Brook, Ill., on Wednesday during demonstrations to call attention to the low pay earned by fast-food workers. The actions come ahead of the company’s annual shareholders’ meeting on Thursday. Demonstrators were demanding a minimum wage of $15 an hour and the right to unionize."


• Albertson’s LLC said yesterday that it has committed $12.5 million over 15 years to Boise State University for the naming rights to the school’s famous stadium. The agreement secures Albertsons Stadium through 2028, subject to approval by the Idaho State Board of Education on June 18. This is a first for both Boise State’s stadium and for Albertsons.

Published on: May 22, 2014

Responding to one of yesterday's stories, one MNB reader wrote:

Americans selecting Trader Joe's as their favorite grocery store is exactly what's wrong with America.  I refer to TJs as the store for people who don't cook.  I cook 80% of my food from scratch and I could not shop at TJs.  They mostly have pre-made sandwiches, salads, frozen foods and snacks.  Don't even get me started on their sweets and salty snacks.....  A lot of people rely on others (restaurants and fast food) for their meals.  People need to take responsibility for themselves, go to the normal grocery store and spend some time in the kitchen.  Our country's health and health care costs are not going to improve until this happens.

And another:

Wegman’s not in the top 3?  Seems they are geared to private label where both Trader Joe's and Aldi are strong.  Should be their own category. Publix will always be near the top in any category.  This skews and relevance to the survey.

MNB user Alex Jackson wrote:

After reading the article on TJ’s being the favorite retailer, I am very interested to know who your favorite retailers are, nationwide. What factors do you include when deciding? Price, quality, service, speed of checkout? I consider myself a retail snob, but I don’t shop at a store because of their prices. I am interested to know your rankings…

I'll have to think this one through. I don't want to hurt anyone's feelings, and I don;t want to leave anyone out.




Regarding the possibility that Walgreen could move its HQ overseas to reduce its tax liability, one MNB user wrote:

I hear people say the will stop shopping at a retailer if they do this or if they do that. If Walgreens moves their headquarters overseas they will be fine. Americans will quickly forget the topic! After all BP is surviving in the US along with many other international companies.

I like the concept of making them feel the ramifications of the move; but in the big picture of things they will be better off financially.

I don't know about that. There are people who still refuse to buy gasoline from a BP station, or eat at Chick-fil-A, or patronize other establishments for political, economic or cultural reasons.




I spoke out the other day in favor of Chipotle shareholders who spoke out against what they view as outlandish salaries being paid to top execs there, which prompted one MNB reader to write:

I would be interested in how you think about the same scenario as a baseball fan.  I personally don't have any problem with these guys making the most they can get for their talents any less than I think Ryan Howard or Zack Grienke should be compensated for theirs. The debate, I suppose (in both Chipotle and baseball) would be in how much they actually add value to the organization - often a very grey area.

My gut says their should be a "PC" tolerable high end pay level, but I like that the top management  talent of our country can be that well compensated and that I can look up to the C-suite with the same level of admiration and drive to get there myself as I did when I was a clumsy 11yr old wanting to be the next Joe DiMaggio.

Listen, I have no problem with people making money. I like doing so myself.

But I'm not sure about a CEO or an pitcher making $25 million … though I do think that some context is necessary. If a CEO is making big bucks but is looking to cut costs on the front lines, I sort of have a problem with that. If he or she shares the wealth, less so.

As for a baseball player, I think the economics of the game have gotten way out of whack. Though, frankly, if the Mets paid real money for a star outfielder who could hit 50 home runs a year, I'd probably be willing to overlook it. (I was happy that the Mariners got Robinson Canoe, for example … because I think he'll be good for the time in the long run, and because it had the added benefit of making Yankees fans irritable. That's what I call added value.)