business news in context, analysis with attitude

MNB Archive Search

Please Note: Some MNB articles contain special formatting characters, and may cause your search to produce fewer results than expected.

    Published on: June 16, 2015

    by Kevin Coupe

    Interesting story in USA Today, suggesting that Amazon may be "looking to expand into daily, live video shows." The company reportedly has been advertising "for an experienced television producer who could help run the new initiative, cast as a way to entice customers to shop more on Amazon, particularly video-loving millennials."

    Fashion would appear to be the subject of the proposed program.

    The ad said that "the producer will be in charge of approving scripts, pitching segments, as well as 'promoting interaction' between hosts and audiences through social media. He or she will also be in charge of booking celebrity guests for in-studio segments, marking a potential differentiator from some of the other online fashion-focused shows that are popular on Google's YouTube."

    This is an Eye-Opening move, largely because the one category in which traditional broadcast and cable networks have largely been seen as having an advantage has been live events ... but even that could be changing.

    Is it possible that someday we could be watching the NFL or presidential debates on Amazon or Netflix?

    I wouldn't bet against it.
    KC's View:

    Published on: June 16, 2015

    Target Corp. announced yesterday that it will sell its drugstore, pharmacy and Minute Clinic operations to CVS Health for $1.9 billion, creating a potentially game-changing partnership in the health care segment.

    The Wall Street Journal writes this morning that "CVS, already the country’s dominant provider of prescription drugs, will grow even larger under the deal. The 1,660 drugstores inside Target locations will be rebranded as CVS/pharmacy, while Target’s nearly 80 medical clinics will be changed over to CVS’s MinuteClinic banner. The companies said they would co-develop smaller format TargetExpress stores.

    "Target in turn will hand off a business it has used to lure shoppers, but one that it hasn’t had the scale to operate profitably. The deal will let Target focus on its core strengths—specifically baby, kids and style— and will broaden the company’s health-care services at a time when rival Wal-Mart Stores Inc. is expanding in the sector."

    The story quotes CVS Chief Executive Larry Merlo, as saying that he is "agnostic in terms of how the consumer defines convenience," and that he has no problem potentially sending CVS customers into a Target store.

    The Journal goes on to report that "CVS views itself less as a retailer and more of a wide-ranging health-care company, helping manage prescription-drug plans as well as provide pricey, specialty drugs. Last month, it agreed to pay $10.4 billion to acquire Omnicare Inc., which provides prescription drugs to nursing homes and operates a specialty-drug fulfillment business.

    "For Target, the deal lets the retailer step out of a business that isn’t a profit generator and put it in the hands of CVS, which could offer a broader range of drugs and services at a lower cost than Target had."

    Partnering with Target also allows CVS to enter markets where it does not have stores (like Seattle, Washington, and Portland, Oregon) and expand in markets where it feels it is underrepresented (like Minneapolis and St. Louis).

    The Target-CVS deal requires regulatory approvals, and it is unclear how long it will take to close.
    KC's View:
    It is ironic that just yesterday, we were talking here about Walgreen looking to make its business more viable and sustainable by what seems to be subtraction. CVS obviously prefers addition ... and with this deal, arguably makes itself one of the most influential entities in the US health care business.

    It is impressive the degree to which Target CEO Brian Cornell is moving to put his house in order - ending the disastrous Canada experiment, focusing more on small and urban stores, and now selling a business segment in which the company had limited success and, apparently, unacceptable financial exposure.

    As for the Merlo comment, I think it reflects what needs to be modern retail thinking - that companies have to be agnostic about venue, and focus on what the customer thinks is convenient.

    When one hears about the deal, it certainly makes sense in a lot of ways - pharmacies traditionally are one of the last departments ever to become profitable when they are operated by discount stores, department stores and supermarkets. This, in some ways, is the same approach that led Target to put Starbucks stores in many of its locations instead of operating its own coffee shops.

    Which makes me think...

    Why does this strategic approach have to end here?

    One of the things that Target needs to do is improve its grocery departments ... and I wonder if it might make sense for Target to have conversations with established food retailers about taking over those operations. In fact, I'd be willing to bet that if those conversations have not already taken place, that there are food retailers out there wondering if the CVS deal creates an opportunity worth exploring, and if it is worth making a phone call to Cornell.

    After all, Cornell told Fortune not that long ago that "every part of the discount retailer’s business would have to justify its existence in a comprehensive corporate review."

    Now, not every food retailer would be a good fit. A deal with Kroger, I suspect, might raise too many regulatory red flags. But it'd be interesting if the folks at Delhaize wanted to chat about putting Food Lion stores in Target stores across America. Or if the folks at IGA wanted to create an alliance that would have their banner inside Target units.

    Whole Foods' new 365 banner could get a jump-start if suddenly it were in Target stores throughout America, though that may not be the right fit.

