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    Published on: May 20, 2015

    The New York Times reports that the Los Angeles City Council yesterday voted 14-1 to increase its minimum wage from $9 to $15 per hour by 2020, "in what is perhaps the most significant victory so far for labor groups and their allies who are engaged in a national push to raise the minimum wage."

    The Times goes on: "Several other cities, including San Francisco, Chicago, Seattle and Oakland, Calif., have already approved increases, and dozens more are considering doing the same. In 2014, a number of Republican-leaning states like Alaska and South Dakota also raised their state-level minimum wages by ballot initiative.

    "The effect is likely to be particularly strong in Los Angeles, where, according to some estimates, almost 50 percent of the city’s work force earns less than $15 an hour. Under the plan approved Tuesday, the minimum wage will rise over five years."

    Here's how the raise will phase in: "The 67 percent increase from the current state minimum will be phased in over five years, first to $10.50 in July 2016, then to $12 in 2017, $13.25 in 2018 and $14.25 in 2019. Businesses with fewer than 25 employees will have an extra year to carry out the plan. Starting in 2022, annual increases will be based on the Consumer Price Index average of the last 20 years."
    KC's View:
    That sound you hear is that of the governors of Texas and Wisconsin, among others, beating a fast path to Los Angeles to pitch businesses there on relocating to their states. That's just a political reality ... some businesses will make such moves, and others will prefer to figure out how to stay in LA ... it is, after all, a place where, from the South Bay to the Valley, from the West Side to the East Side, everybody's very happy, 'cause the sun is shining all the time ... Looks like another perfect day. Can't get that in most other places. (And I should note here, in the interest of transparency, that I Love LA.)

    It may not be as easy as offering alternatives. The vote is expected to create pressure on other California counties and municipalities, not to mention other states and cities, to raise their minimum wages. However, there are those in the business community who believe that it will isolate Los Angeles, turing the nation's second-largest city into a kind of pariah, with businesses looking to surrounding communities for locations that will provide relief from a high minimum wage.

    We'll see. I like to think - or maybe hope - that when people make a living wage, that gives them more money to spend, makes them less reliant on public support systems, propels them to be more productive, and gives them a sense of contributing to society and supporting their families. Will there be short-term blips, in which employment numbers go down? Sure. But if business is good, hopefully it'll be good for everyone.

    Besides, in LA you can roll down the window, put down the top, crank up the Beach Boys, baby ... don't let the music stop. We're gonna ride it till we just can't ride it no more...

    Published on: May 20, 2015

    The Wall Street Journal reports that Walmart's US same-store sales were up a "slim" 1.1 percent during the first three months of the year, though it points out that the period "represented the third straight quarter of growth for Chief Executive Doug McMillon, who has focused on stopping a long slide in the retailer’s home market. Wal-Mart drew more shoppers to its stores for the second straight quarter after a long period of decline."

    It wasn't all good bottom line news. Walmart said that "its profit fell 7% to $3.34 billion, hurt by the cost of raising workers’ wages and building up its online operations," which showed a sales increase of 17 percent during the quarter.

    The Journal writes that Walmart "hopes to appeal to its core U.S. customers with a renewed focus on low prices, tidy stores, fresher produce and friendlier employees, especially in its home market, which accounts for about 60% of total sales. The company raised employee minimum wages to $9 in April and plans to make that $10 by next February.

    "The raises are a tacit acknowledgment that the company had squeezed costs to the point that it was hurting sales. The raises are aimed in part at giving employees an incentive to keep stores tidier and better stocked."

    The New York Times writes that Walmart CFO Charles M. Holley Jr., said yesterday that the raises are "starting to have a positive effect,” but cautioned that it will not be a speedy evolution.

    The Associated Press story, noting that investors had hoped for better results, says that "Greg Foran, who had been president and CEO of Wal-Mart Asia and took over Wal-Mart's U.S. business last summer, asked for investor patience. 'We're not interested in reaching our goals, but reaching them in a way which is sustainable for the long term,' Foran said. 'This requires a steady execution, a pace that is fast but calculated, and one that allows us to get it right'."
    KC's View:
    I think it is healthy for Walmart to be taking the "slow and steady wins the race" position, and to focus more on Main Street than on Wall Street. That seems to be the mindset adopted by the new regime, which appears to understand that the company has to make some fundamental and unambiguous changes in terms of product selection and labor policies if it is going to create sustainable momentum.

    I was listening to the radio yesterday and heard some economic analyst say that it would take a few months for the raises to turn around the company's labor issues ... and I had to chuckle, because I think it will take a lot longer than that. There almost certainly be markets where the raises will have less impact on the bottom line than others, and it could take years for it all to shake out. But that's okay...as my mom used to say to me, "Patience is a virtue." (I was never particularly good at taking that advice, and she'd usually say that just after I'd done something impulsive.)

    As for e-commerce costs ... it seems to me that this is an area where Walmart is going to keep throwing money at a problem that goes by the name "Amazon," and in addition to creating a lower-cost version of the Prime membership program, it'll almost certainly come up with other initiatives as well.

    And I continue to believe that it is entirely possible that Walmart will announce a broad-based click-and-collect program that will be offered in thousands of its stores, and probable that the ultimate war will be between Walmart and Amazon ... and that everybody else has a choice. They can be collateral damage, or not. But "not" means engaging in this battle, not ignoring or running away from it.

    Published on: May 20, 2015

    Personal shopping and home delivery service Instacart said yesterday that it is now operating in Miami, its 16th city, and will allow shoppers there to order online from "Whole Foods Market, Costco, Winn-Dixie, BJ’S Wholesale Club and Petco stores and have everything delivered by Instacart in as little as one hour. Instacart customers do not need a Costco or BJ’s membership to shop from those stores."

    At the same time, Instacart divulged that Whole Foods has seen average weekly sales through its service grow to over $1.5 million.

    Instacart says that it pitches itself to retailers by saying that it has "disrupted the traditional grocery delivery space by connecting customers with Personal Shoppers, independent contractors who shop for and deliver grocery orders providing their own transportation in as little as one hour. This eliminates the need for costly infrastructure such as inventory, warehouses, trucks and full-time drivers.
    KC's View:
    Of course, the other side of this is that Instacart often finds itself making different pitches to different retailers, essentially making things up as it goes along in an effort to build mass and economies of scale. (Among other things, this will make it more attractive to potential suitors, though at this point it may be too highly valued to be a takeover target. But that'll change. Trust me.)

    I still think that Instacart is an easy but ultimately flawed solution to retailers trying to figure out how to compete in a digital economy. And the retailers that use Instacart may find themselves in the same boat as those that decided Priceline's "pay your own price for groceries" offering was an internet strategy that made sense. Which it wasn't.

    Published on: May 20, 2015

    Agence France-Presse has a story about Jet.com, which "has raised $220 million so far for an ecommerce service with some 1,600 retail partners, and plans to sell some 10 million products when it launches in the coming weeks ... Jet is led by Marc Lore, a founder of online retailer Quidsi -- including diapers.com and soap.com -- sold to Amazon in 2011 for $545 million."

    The story says that Jet is being careful not to emphasize the Amazon rivalry.

    ""With only eight percent of retail sales currently happening online, we believe the ecommerce market still has plenty of room for new companies, innovation and growth," a spokesman told AFP by email. "Jet isn't attempting to compete with other large e-commerce players or be crushed by them, the e-commerce market is large enough for many different companies to exist and be successful simultaneously."

    The startup will charge $49 a year for membership.
    KC's View:
    While Jet only has been in beta testing to this point, by invitation only, there have been reports that Jet has a reasonably intuitive interface, lower prices in some cases than Amazon, and is positioned as a legitimate competitor, though there also are those who suggest that this is an awfully high mountain to climb, requiring an enormous amount of investment.

    I look forward to being able to try the Jet offering ... though it is hard to imagine that it will be as robust as Amazon's. I have to agree with a number of the analysts who believe that the goal here is to build sales enough to make Amazon or Walmart interested in buying the company.

    Published on: May 20, 2015

    CNet has a story saying that Amazon is looking to improve the benefits of its Prime membership program - which currently offers two-day shipping for a $99 annual fee as well as various streaming options - by "reaching out to some third-party merchants to explore letting them ship their goods directly to customers under the free-shipping program."

    According to the story, "Currently, third-party merchants selling on Amazon need to send their products to Amazon's warehouses to be eligible for the free-shipping program. That requirement can increase costs to those merchants and cut down on the selection for customers. By allowing merchants to ship straight to customers, Amazon could allay both of those issues and also make its Prime membership more desirable."
    KC's View:
    When we talk about Amazon's robust offerings, it is critical to remember that its Marketplace relationships is a critical factor ... that it serves as a portal for an enormous number of retailers, with sales revenue that goes right to its bottom line. If it can fold prime benefits into its Marketplace offering, that will be a huge "get," making it even harder for the likes of Walmart and Jet to catch up.

    Published on: May 20, 2015

    7-Eleven Inc. announced yesterday that it is acquiring the 182-unit Tedeschi Food Shops convenience chain that operates in Massachusetts and New Hampshire.

    Terms of the deal were not disclosed, and closure of the purchase is dependent on regulatory approvals.

    Stan Reynolds, CFO/EVP of 7-Eleven, said in a prepared statement that the Tedeschi acquisition "was made possible by 7-Eleven reinvesting the return from previous successful acquisitions to continue the company's growth as the world's largest convenience retailer.  These high-volume, high-performing locations complement our existing real estate portfolio..."
    KC's View:

    Published on: May 20, 2015

    Fortune has a piece about how Nordstrom "has been pumping hundreds of millions of dollars into building up its digital sales, expanding into Canada and planning a beachhead in Manhattan. It’s doubling the size of its Rack outlet chain and acquired e-commerce sites like Trunk Club, as it looks to keep up with shoppers’ quickly changing behavior and avoid the doldrums afflicting many brick-and-mortar retailers."

    All these moves suggest that Nordstrom has more than one might expect with Amazon ... including a propensity of late for increased sales by decreasing profits, largely because of its investment initiatives.

    However, there is another number that the company believes counts - 20 percent, which is how much of its business currently is done online, up from 13 percent just two years ago and higher than the percentage of online business done by most of its peers.

    It is a simple calculation, according to company co-president Blake Nordstrom: “Our customer strategy is squarely focused on serving customers on their terms and delivering the high level of service they expect from us."
    KC's View:
    Bingo. That's what you do to be successful in a digital marketplace. You understand that while the store is important, having an e-commerce presence is critical in being relevant to a changing marketplace. You nurture both, knowing that in the end, it is up to the customer to make the choice.

    Published on: May 20, 2015

    ...will return.
    KC's View: