business news in context, analysis with attitude

Published on: February 23, 2015

by Kevin Coupe

The Wall Street Journal over the weekend had an interview with former GE CEO Jack Welch and his wife, journalist Suzy Welch, who are coming out with a new book, “The Real-Life M.B.A."

In the book, the story says, "the Welches offer their view of how the Internet has changed leadership...

“Now everybody knows everything,” says Mr. Welch. “So you’re not going into a situation where the boss has three more facts - everybody has the same facts.”

And, Mrs. Welch adds, traditional competitive boundaries no longer apply - everybody competes with everybody: “You used to be competing in your own industry, but now it’s so amorphous. You could be in the TV business, but now games also compete with you.”

At the same time, this morning's has an interview Time Inc. CEO Joe Ripp about how digital competition is transforming the magazine business - enough so that he no longer refers to Time as a magazine company.

"We’ve got a legacy business that is shrinking and it’s going to continue to shrink," he tells the Journal. "Go to any airport right now. There are fewer magazines being displayed. People are engaged with their iPhones; they aren’t reading magazines the way they used to. And when they are on the plane now they have Wi-Fi on board, so they’re doing their emails.

"They aren’t reading less of our content, however. If they are interested in celebrities they are still getting celebrity news; if they are interested in cooking they are still getting cooking information. They are just consuming it in different places. So we’ve been looking at all of our properties, at our websites, our mobile platforms, and saying, how can we help our audiences engage with us in the way they want? Digital video is a key component, and you’re seeing a lot more from us."

I think these two Journal stories made an important point about the nature of competition ... and it applies to pretty much everyone in every business. There is no such thing as traditional boundaries, and no such thing as traditional competition.

It is an Eye-Opener.

Published on: February 23, 2015

Reuters reports that a terrorist threat against malls and shopping centers - specifically the Mall of America, the West Edmonton Mall in Canada, London's Oxford Street and sites in Paris - prompted Homeland Security Secretary Jeh Johnson to caution shoppers to "be careful." However, the Department of Homeland Security said it did not know of any specific plots against shopping malls, and outside security experts said it seemed unlikely that the threats were credible.

The threats originally were attributed to a video released by al Shabaab, described as a Somali-based Islamist militant group.

"This latest statement from al Shabaab reflects the new phase we've evolved to in the global terrorist threat, in that you have groups such as al Shabaab and ISIL publicly calling for independent actors in their homelands to carry out attacks," Johnson told CNN, using an acronym for the Islamic State.

Published on: February 23, 2015

The Wall Street Journal reports that the US Food and Drug Administration (FDA) is "clearing the first direct-to-consumer genetic test for disease risk ... signaling that it will allow a wide range of such products onto the U.S. market without agency review."

The FDA specifically is allowing 23andMe "to sell a test that consumers can use to find out whether they carry a gene variant for Bloom syndrome, a rare disease leading to stunted growth and cancer risk in their children."

The FDA decision, the story says, "is creating an easier path to market for other direct-to-consumer genetic tests, possibly including ones like Tay-Sachs disease, cystic fibrosis and sickle-cell anemia. These are higher-risk among certain ethnic populations, and members of those groups may decide to get themselves widely tested ... The decision was a surprising one for an agency that has signaled it will carefully scrutinize certain diagnostic and other disease tests produced at laboratories and hospitals, citing risks that an inaccurate reading will lead patients to make ill-advised health decisions."

Published on: February 23, 2015

In Minnesota, the Star Tribune reports that as Target opens TargetExpress stores, the evidence suggests that the goal is to customize them as much as possible to local neighborhoods.

"The first TargetExpress opened in Dinkytown last summer," the story says. "Given its proximity to the University of Minnesota, it is catered to college students living in apartments and on a budget. So you don't find things like kids' toys there. But the Highland Park store is in a neighborhood with lots of families. So that store will not only have toys but also items like kids' sporting goods and supplies for a child's birthday party. And it will have more home decor and kitchen accessories as well as a sizable selection of natural and organic products, said Erika Winkels, a Target spokeswoman."

The Star Tribune goes on to say that "these smaller-format stores are of particular interest to Target CEO Brian Cornell who is looking to them to help fuel Target's future growth. He has also said that personalization and localization of stores will be a big part of his strategy."

Published on: February 23, 2015

TechCrunch reports that Best Buy has begun offering click-and-collect service at some of its San Francisco Bay Area stores, using the shopping app Curbside to allow users to "shop from their phones then pick up their purchases ... without getting out of their cars."

The story notes that Curbside launched last fall by partnering with Target in the Bay Area and the Westfield Oakridge Shopping Center in San Jose. The expansion to Best Buy remains part of its pilot testing, but the story says that "early data indicates the service is resonating with consumers. Over 55% of those who have shopped on Curbside have made a repeat purchase, and the company is now handling hundreds of orders daily."

The story notes that Best Buy "already offers an in-store pickup option of its own," but that with the Curbside service, "shoppers may choose to purchase more high-end items – things they’ve researched online and are ready to now purchase. And dropping by the store to pick them up immediately is a form of instant gratification that traditional e-commerce doesn’t offer. It also saves on delivery charges and fees associated with many of the same-day shopping services."

Published on: February 23, 2015

The New York Times has a piece about how Whole Foods' attempt to stifle a shareholder proposal to nominate directors has created a backlash against the company - enough so that management decided to postpone its annual meeting so it could decide how to proceed. The Times describes Whole Foods efforts as "ham-handed," suggesting that it was a "perfectly reasonable proposal."

The story suggests that Whole Foods' desire to establish five percent as the threshold for ownership if shareholders are to make proposals is being seen as "cynical."

KC's View: To some of us, this all seems like an complicated, inside-baseball argument ... and if you want to read more about it, click here.

But I think there is a larger issue to think about here ... and that is the desire, at least in some circles, for greater participation in how companies are run and the decisions that management makes. Somehow, it seems ironic that Whole Foods, of all companies, is accused of stifling shareholder participation ... somehow, it seems out of character, or at least what we might imagine its corporate character to be.

I'm not smart enough about such things to judge whether three percent or five percent ought to be enough to get a proposal on the corporate ballot. My sense of things, though, is that there is no threshold for democracy .... and I wonder if, at some level, that is what these shareholders are looking for.

Published on: February 23, 2015

CNBC reports that Walmart plans to adjust its human resources policies so that full-time employees can "use their sick days as soon as they get ill ... As of now, U.S. workers do not receive paid sick time until the second day they're out sick. Employees must use their personal days in order to be compensated on the first day out ill."

The announcement was made as Walmart also makes plans to give some 500,000 employees a raise to at least $9 per hour.

Published on: February 23, 2015

WhiskeyReviewer reports that bourbon manufacturer Jim Beam is being sued, with the plaintiffs saying that the company is being deceptive when it claims its bourbon is "handcrafted" because "the whiskey is made through largely automated procedures."

According to the story, "A similar lawsuit was filed against Maker’s Mark last year, also alleging that the 'handcrafted' claim, among others, made by the company on its label was false because of automation in the production process. Jim Beam and Maker’s Mark are both owned by Beam Suntory, and both the Beam and Maker’s Mark lawsuits were filed in California by Kazerouni and Hyde & Swigert.

"Beyond the two California lawsuits aimed at brands within the same parent company and pursued by the same lawyers, similar lawsuits have been filed against Templeton Rye, a controversial whiskey bottler often at the center of deceptive whiskey complaints, and whiskey bottler Angel’s Envy."

Published on: February 23, 2015

• Advertising Age reports that Hershey Co. plans to dedicate 40 percent of its digital spending to mobile platforms. The boost, described by Ad Age as "significant," will "put the marketer's digital spend at about 20% of all media spending," according to a presentation by Michelle Buck, the company's president for North America, to the Consumer Analyst Group.

Published on: February 23, 2015

• Published reports say that Procter & Gamble plans to sell or spin off as many as 100 of its brands, reducing its portfolio to 65 brands by summer 2015. At this point, reports say, it already has made deals to divest 35 of those extraneous brands.

The company has said that these divestitures will likely result in a 14 percent sales decline, but that focusing on 65 core brands will allow it to build margins and profitability.


• USA Today reports that "retirees are keeping fewer foods in their kitchens than folks their age did a decade ago," a new study from NPD Group says.

"People ages 65 and older have an average of 221 food items in their pantries, refrigerators and freezers," the story says.That's down from 244 in 2005, according to a survey of all the foods and beverage on hand in 2,900 households ... By comparison, people ages 25 to 34 have an average of 188 food items, a number that has remained about the same over the past few years."

In part, this may be the economy kicking in - people have less disposable income at any given time, so they're buying less. They also are not products of the Depression, so they don't feel compelled to have lots of food on hand. In addition, the story says, "retirees are eating out more. Those over the age of 65 bought an average of 193 meals each at restaurants last year, up from 171 in 2009."


• Reuters has a story saying that "McDonald's Corp and its franchisees may have few options but to begin raising hourly wages as an improving U.S. economy creates competition for good workers and as mega-employer Wal-Mart Stores Inc sets a higher bar on pay, according to labor experts."

Of course, the story also points out that this may be hard to do because McDonald's, especially, is in a period of stagnant sales, which means it can't or won't raise prices to cover increased labor costs. In addition, McDonald's says, it can't set wages for franchises, which represent roughly 90 percent of its US store fleet.

Published on: February 23, 2015

• Ahold USA announced that Tonya Herring, formerly a 23-year veteran of Safeway, has been appointed as senior vice president, non-perishable merchandising, based in Carlisle, PA.

Published on: February 23, 2015

Got some email regarding Walmart's announcement that it is going to be giving 500,000 employees raises to at least $9 per hour.

MNB reader Jim Swoboda wrote:

First time in a long time I have found myself saying “way to go Walmart”  I have thought for years, the best way to win is at that point when you are in front of your customer.  Costco figured it out long ago.

From another reader:

Look…I am no fan of Walmart. I never, ever, shop there. In my opinion they arrive in a town and drive out many of the small & local businesses that have the misfortune to be in close proximity. For the most part, I feel that WM is a company that has, for years, taken advantage of the lower income folks that work (and shop) there.

But this is a game-changer and they deserve credit for taking this approach. Not sure what the cost will be to implement the new wage levels & employee raises, but I’m pretty sure it’s enough to debunk the stunt or “gimmick”  theory.

It may be that they expect to see a return on their investment, as well. Much of that additional income is likely to be spent right back at the store where they work.

And another:

Couldn’t help but see parallels between Walmart’s hiring and remuneration practices and that of N Korea, shipping off citizens to serve as indentured servants in foreign countries where they have virtually all of their salary taken by the state and sent back to N Korea as much-needed foreign capital. There for years sometimes, they come home with no more than 10% of what was promised.
 
How does this parallel Walmart?  Despite raising wages to $10 per hour, they still keep workers dangling with respect to the number of hours they are assigned. So work fewer than 40 hours – say 28 or even 20 and you starve.  You cannot take on another job to fill those hours, because any other likely employer expects her (or him) to have the “flexibility” to conform to their needs. 
 
How about Walmart just guarantees their workers a minimum of 40 hours per week, thus giving them a fighting chance of surviving?

Here's how I think we ought to evaluate the success of the Walmart raises.

Six months from now, let's see how many of those 500,000 employees have been able to quit their second jobs, because they've gotten more hours and higher pay from Walmart. To me, that'll be the difference between a policy with teeth and one that is mostly cosmetic.




On another subject, MNB reader Chris Utz wrote:

Starbucks quit selling CDs???  I’m quite shocked.

I play my Oldies ‘records’ streamed from iCloud- beamed wirelessly to my entertainment system through my iPhone, iPad or Mac; whichever is handy. ...
 
No wonder Starbucks quit selling CDs.    Wonder if they will quit selling buggy whips?

On this one, Starbucks did seem like it may have stayed at the party a little too long. But considering how progressive they are about digital, it'll be interesting to see how they replace this small but integral part of their business.

Published on: February 23, 2015

On Sunday, Joey Logano won his first career Daytona 500.

Published on: February 23, 2015

The Academy Awards were last night, and the winners in the major categories were...

Best Picture
Birdman (or the Unexpected Virtue of Ignorance)

Best Actor
Eddie Redmayne, The Theory of Everything

Best Actress
Julianne Moore, Still Alice

Best Supporting Actor
JK Simmons, Whiplash

Best Supporting Actress
Patricia Arquette, Boyhood

Best Director
Alejandro G. Iñárritu, Birdman (or the Unexpected Virtue of Ignorance)

Best Original Screenplay
Birdman (or the Unexpected Virtue of Ignorance)

Best Adapted Screenplay
The Imitation Game

Best Documentary Feature
Citizenfour