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    Published on: August 18, 2014

    by Kevin Coupe

    Over the past year or so, I've been pretty critical of JC Penney. Even when the company went into a precipitous sales-and-profit decline under the stewardship of former Apple Store guru Ron Johnson and then turned control back over to Mike Ullman, the CEO who was replaced by Johnson, I felt that there was a lack of vision, strategy and that the company's seemingly complete reliance on promotions and discounts to get people into its stores was misguided. (I thought Johnson's goals were right, even if him implementation was, well, awful.)

    So imagine my surprise when reading stories like this one in Fortune, saying that JC Penney "reported on Thursday that comparable sales rose 6% last quarter, beating Wall Street expectations. The results show that its strategy of going back to a heavy roster of promotional events and bringing back and expanding its own in-house brands is working to help it win back shoppers."

    The story goes on to say that "Perhaps more important, the company, which a year ago was facing a severe cash crunch, said it expects its business to generate more cash than it believed it would earlier this year. Penney now expects to generate positive cash flow, rather than breaking even as per its earlier forecast, and it now expects to the end the fiscal year that concludes in early February, with $2.1 billion in cash, rather than $2 billion. During the quarter, it generated $76 million more in cash than it used, helping it build its cushion."

    Furthermore: "Things have improved since Ullman gave even more floor space to popular house brands that Johnson had dumped, such as St. John’s Bay and reverted to Penney’s promotional tactics. Penney also ditched brands such as Joe Fresh and Michael Graves that failed to catch on with shoppers but which had been the centerpiece of Johnson’s strategy. Penney is done clearing out all that unsold Johnson-ordered merchandise and, with that merchandise now a distant memory, Penney’s gross margin rose 6.4 percentage points to 36% of sales, getting close to the 39% level the retailer used to hit regularly."

    So, was I wrong?


    Certainly the numbers were Eye-Opening.

    But let's be clear. JC Penney's sales remain lower than they were even before Johnson got there, though it certainly can be argued that the company lost so much ground under his stewardship that it will take a long time to get back to where it was.

    Also, the board is not so enamored with Ullman that it is keeping him on indefinitely. The company is conducting a search for a successor, and in fact tried to woo Brian Cornell, the former Pepsi-Walmart-Michaels-Safeway executive, who decided instead to become CEO of Target because he though JC Penney offered limited upside. (And that's putting it kindly.)

    JC Penney's recent history is one of offering hundreds of promotions a year, sometimes with as many as two emails a day going out to customers. That may be working now - especially at a time when we can see that value-driven formats such as dollar stores and limited assortment stores are doing well - but the question is whether it is a long-term and sustainable strategy.

    Look, there's no debating that JC Penney is having something of a turnaround. To be fair, considering all my criticisms, I though it was important to point that out.

    But I remain unconvinced that the company has a real, differentiated and sustainable view of how it thrives long-term. I see JC Penney, and I think EJ Korvette.

    But maybe that's just me.
    KC's View:

    Published on: August 18, 2014

    The New York Times this morning reports this morning that Dollar General has made an $8.9 billion bid to acquire Family Dollar, a bid that is significantly higher than the $8.5 billion offered for Family Dollar by Dollar Tree.

    According to the story, "The emergence of the unsolicited takeover bid promises a potential clash over the fate of Family Dollar, which has been under pressure from activist investors both outside and inside its boardroom."

    The Times reports that Dollar General, the nation's largest dollar store chain, expects to realize between $550 million and $600 million, and is willing to close or sell as many as 700 stores to satisfy antitrust concerns. Still, if its bid is successful, Dollar General would end up with close to 20,000 stores in 46 states and something like $28 billion in annual revenue.

    The Times reports that "Rich Dreiling, Dollar General’s chairman and chief executive — who had disclosed plans to step down earlier this year — would instead stay on board and hold both roles at the combined company through 2016," if the bid is successful.
    KC's View:
    There are a few possible scenarios here. One is that Dollar General gets Family Dollar, and becomes bigger and more powerful in the segment. Another is that this competing bid just drives up the cost of an eventual acquisition by Dollar Tree, making it more difficult to make the transaction financially viable.

    Or, maybe someone else gets into the act…a bigger company, perhaps, that could use such an acquisition as a game-changer that could jump-start its sales and small-store strategy?

    Just ruminating, here…

    Published on: August 18, 2014

    Supervalu said last week that it "experienced a criminal intrusion into the portion of its computer network that processes payment card transactions for some of its retail food stores, including some of its associated stand-alone liquor stores. This criminal intrusion may have resulted in the theft of account numbers, and in some cases also the expiration date, other numerical information and/or the cardholder’s name, from payment cards used at some point of sale systems at some of the Company’s owned and franchised stores. "

    Supervalu went on to say that it "has not determined that any such cardholder data was in fact stolen by the intruder, and it has no evidence of any misuse of any such data, but is making this announcement out of an abundance of caution."

    Law enforcement agencies have been consulted and are investigating.

    Supervalu said that it believes the hacking took place between June 22 and July 17 and affected stores that include those operated under the Cub Foods, Farm Fresh, Hornbacher’s, Shop ’n Save and Shoppers Food & Pharmacy banners.

    In addition, some stores owned and operated by Albertson’s LLC and New Albertson’s - including Albertsons stores in Southern California, Idaho, Montana, North Dakota, Nevada, Oregon, Washington, Wyoming and Southern Utah, Acme Markets in Pennsylvania, Maryland, Delaware and New Jersey, Jewel-Osco stores in Iowa, Illinois and Indiana, and Shaw's and Star Markets stores in Maine, Massachusetts, Vermont, New Hampshire and Rhode Island - have been affected by the hacking.

    Albertsons notes that these stores use Supervalu as their "third party IT services provider," though in its statement, Supervalu says that it "believes that any losses incurred by Albertson’s LLC or New Albertson’s, Inc. as a result of the intrusion affecting their stores would not be Supervalu's responsibility."

    The Supervalu breach is similar to a number of other high-profile data hacking incidents that have taken place in recent months, including the Target Corp. breach that put tens of millions of payment hard numbers at risk.
    KC's View:
    If one of the goals of the people/countries doing the hacking is to make the American consumer paranoid, it may be working … I can't even pump gas these days without worrying about card security.

    Published on: August 18, 2014

    The Wall Street Journal reports this morning that the gun control group Moms Demand Action for Gun Sense in America, which is funded by former New York Mayor Michael Bloomberg, will begin pressuring Kroger Co. this week to create a policy that bans individuals from openly carrying weapons in its stores.

    "When a company like Kroger doesn't have a policy around guns, it seems to send a signal to gun extremists that they tacitly support or even endorse things like open carry," Shannon Watts, founder of Moms Demand Action, tells the Journal.

    A Kroger spokesperson, however, said that it is enough for stores to simply abide by state and local gun laws. "Millions of customers are present in our busy grocery stores every day and we don't want to put our associates in a position of having to confront a customer who is legally carrying a gun," Keith Dailey tells the Journal. "We know that our customers are passionate on both sides of this issue and we trust them to be responsible in our stores."

    The story notes that "gun-rights advocates have pressed open-carry by legally carrying long arms such as rifles in public places to highlight restrictions on carrying handguns, arguing visible guns in public deter crime. State and local laws govern the right to carry guns in the open. Several states ban the open carrying of handguns, and some require a permit, while a number of states allow it."

    Bloomberg-supported groups have had some success getting major retailers - including Target and Starbucks - to ask customers not to openly carry weapons into their stores, though they have been less successful trying to change laws and backing pro-gun control political candidates, the Journal reports.
    KC's View:
    I always try to be careful when commenting on this issue. I tend to be pro-gun control, but I recognize that my point of reference is limited, since I do not come from a gun culture, and I think the Second Amendment deserves as much respect as the First Amendment. I do wish that the absolutists on both sides of the issue could show a little more willingness to compromise; I'd feel safer. (And I hate it when pro-gun advocates push the envelope on what they can carry into stores, just to make a point. "Discretion" is apparently a word not in some people's vocabularies.)

    That said … I don't think that it is fair to criticize a company like Kroger for following local and state laws. If you can get the laws changed, fine. If not, asking a company to alienate a portion of its clientele doesn't make sense. We need a common sense, national consensus on this issue, no a piecemeal approach.

    Published on: August 18, 2014

    Business Insider is out with a report about what it is calling "reverse showrooming" or "webrooming," which is the opposite of "showrooming" and seems to be catching on with an increasing number of consumers.

    "Reverse showrooming," the story says, "is when consumers go online to research products, but then head to a bricks-and-mortar store to complete their purchase. As opposed to "showrooming," which is when consumers go to a bricks-and-mortar store to see an item, and then order it online.

    According to the report, "Showrooming was once seen as an existential threat to bricks-and-mortar retailers, but it turns out the reverse dynamic is more popular. Reverse showrooming is actually more common than showrooming. In the U.S., 69% of people reverse showroom, while 46% showroom, according to a Harris poll.

    "And showrooming isn't the territory of the young, as many might assume. In fact, the data shows that millennials too prefer to reverse showroom.  For electronics, shoes, sports equipment and cosmetics, more millennials say they prefer to reverse showroom, rather than research in store and then buy online."

    The report goes on: "New initiatives for the connected in-store experience keep popping up: tablets and mobile phones used as register systems, robotic arms that deliver clothing into dressing rooms, and beacon hardware, which powers in-store maps and automatic hands-free payments.

    "The key rationale behind all these changes: retailers are beginning to think of themselves less as purveyors of goods, and more as all-around consumer resources.
    KC's View:
    Bingo! Though I must point out, with some small measure of shameless self-promotion, that I've been writing for years that retailers need to be more than just a source of product and must become a resource for the consumer. (I didn't even do a study. I just used common sense.)

    The thing this, this stuff goes both ways. There's not one way of shopping anymore. There are multiple ways, and different people do different things every day for different reasons … and the savvy 21st century retailer has to be prepared for all of them.

    Published on: August 18, 2014

    Basket grocery chain, Governor Deval Patrick and Governor Maggie Hassan of New Hampshire brokered negotiations Sunday night aimed at ending the bitter family standoff that has left the 71-store chain on the brink of collapse and put thousands of people out of work.

    "After several hours of discussion, a deal remained elusive but the talks were said to be promising, and continued into the night. Arthur T. Demoulas is trying to buy the company from rival family members and return as president … The negotiations included the two feuding cousins at the center of the dispute, Arthur T. and Arthur S. Demoulas, as well as board chairman Keith Cowan, and Tina Albright, representing one of the shareholders, according to the statement. Neither Arthur S. nor Arthur T. offered a comment on the status of the negotiations."

    The negotiations were said to have made "real progress," and that some sort of resolution seemed to be "within reach." The Globe reports that a Market Basket "board meeting was scheduled to be convened on Monday in Boston, as the company faces a shrinking set of options for continuing to operate. It has lost tens of millions of dollars in recent weeks due to an employee walkout and customer boycott, and it is unclear how much longer it can keep stores open."

    Gov. Patrick has helped to broker the negotiations despite the fact that his wife is a partner in the law firm representing independent board members, who have been seen as more sympathetic to Arthur S. Demoulas.
    KC's View:
    ast Saturday there was a customer-oriented, pro-Arthur T. Demoulas rally at one of the company's stores, which just shows you how far out of hand this thing has gotten.

    It doesn't matter which side you think has the best argument right now. Market Basket, if it is going to continue being a sustainable retailing entity, has to get thing resolved … and I think the only thing that keeps the company viable is to sell it to Arthur T. Demoulas. I can't imagine that it makes sense for the Arthur S. Demoulas side of the family to keep it, and selling it to Ahold or Delhaize, two of the rumored interested suitors, doesn't make sense either. The currents are too strong in one direction to resist … there's only one viable option, so they ought to just get it done, and get back to business.

    Last ditch negotiations? The parties involved have to worry that the company already is in a ditch from which there is no return.

    Published on: August 18, 2014

    • The Wall Street Journal reports that as it tries to offer improved customer service, Walmart "is promising to staff each of its cash register from the day after Thanksgiving through the days just before Christmas during peak shopping times. The move, called the 'checkout promise,' is aimed at addressing one of the retailer's biggest customer complaints: long waits in checkout lines, which can cause even more frustration when positions aren't fully staffed. The pledge will cover hours typically on weekend afternoons but which can vary by store."
    KC's View:
    Not to be overly cynical about this, but what does it mean when a company needs an "initiative" and/or a "promise" to do what a competent retailer should have been doing all along?

    Published on: August 18, 2014

    Law360 reports that "a New Jersey federal judge on Wednesday signed off on a $9 million class action settlement resolving securities claims that senior executives at The Great Atlantic & Pacific Tea Co. Inc. failed to disclose the grocery chain's financial problems shortly before it went into bankruptcy … Shareholders filed the lawsuit in 2011 alleging that A&P officers disseminated false and misleading statements that deceived investors about the condition of A&P's business, artificially inflated the company's stock price and enabled A&P to sell more than $430 million in debt on more favorable terms."

    Advertising Age reports that Taco Bell is going national with its $1 "Cravings menu," which "includes11 items, including Beefy Fritos Burrito, Beefy Mini Quesadilla, Spicy Potato Soft Taco and a Caramel Apple Empanada."

    The story says that "the company began testing the dollar menu last year when it was trying to find a way to replace its then-current value menu called 'Why Pay More.' That menu included items originally priced at 79 cents, 89 cents and 99 cents, though those prices increased to well north of a dollar over time.
    KC's View:

    Published on: August 18, 2014

    • The Bellingham Herald reports that John Clougher, formerly CEO of Andronico's Community Markets and Northwest regional president for Whole Foods Markets, has been named the CEO of Haggen Inc.

    According to the story, "Clougher replaces the Office of the Presidents position, which was comprised of Clement Stevens, John Turley and Ron Stevens," which has been in place since 2012, at which point thew search for a new CEO was launched. "Clement Stevens and Turley remain with the company as senior vice presidents, while Ron Stevens, who was the company's chief financial officer, left the company a few months ago. Blake Barnett replaced him as CFO."

    Retail Week reports that Tesco "has hired former Amazon and Apple executive Allan Lyall as customer fulfillment director,responsible for overseeing "delivery to customers, click and collect, dotcom centres and its general merchandise distribution centre."

    The story notes that "Lyall had direct responsibility for 21 Amazon fulfillment centres – over 13 million sq. ft – across five countries. Prior to Amazon, Lyall spent six years as director of fulfillment for Apple, based in Paris."
    KC's View:

    Published on: August 18, 2014

    …will return.
    KC's View:

    Published on: August 18, 2014

    Let's hear it for Mo'ne Davis, 13, who last Friday threw a complete game 4-0 shutout for Philadelphia's Taney Dragons against South Nashville (Tenn.) in the annual Little League World Series. Davis struck out eight, allowed just two hits and gave up no walks, threw a 70 MPH fastball, and took to the mound - and even post-game interviews - with a calm, businesslike demeanor that was both efficient and effective. (Business metaphor alert!)

    One other thing. Mo'ne Davis is a girl. She is one of 18 female players in Little League World Series history, one of two who made it to this year's tournament, and this was the first shutout ever thrown by a female player in the LLWS.
    KC's View:
    In a summer of generally crappy news, it is nice to have a feel-good story in the headlines.

    My favorite picture from over the weekend was that of a girl perched on her father's shoulders, watching the game and holding a sign: "I want to throw like a girl."

    Me, too.