    Ironically, if this had happened a couple of years ago, it might've made a lot of sense for Target to get into business with Tesco, and install Fresh & Easy stores into its discount units. ("Missed it by that much," Maxwell Smart would've said.)

    How big of a game changer would it be if Aldi made a deal with Target? Or Lidl, which would love to make a big splash.

    The connection I'm most intrigued by would be Wegmans - it'd be an amazing opportunity for one of the nation's most respected food retailers to get a national platform ... and the "cheap chic" ethic would work.

    And one more that would be totally out of the box ... what if Target made a deal with Amazon, which might love to have a physical presence that would allow it to blunt Walmart's e-commerce initiatives, but doesn't necessarily want to get into the real estate business by opening its own stores. It might be a high-risk move for both Target and Amazon, but the long-term benefits to both might be extraordinary.

    It is possible, maybe even probable, that none of this will happen. But ... two days ago, most of us never would have seen the CVS-Target deal coming. The emergence of this new partnership should open our minds to what is possible.

    Published on: June 16, 2015

    The Washington Post reports that Walmart is being accused of using its charitable foundation to grease the wheels of growth in certain urban US markets, saying that the foundation "appears to target its donations and influence its grantees primarily to assist Walmart to achieve those expansion goals, ultimately providing Walmart more than an incidental benefit."

    According to the story, "More than a dozen community groups filed a complaint with the Internal Revenue Service Monday alleging that the Walmart Foundation violated its tax-exempt status by using charitable funds to advance the retailer’s entrance into urban markets including Washington. The 22-page complaint, addressed to IRS Commissioner John Koskinen, details the retailer’s marketing and lobbying activities as it sought approval to open stores in New York City, Boston, Chicago, Los Angeles and other cities."

    The New York Times reports that "the Walmart Foundation’s contributions in some cities rose steadily as Walmart tried to curry local support and gain access in those markets, according to the complaint. The foundation donated just over $200,000 to organizations in Los Angeles in 2008 and 2009, the complaint said, but raised that amount to $1.4 million in 2011, just as plans to open a store were getting underway. In 2013, the year that store opened, donations dropped to about $230,000."

    The Walmart Foundation's total charitable contributions totaled $1.4 billion during the last fiscal year.

    The Times goes on to say that "nonprofit foundations are prohibited from extracting services on behalf of a company, or diverting funds away from the public to private interests. But they offer corporations undeniable benefits, including good publicity and lucrative tax advantages. And while a pattern of spikes in donations may raise eyebrows, some nonprofit experts say, it may not be enough to prove that the Walmart Foundation ran afoul of I.R.S. rules."

    Tricia Moriarty, director of global responsibility communications for Wal-Mart, tells the Post, “We provide support for these and other important causes in communities across the U.S. and around the world, not just to particular areas or cities, and it’s unfortunate to see criticism of the Foundation’s charitable giving. The Walmart Foundation takes the Internal Revenue Code and regulations very seriously and the allegations made have no merit."
    KC's View:
    Not being a tax lawyer, I'm certainly not qualified to judge if the company has crossed the line or not. But I do have a few observations...

    First, it strikes me as entirely reasonable that when any company is looking into market opportunities, it would also discover places where charitable contributions of various kinds might benefit the people who live there; that's what happens when people and companies pay attention. Now, I suppose it looks a little more craven if companies turn on the charity spigot to get required approvals, and then turn it off once it has achieved its business goals ... and from the coverage, it appears that this is what Walmart is accused of doing.

    We'll see if that's what the IRS investigation shows. Frankly, I'd be shocked if Walmart Foundation contributions only brought the company "incidental" benefits ... but again, the question probably is as much about when giving ends as where it begins.

    While other investigations into Walmart's use of money to grease the wheels of growth - such as bribes offered to local officials in foreign countries - continue to be conducted by federal authorities, I couldn't help but think of these probes when I saw the Walmart Foundation stories. These are big companies with big money and big goals ... and it certainly isn't beyond the realm of possibility that Walmart may have crossed the line.

    I wonder if the IRS probe will take as long as the federal probes into the bribery questions?

    Published on: June 16, 2015

    The city of Baltimore, Maryland has announced an initiative designed to attract more food retailers to areas of the municipality under-served by this category, in the hopes that a greater number of residents will have access to fresh, healthy food.

    According to the Baltimore Business Journal, "Financial incentives for grocery stores that agree to set up shop in areas that lack access to food, a longer distribution period for food stamps and improving inventory at corner stores and public markets are among the city’s plans for ensuring more Baltimore residents have access to fresh, healthy food. The city also wants to expand farmers markets and look into transportation options to get residents to grocery stores beyond walking distance."

    A new report, issued by the by the Baltimore Food Policy Initiative and the Johns Hopkins Center for a Livable Future, has concluded that "one in four Baltimore residents lives in a so-called food desert, or a geographic area that is more than a quarter mile from a grocery store. The household median income in food deserts is at or below 185 percent the poverty line and at least a third of the households do not have a car. Children and minorities are disproportionately affected by food access problems, the report found.

    "City officials plan to use the report, which maps out every grocery store, convenience store and farmers market by council district, to drive new policy that will improve access to food," the Business Journal writes.
    KC's View:
    Considering some of the recent events in Baltimore, in which racial tensions were on view for the entire world to see, pitching retailers on opportunities in underserved neighborhoods can't be the easiest sale in the world. But I hope that the city is able to accomplish its goals - a food store can serve as a community center, an organizing principle around that can provide jobs and connections, as well as healthy food, all of which help places improve, not degenerate.

    Published on: June 16, 2015

    The Australian is reporting that in addition to Lidl's plans to enter the US market, the German discounter also is laying the groundwork for stores to be opened down under.

    According to the story, Lidl "been in discussions with logistics providers and has applied for a wide range of home brand trade marks" and is "seeking to protect its name and distinctive blue, red and yellow logo for a range of goods and services including food, coffee, alcohol, furniture, utensils and cleaning equipment."

    The story also notes that Lidl's chief discount competitor, Aldi, "came to Australia in 2001 and now holds nearly 11 per cent market share on the east coast, with 370 stores across the country."
    KC's View:
    I have a feeling that when Lidl, the fourth largest retailer in the world with $128 billion (US) in annual sales, looks at markets in which it does not have stores, the natural question must be, "Why not?" Especially, I'd guess, when those markets have a sizable percentage of consumers with significant concerns about the economy and their own financial well-being.

    Published on: June 16, 2015

    USA Today reports this morning that Gap Inc. has announced the planned closure this year of 25 percent of its North American fleet or 175 stores, saying that the move will be based on store performance. When the closures have been completed, it will leave Gap with about 500 stores, plus 300 outlet stores.

    The company said that it also will close some European stores and will eliminate about 250 corporate jobs. The moves will not affect outlet and factory units.

    According to the story, "Gap has been struggling to entice customers amid competition from fast fashion brands. Same-store sales fell 10% in the first quarter, compared with a 5% drop in the year-ago quarter."

    Jeff Kirwan, global president for Gap, said in a statement that the company is "focused on offering consistent, on-brand product collections and enhancing the customer experience across all of our channels, including a smaller, more vibrant fleet of stores."
    KC's View:
    The question that occurs to me is whether Gap's problem is too many stores, or too little relevance. This seems to happen to all such chains with regular frequency ... such is the challenge of being in the fashion business.

    Closing stores may be a short-term, Wall Street-centric fix. But it may not fix the bigger problem.

    Published on: June 16, 2015

    • The Wall Street Journal reports that Amazon "has quietly begun rolling out a program that could dramatically increase the number of items eligible for two-day shipping through its Prime membership.

    "The e-commerce giant is now listing items in Prime that ship directly from independent merchants’ warehouses to customer doorsteps. Until now, merchants have had to ship merchandise to an Amazon warehouse for it to be eligible for Prime."

    As has been well-documented, "The $99-per-year Prime unlimited-shipping program has become central to Amazon’s sales growth, with Prime members spending twice as much as non-Prime customers, by some estimates. Bulking up the number of Prime-eligible items could entice more customers to join the program and make current members more likely to renew."
    KC's View:

    Published on: June 16, 2015

    ...with brief, occasional, italicized and sometimes gratuitous commentary…

    • Reports out of the UK has launched a trial of Bluetooth beacons in partnership with Unilever that will have the technology installed in 270 UK stores, using them to target customers with special offers about certain ice cream brands.

    However, while the pilot program will last three weeks, the announcement also says that “no customer data will be collected or provided by Tesco as part of the trial."

    I'm a huge fan of targeting technology enabled by beacons. But for the life of me, I can't understand the whole "we're not going to collect any data" thing. Isn;t that the point?

    • United Fresh announced that it "donated 39,019 lbs. of produce and 207 lbs. of assorted dry food to the Greater Chicago Food Depository at the conclusion of the United Fresh 2015 annual convention and expo in Chicago last week. Volunteers helped collect donations from the convention floor to benefit those in need serviced by Greater Chicago Food Depository partner agencies such as food pantries, soup kitchens, and other emergency feeding centers.

    "The Greater Chicago Food Depository is a member of the Feeding America network of food banks. This year’s total donation of 39,226 lbs. continues a United Fresh tradition of supporting the Feeding America network after the annual convention."
    KC's View:

    Published on: June 16, 2015

    ...will appear on Wednesday this week.
    KC's View:

    Published on: June 16, 2015

    ...will return.
    KC's View:

    Published on: June 16, 2015

    In the National Hockey League, the Chicago Blackhawks defeated the Tampa Bay Lightning 2-0 in game six of the Stanley Cup championship series, winning the best-of-seven series 4-2. It was the Blackhawks' third Stanley Cup championship in six years, and the first time they won at home since 1938.
    KC's View: