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    Published on: May 27, 2014

    by Kevin Coupe

    At least one of the reasons that Blockbuster Video doesn't exist anymore is that its business model - three day VHS and then DVD rentals, with significant revenue generated by late fees - was disrupted and made obsolete by Netflix, which offers both DVD-rentals-by-mail and streaming services, and Redbox, which has dominated the automated kiosk rental business.

    Redbox grew its business model into one that operates some 40,000 kiosks, in c-stores, supermarkets, fast food joints and assorted other locations. But now, the bloom seems to be off the rose.

    Last year, the Wall Street Journal reports, Redbox installed just 300 new units, down from 7500 new units that were installed in 2012. And last week the company announced that it is uninstalling some 500 kiosks. After helping to transform the movie business, the Journal writes, the company now is managing for efficiency rather than for growth.

    The company's stagnation, the story says, "can be attributed to the fact that there are no more good locations left for Redbox machines. But the company is also contending with the growing popularity of online streaming and more original television programs." Redbox has tried to get into the streaming business, via a joint venture with Verizon, but that business - dubbed Redbox Instant - reportedly has less than one percent of the US on-demand video business.

    It is a great business lesson.

    There's no doubt that Redbox remains - despite its problems - a considerable force in the movie business. After all, it still has 39,500 kiosks … but those kiosks may be viewed increasingly as anachronistic, emblematic of another time … in the same way that Blockbuster gradually, then quickly, became almost completely irrelevant to how people wanted to consume entertainment products. (Especially young people. My 19-year-old daughter observed to me the other day that Redbox rarely seems to have what she wants when she wants it … and that it is far more convenient and efficient to rent via on-demand/streaming services. I'll betcha she isn't the only one who feels that way.)

    How consumers consume - everything - seems to change and evolve with almost every passing day. Retailers and marketers also have to change and evolve if they are going to be relevant to these shoppers.

    Otherwise, obsolescence beckons. Resistance may be futile. And even the disruptors may be disrupted.

    It is an Eye-Opener.
    KC's View:

    Published on: May 27, 2014

    The Associated Press reports that the median pay package for a "typical CEO" hit $10.5 million in 2013, the first time it has gone into eight figures, up 8.8 percent from $9.6 million in 2012.

    According to the story, "Last year was the fourth straight that CEO compensation rose following a decline during the Great Recession. The median CEO pay package climbed more than 50 percent over that stretch. A chief executive now makes about 257 times the average worker's salary, up sharply from 181 times in 2009." And, the story says, "The 8.8 percent increase in total pay that CEOs got last year dwarfed the average raise U.S. workers received. The Bureau of Labor Statistics said average weekly wages for U.S. workers rose 1.3 percent in 2013. At that rate an employee would have to work 257 years to make what a typical S&P 500 CEO makes in a year."

    The story goes on to say that "over the last several years, companies' boards of directors have tweaked executive compensation to answer critics' calls for CEO pay to be more attuned to performance. They've cut back on stock options and cash bonuses, which were criticized for rewarding executives even when a company did poorly. Boards of directors have placed more emphasis on paying CEOs in stock instead of cash and stock options.

    "The change became a boon for CEOs last year because of a surge in stocks that drove the Standard & Poor's 500 index up 30 percent. The stock component of pay packages rose 17 percent to $4.5 million."
    KC's View:
    I have no problem with the concept that people ought to be able to make as much as they can, and I do think that people ought to be rewarded in a way that correlates to performance.

    That said, performance ought not only be measured in how a company's stock does, since there is a big difference between driving short-term stock gains and creating a sustainable and nimble business model.

    I also think that in some ways, the difference between what CEOs make and what rank-and-file workers make reflects a high level of contempt for the value that such workers bring to an enterprise, and a lack of understanding for how important front line workers are in driving effectiveness, efficiency and corporate value.

    I am happy to see shareholders at companies like Chipotle and Staples making their displeasure known at high CEO compensation levels (for, admittedly, very different reasons). But I think that corporate America needs to have a much broader conversation about the value of work at every level in an organization … which is a different issue that "minimum wage" or "living wage." I believe that when people talk about wages, what they really want is to be valued … and surveys like these suggest that for the most part, the only people being valued are the people at the top.

    That's not a sustainable approach.

    Published on: May 27, 2014

    The Associated Press reports this morning that the battle between Amazon and Hachette Book Group has escalated, with Amazon removing pre-order buttons for a number of books written by Hachette authors, such as Michael Connelly's "The Burning Room" and JK Rowling's "The Silkworm" (which she wrote under the pen name Robert Galbraith). Amazon previously had been slowing down delivery of Hachette books, saying that they would not be available for several weeks.

    The battle seems to be over terms for e-book prices, as Amazon looks to press its advantage as the dominant book retailer in the country while simultaneously looks to grow its profits, which have been anemic as it has invested in numerous technology and distribution projects.

    While Amazon has not commented on the contretemps, Hachette has said that it is doing everything it can to resolve the situation in a way "that preserves our ability to survive and thrive as a strong and author-centric publishing company," and has said that it was "sparing no effort and exploring all options."

    The New York Times reports that Amazon "is using some of the same tactics against the Bonnier Media Group in Germany."

    One possibility is legal action: the Times reports that the Authors Guild has accused Amazon of abusing its market power and violating the Sherman Antitrust Act. And several authors have suggested that Amazon is committing what amounts to extortion.

    And, the Times writes, "Other books currently being delayed or otherwise disrupted include Tina Fey's 'Bossypants,' Gladwell's 'The Tipping Point' and Brad Stone's 'The Everything Store,' a critical portrait of Amazon and founder Jeff Bezos."

    The Bookseller reports that Hachette CEO Michael Pietsch has sent a letter to the company's authors, saying that it is “extremely encouraging to see our retail partners – thousands of chain, online and independent bookstores – showing their support for HBG and our authors …. I know this is not a comfortable situation for most of you, and I appreciate your support and the many messages I’ve received."
    KC's View:
    There is no doubt in my mind that what Amazon is doing - putting pressure on a supplier for better prices - is similar to what a lot of companies do. In this space, to be honest, I've lauded companies such as Costco and Stew Leonard's for not carrying certain products and putting up signs saying that the reason for their absence was because the manufacturer would not sell them at terms that they thought were acceptable … and until the terms changed, those products no longer would be available in those stores. I think that sent a powerful message, both to manufacturers and to shoppers.

    The problem, of course, is that Amazon has staked out a position saying that its goal "is not to sell things," but rather " to make it easier for people to buy things." That statement and the company's current actions don't seem to be in synch. Amazon is supposed to be different, and now we're learning that maybe it isn't.

    If I were one of Amazon's competitors, such as Walmart or Barnes & Noble, I'd be doing a full-court press right now, with big ads saying that while you can't get Michael Connelly's "The Burning Room" from Amazon, you can get it from them … and I'd offer a really hot price. This is a moment when you can change consumer behavior a bit.

    It so happens that I placed a pre-order for "The Burning Room" (a physical copy!) on May 17, before all this stuff started, at which point Amazon promised me that I would get it on the publication date, which is November 3. I'm sure all this nonsense will be ironed out by then, but I'm curious if Amazon actually is reneging on promises it made to other pre-order customers because of its conflict with Hachette. In my view, that would be unacceptable.

    Published on: May 27, 2014

    The Toronto Star reports that Walmart Canada is eliminating 750 jobs, which it describes as "less than one percent of our Canadian workforce," which is part of a restructuring move which has had "approximately 1,300 associates … promoted to more senior positions." In addition, "approximately 200 new store management roles have been added."

    “We tested this new management structure in select stores across Canada over the past six months and have received positive feedback from both our customers and associates," says Walmart spokesperson Alex Roberton. "The new management structure makes more of our associates available during peak shopping periods when our customers need us the most, and gives our associates greater access to their managers for their ongoing career development."

    Roberton went on to say that Walmart Canada "will create 7,500 new jobs in Canada this year alone including trade and construction jobs."

    The Globe and Mail notes that Walmart Canada "had 389 stores and more than 95,000 associates as of March."
    KC's View:
    Funny how sometimes one's view of such initiatives is influenced by knowledge of the people involved. Since I know Shelley Broader, and I know what a premium she traditionally has placed on engaged and motivated employees in past roles, I tend to believe that this is what she's going for in her role as president/CEO of Walmart Canada.

    Published on: May 27, 2014

    Yahoo! News has an interesting column, by Adam Toporek, a customer experience expert, about the power of anticipatory customer service. He cites as an example how, after having paid $8 for WiFi service on a Southwest Airlines flight from Chicago to San Diego, he discovered that the WiFi wasn't working.

    "The situation made me think of one of the core concepts we discuss here on the blog and in our workshops about the hassle factor and the idea of customer effort. This situation is a perfect example of how small hassles can affect the customer experience.

    "After seeing the charge, I added 'call Southwest for a refund' to my To Do list. The charge was so small, however, that it never made it to the top of the list. The situation was mildly annoying, but more important matters always got placed on top of it."

    But then, he got an email from Southwest informing him that the $8 charge had been reversed, and Toporek writes that "the proactive systems that Southwest must have in place to flag bad WiFi on a flight, know who paid for it, and to process their refund are extremely impressive."

    Toporek writes that "by following up after the fact, Southwest was able to resolve a small issue without any extra effort on my part … The takeaway for all customer experience professionals is how important proactive service recovery can be around small things."
    KC's View:

    Published on: May 27, 2014

    Columbus Business First has a piece about Leslie Wexner, CEO of L Brands (which owns Victoria’s Secret and Bath & Body Works), telling attendees at the company's annual meeting that he does not obsess over competition from the Internet, saying that "humans are pack animals. People still want to get together. They want a social experience.”

    According to the story, Wexner "pointed to restaurants, movies and sporting events, alongside shopping, as social pastimes that continue to serve important roles to the public, provided those stores and eateries and attractions continue to give the public a reason to come out.

    "Sure, the Internet has turned some products into commodities – Wexner cited cameras and cars – but when it comes to Victoria’s Secret, customers still want to touch the fabric and at Bath & Body Works, shoppers still want to smell the soap. That’s a physical and social experience that still has value."
    KC's View:
    I don't disagree with this … the key phrase is "provided those stores and eateries and attractions continue to give the public a reason to come out."

    If you don't do that, of course, you have no reason to complain and no reason to survive.

    Published on: May 27, 2014

    The Wall Street Journal reports that pink slime - also known as finely textured beef, used by processors as a filler in ground beef - is making a comeback.

    As the story notes, "Sales of the ingredient—processed from beef scraps left after cattle are butchered—collapsed in 2012 after a social-media frenzy spurred by television reports raising questions about its legitimacy as a beef product. The ingredient's two largest producers, Beef Products Inc. and Cargill Inc., closed plants that made it and cut hundreds of jobs—while defending the product's quality and pointing out that the U.S. Department of Agriculture deems it safe.

    "Today, Cargill sells finely textured beef to about 400 retail, food-service and food-processing customers, more than before the 2012 controversy, though overall they now buy smaller amounts, company officials said. Production of finely textured beef at Beef Products has doubled from its low point."

    There appears to be one simple reason for the comeback: prices. The story notes that "prolonged drought in the southern Great Plains has shrunk U.S. cattle supplies to historic lows. The retail price of ground beef soared 27% in the two years through April to a record $3.808 a pound, according to the U.S. Bureau of Labor Statistics." And pink slime is seen as one way of keeping prices relatively manageable.
    KC's View:
    For me, this was never about whether pink slime (a name that meat processors must hate) was safe. It was about lack of transparency, and a deaf ear to what consumers demand in terms of full disclosure.

    Published on: May 27, 2014

    • The Wall Street Journal reports that "Wal-Mart Stores Inc. needs a more independent board in order to improve directors' handling of a protracted foreign-bribery probe and executive pay, a prominent proxy adviser said.

    "ISS said investors should oppose the re-election of Wal-Mart's chairman, S. Robson Walton … ISS also said it is troubled by a string of adjustments to pay targets and plans that together have the effect of insulating executives' pay somewhat from the consequences of Wal-Mart's declining performance."

    The story notes that "Institutional Shareholder Services Inc., which advises big shareholders like mutual funds how to vote on corporate ballots, is concerned the company hasn't disclosed which, if any, of its executives might be found culpable in an investigation into alleged bribery overseas."

    The story also notes that the "recommendations are unlikely to have much practical effect given the Walton family's control over the company."
    KC's View:

    Published on: May 27, 2014

    • The Associated Press reports that "Visa and MasterCard are renewing a push to speed the adoption of microchips into U.S. credit and debit cards in the wake of recent high-profile data breaches, including this week’s revelation that hackers stole consumer data from eBay’s computer systems.

    "Card processing companies argue that a move away from the black magnetic strips on the backs of credit cards would eliminate a substantial amount of U.S. credit card fraud. They say it’s time to offer U.S. consumers the greater protections microchips provide by joining Canada, Mexico and most of Western Europe in using cards with the more advanced technology … Chip cards are safer, argue supporters, because unlike magnetic strip cards that transfer a credit card number when they are swiped at a point-of-sale terminal, chip cards use a one-time code that moves between the chip and the retailer’s register. The result is a transfer of data that is useless to anyone except the parties involved. Chip cards, say experts, are also nearly impossible to copy."

    • The Associated Press reports that PetSmart has joined its rival Petco in announcing that it "will stop selling dog and cat treats made in China because of ongoing fears that they are making pets sick."

    • United Natural Foods said last week that it plans to buy Tony's Fine Foods for about $195.3 million. The story notes that United Natural Foods distributes natural, organic and specialty foods throughout the country, while Tony's Fine Foods distributes deli staples and other products such as sliced salami, fresh beef and Italian cookies.
    KC's View:

    Published on: May 27, 2014

    Last week, MNB reported that Walmart will host its first "Made in the USA" event for suppliers on July 8, in Bentonville, Arkansas, and noted that the company has committed to spending "an additional $250 million on US-made products in the coming decade."

    This was a mistake. In fact, Walmart has committed to spending $250 billion. The exact commitment, as stated on Walmart's website, is as follows:

    "In January 2013, Walmart announced it will buy an additional $50 billion in U.S. products in 10 years in an effort to grow U.S. manufacturing and encourage the creation of U.S. jobs.

    "When you add up what we spend each year, our pledge is to buy an additional $250 billion in American products."

    Mea culpa, mea culpa, mea maxima culpa.
    KC's View:

    Published on: May 27, 2014

    We had a piece last week about a list of the nation's supposed favorite supermarkets, which led MNB user Lisa Malmarowski to write:

    And quietly, food cooperatives continue to open amid much fan fare in their local communities. But alas, since they are not a multi-national business enterprise, they never make these lists.

    Don't get me wrong, I'm not crying foul here or poor little us, it's just, like any survey, so slanted. 

    Just opened our 4th store location in greater Milwaukee and we're surpassing our sales projections by 50%. Our opening days were so busy we had to direct traffic. The local community was so excited. I watched 2 women come in to shop together, stop, look around and squeal then hug each other and say, "Oh my god THIS IS SO EXCITING!".

    This is going on across our country, quietly - stores that are owned by the community, keeping money and jobs local. This is the story that seldom gets talked about. And people are really, really excited about it.

    Well, we're talking about it here. I just wish I had a food cooperative somewhere near me where I could shop.

    Responding to our story about Walmart's Made-in-America efforts, MNB reader Bob Vereen wrote:

    At this year's National Hardware Show, held in early May in Las Vegas, a section was devoted to Made in America and was very active.   It is the second or third time such a section has been created, and it was much bigger and more active this year.

    And, I think, it will continue to grow and thrive.

    I wanted to circle back on a note that I got from a reader about our story saying that Portland, Oregon, was divesting itself of Walmart stock as a way of protesting the company's labor and business ethics:

    Portland holds Walmart bonds – not stocks. And their bond rating (Morningstar 05/19/14) is AA – hardly “junk”.

    The investment decisions are made by the government of Portland and this decision reflects the opinions of its commissioners – not necessarily its citizens. That may or not be the case and I certainly don’t know – but I’m just sayin’…

    Fair points.

    Finally, one reader wrote in about our reference last week to a story about The Shawshank Redemption, saying that movie's enduring popularity speaks to the changing economics of the movie industry…

    Great article about an awesome movie!!

    You should do a top five movie poll amongst your readers….I will start:

    The Godfather, The Godfather, Part II, Pulp Fiction, The Shawshank Redemption, and Monty Python and the Holy Grail, with an honorable mention to Big Night.

    If folks want to weigh in on their five favorite movies in the same way that they weighed in on their favorite hamburger joints, I'm happy to facilitate that conversation. (Though we need to be clear if we're discussing "favorite movies" or "best movies.," which can be very different. I'm guessing from your list that we're talking "favorites"…)
    KC's View: