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    Published on: September 9, 2015

    Haggen has filed for Chapter 11 bankruptcy protection, hoping to use it "to reorganize around its core profitable stores" and "market for sale some locations in the five states it operates and to explore market interest for various store locations. Discussions are underway with interested parties to sell many of the company’s remaining assets," the company said.

    “After careful consideration of all alternatives, the company concluded that a reorganization through the Chapter 11 process is the best way for Haggen to preserve value for all stakeholders,” Haggen CEO John Clougher said in a prepared statement. “The action we are taking today will allow us to continue to serve our customers and communities while providing Haggen with a process to re-align our operations to be positioned for the future.”

    Sources tell MNB that Clougher's co-CEO, Bill Shaner - who was brought in to run the company's Pacific Southwest division, in California, Nevada and Arizona - no longer is with the company. Haggen would not confirm these reports and did not respond to repeated questions about Shaner's departure.

    UPDATE, 11:20 AM EDT: Haggen just released the following statement:

    "Bill Shaner is no longer with Haggen. We greatly appreciate his contribution to the company. John Clougher will be leading the company going forward."

    Departure confirmed.
     
    The bankruptcy statement from Haggen says that the retailer "has received commitments for up to $215 million in debtor-in-possession (DIP) financing from its existing lenders to maintain operations and the flow of merchandise to its stores during the sale process," which it hopes will sufficiently address the out-of-stock and cash flow issues that have plagued it in recent weeks as its stores simply did not generate enough revenue.

    The Haggen bankruptcy is just the latest twist and turn in a story that began with an 18-store company that had competitive issues in its home Pacific Northwest markets, and then, fueled by investment funding, decided that it made sense to acquire 146 stores that were available after the Albertsons acquisition of Safeway. Regulators pushed Haggen to convert the stores in short order, which meant that other than signage and relatively few merchandising adjustments, the conversions ended up being less consequential than necessary to create any sort of competitive advantage.

    Haggen experienced a series of missteps since the acquisition. It had pricing issues at some of the new stores, was forced to reduce employee hours and even lay people off when sales did not meet expectations, then was forced to close 27 stores that were severely underperforming. Albertsons sued Haggen, accusing it of not paying for merchandise it got in the acquisition, and the Haggen sued Albertsons for more than $1 billion, accusing it of deliberating subverting its ability to be competitive in the newly acquired stores. And then, Haggen was hit by a lawsuit by a former employee who accused it of systematically overcharging customers and ignoring her warnings.

    Just a week or so ago, suppliers were telling MNB that Haggen continued to suffer from severe sales problems, and was facing the possibility of a cash shortfall that could affect its ability to pay suppliers, and a likely bankruptcy. Haggen responded to those reports with a carefully parsed statement, saying that it was "in regular communication with its suppliers and we fully expect that they will be paid in full." Haggen did not address on-the-record the reports of bankruptcy concerns.

    In its coverage, the Los Angeles Times reports that "Haggen, which expanded its workforce fivefold to 10,000 employees this year, did not specify how many employees would be affected by Chapter 11. The company said it was seeking court approval to 'continue employee wages and certain benefits'."

    And the Oregonian reports that "5he bankruptcy filing lists Haggen's largest creditors, including wholesale distributor Unified Grocers (Haggen's biggest creditor, with a claim of $14.8 million), vendors like Coca-Cola and Frito Lay, and money transfer service MoneyGram. The final creditor listed is Albertsons, and the amount owed, for litigation, is listed as disputed and undetermined. The filing also shows that Haggen owes its own former chief executive Dale Henley nearly $4.9 million in deferred compensation."
    KC's View:
    Unbelievable.

    But, on the other hand, totally believable ... because this entire effort has been questionable from the very beginning, if only because it was hard to understand how a company that had trouble running 18 stores profitably would be able to handle more than 160.

    Hubris is part of the problem, I'd guess. Not to mention a total disconnection from reality.

    It makes me think of a business lesson that Michael Sansolo has written about here, from the movie World War Z, in which an Israeli official explains why his country has done a better job defending against zombie attacks than other nations. Israel, the official says, fights group-think by requiring dissent; if ten people are sitting around a table debating a policy decision, and nine of them agree, it is required that the tenth person present an alternative view.

    At Haggen, it is like zombies were running the company. Nobody asked the tough questions ... or, at the very least, nobody listened to the hard answers.

    Here's the one story I don't want to see in the next few weeks ... but that, I'd guess, is an almost certainty - that Haggen wants permission to pay millions of dollars in retention fees to executives with the company who have been at the helm through this debacle.

    Last February, in (skeptically) assessing Haggen's chances, I wrote:

    This strikes me as an enormous undertaking in which everything has to go right for it to work. They seem to have a plan, and they certainly have smart people at the helm ... but they're reinventing these stores in some pretty tough competitive markets, and will have to give consumers a great first impression of they are going to disrupt existing shopping patterns. Nimble is good. Being extraordinary is better ... and probably a requisite for success.

    As it ends up, very little went right, the smart people weren't smart enough, and the company was neither nimble nor extraordinary.

    KC's View/Update:

    As far as Bill Shaner's departure.... the question has to be asked, in view of the debacle that he helped to oversee, do they really appreciate his contribution to the company?

    I don't mean to be harsh here ... but I have to wonder how long Clougher will be there ... because it is hard to imagine that anyone at the top there is inspiring a lot of confidence anywhere.

    Published on: September 9, 2015

    Article Text. 

    by Kevin Coupe

    Jet is the new e-commerce site launched by Marc Lore, a founder of online retailer Quidsi, which he sold to Amazon in 2011 for $545 million. The hype behind Jet is that it is designed to compete effectively on price with Amazon ... and the company has raised $220 million in funding to support those efforts.

    Now, Jet is launching a new mass advertising campaign to communicate its message ... and you can see it above. It's a clever piece of work - more aspirational and philosophical than specific - that tries to communicate the idea that Jet wants to reinvent shopping.

    Published reports say that Jet plans to spend $100 million on marketing over the next year ... which suggests that the company wants and needs to raise a lot more money to support both its pricing model and marketing costs, since that is close to half of the total it originally raised.

    You can watch the commercial above ... look at it as an opening salvo in what is expected to be a protracted battle against both Amazon and Walmart.

    KC's View:

    Published on: September 9, 2015

    Bidness Etc reports that Amazon "will roll out restaurant deliveries as an option on its one-hour delivery service, Amazon Prime ... The service is free of charge and represents the e-commerce giant's latest push into an overcrowded market for food delivery, recognized for its narrow profit margins.

    "The delivery service will give Prime members access to several menus from listed restaurants, and will allow them to place orders on the app."

    While the service is only being rolled out in Seattle at the moment, expectations are that Amazon soon will bring it to New York.

    Bidness Etc writes that Amazon "has also highlighted the importance of its restaurant partners, with a service that lets them tap Amazon’s “best” customers. It offers details of customers who pay $99 a year for Amazon Prime, and keeps their payment information in Amazon Wallet up to date.

    "Upon launch, the company will partner with dozens of local restaurants on a revenue-sharing basis. These restaurants include Wild Ginger, Cactus, Marination Station, Wild Ginger, Re:public, Ten Mercer, Café Yumm, and Mamnoon, among others. According to Amazon, the restaurants were chosen after a Prime Now quality screening process, which prefers quality of locations over number of customers."
    KC's View:
    The ecosystem expansion continues, as Amazon looks to gobble up as much business as it can.

    Published on: September 9, 2015

    MarketWatch reports that Macy's plans to close 35 to 40 stores that it describes as "underperforming," saying that the units represent about one percent of its total sales.

    The story notes that "The locations of the 35 to 40 stores to be closed in early 2016 will be announced at a later date, once the company completes a careful analysis now under way and makes final decisions ... Macy’s, Inc. today operates 770 Macy’s stores. Over the past five years (2010 through 2015 to date), 52 Macy’s stores have been closed and 12 new Macy’s stores have been opened. In addition, six new Macy’s Backstage offprice locations are opening in fall 2015."

    Meanwhile, Reuters reports that Macy's is partnering with electronics retailer Best Buy, and will in November set up Best Buy departments in 10 of its stores on a test basis.

    According to Reuters, "the Best Buy shops will occupy about 300 square feet and be staffed by Best Buy employees, who will sell Samsung smartphones, tablets and smart watches and audio devices and accessories from Samsung and other brands."
    KC's View:
    This is an interesting confluence of events. Not surprising that Macy's would shut down some stores, especially since it has been diverting more and more resources to its online operations. And maybe the Best Buy deal is predictive of the kinds of alliances that such retailers will be creating in the future, looking to blunt the impact of the likes of Amazon and Walmart (and Jet?) by creating their own connections.

    Published on: September 9, 2015

    The Lansing State Journal reports that "residents across much of lower Michigan can now order non-perishable groceries, clothes and hardware for same day or overnight delivery from Google.

    "Google Express launched Tuesday morning in parts of Michigan, including Lansing, Battle Creek, Kalamazoo and Grand Rapids. Its service area is bounded by Fowlerville and part of Howell to the east, Ludington to the north and the state line to the south. Jackson, Ann Arbor and Adrian are not included in the service area ... Delivery costs $4.99 for orders of $15 or more for nonmembers. A one-year membership costs $95 and a delivery charge doesn’t apply. However, if any order is under $15, a $3 fee is incurred."

    The story goes on to note that "Google Express first launched in San Francisco in 2013 and the service is available in Chicago, Boston, Manhattan, San Jose, Washington, D.C., West Los Angeles and more recently parts of Ohio, Indiana and Wisconsin along with Michigan."
    KC's View:
    Coming soon to a neighborhood near you, I'd guess. No matter where you live.

    Published on: September 9, 2015

    The Wall Street Journal had an interesting piece the other day in which it elicited comments from "a group of industry and academic thought leaders" about how millennials will reshape business, the economy and culture in 20 years.

    In one of the sections, Jennifer Deal - a senior research scientist at the Center for Creative Leadership and an affiliated research scientist at the Center for Effective Organizations at the University of Southern California - writes that there are a number of factors suggesting that "a substantial percentage of millennials will be single at middle age. This increase in singleness is likely to have substantial implications for organizations.

    "For many millennials, being single will mean they have freedom to work more hours and move when the organization needs them to. (A year as an expat in Paris? Great!) In many ways, this flexibility will be advantageous for organizations because they will benefit from the focus on work these employees will be able to maintain. But just as these single millennials will be able to move for the organization, they will also be able to move for themselves. (A new job with a 25% increase in salary in San Diego so I can spend more time surfing? Great!) These employees will be freer to take advantage of opportunities at other organizations, or simply decide they want to go do something else without worrying about disrupting their family."

    Which means, if Deal is right, that companies may have to rethink how they appeal to these employees, understanding that there may be different incentives and benefits to be dangled in front of them.

    It is a provocative section, and you can check it out here. There's lots of good stuff there to absorb.
    KC's View:

    Published on: September 9, 2015

    CNBC reports that "labor experts warn that a tightening job market may add a new wrinkle to retailers' holiday hiring plans.

    "As online sales growth continues to outpace that at physical shops," the story goes on, "experts say retailers are already having trouble filling positions in the heart of their digital operations—their warehouses. A continuation of this trend could be particularly troublesome for companies during the peak shipping days of the winter holiday season, when distribution centers often require two to five times the staffing."
    KC's View:

    Published on: September 9, 2015

    • The Wall Street Journal has a story about Walmart's increased training programs...

    In Joplin, Missouri, the story says, "the company is testing a new approach: investing in workers through higher wages and training, on the theory that this will pay off all around—for customers, the company and employees. Wal-Mart plans to roll out the new training program to all of its more than 4,500 U.S. stores by early next year, according to Kristin Oliver, executive vice president of people for U.S. operations. And by then, all but the newest Wal-Mart hires will earn at least $10 an hour."

    The story goes on:

    "One motive is better public relations at a time when inequality is a hot-button political issue. But bottom-line calculations also play a role. Employee turnover costs money—by industry estimates as much as $5,000 per front-line worker, or 20% to 30% of an entry-level salary. Standard turnover in retail is 50% in the first six months. If Wal-Mart can reduce this churn, persuading people to stay at least 12 to 18 months, it will save 'tens of millions of dollars a year,' according to Ms. Oliver."
    KC's View:
    While Walmart is getting some grief from labor groups about layoffs that are happening even as wages are raised, I think the long term net net could be positive. After all, if Walmart is able to be both more effective and efficient, it will be able to open more stores ... and hire more people at the higher wages. This won;t happen overnight, but it seems to me that this must be the goal.

    Published on: September 9, 2015

    • The New York Times reports that poultry supplier Perdue has agreed to acquire specialty meat purveyor Niman Ranch. Terms of the deal were not disclosed.

    The story says that "the acquisition is another step in Perdue’s transformation into one of the largest suppliers of premium meats. Restaurants and food companies are clamoring for such meats, as consumers increasingly demand less reliance on pharmaceuticals and better animal welfare."


    • The New York Times reports that media General is acquiring Meredith Corporation, the television, publishing and marketing company. The cash-and-stock deal is valued at $2.4 billion, and the new combined company will be known as Meredith Media General.

    Among the properties owned by Meredith are Better Homes and Gardens, Martha Stewart Living and Shape.
    KC's View:

    Published on: September 9, 2015

    Responding to yesterday's obit about Leon Gorman, the former CEO of LL Bean and grandson of the company's founder, one MNB user wrote:

    Is it possible that great retailing is genetic? Or is there some correlation between great retailing, or simply great business people, and humility? That would be a character study of value to the industry to be sure.

    Sounds like a Michael and Kevin project? (Or do we have to wait for someone to make it into a movie first?)


    I think that it is both nature and nurture. The qualities that make a great retailer can be passed down genetically through generations ... but I also think that it is important that kids are raised right. It is important, to steal a quote from another discipline, that people who are born on third base not think they got there by hitting a triple.




    We had a piece yesterday about Chipotle being sued for not living up to what some see as its promise to get out of the GMO food business. One MNB user wrote:

    This article makes me weary. As a consumer, I'm so tired of others making choices for me about what is an option and what is not when it comes to buying food. Chipotle is a case in point. I am not anti-GMO. I used to eat there once a week, faithfully and cheerfully. However, since they decided to cut all GMO’s, they have no pork suppliers, so the pork carnitas are not available. At all. No future date available. Would you like some bean curd we have instead? So, now I eat there maybe once a month, and I am no longer cheerful, because I’m eating a protein that’s not my preference. I know my weekly business is no loss to them; they haven’t missed me. But I miss them.

    To be redundant (and probably whiny), I’m tired of no longer being able to purchase food items like an informed adult – because someone, somewhere has already made those decisions for me.





    Got a number of emails responding to yesterday's piece about the new bfresh store in Boston that has been opened by Ahold's Fresh Formats division.

    One MNB user wrote:

    It certainly will give Whole Foods a run for their money.

    And, from another reader:

    It is great to see an account like AHOLD both “get it” and “execute it”.

    And another:

    There are so many producers (ranchers and farmers) just waiting to bring great program specific programs to a retailer with the clout to reach a consumer that is desirous of excellence but in need of real competition to normalize pricing.

    Cheers Team AHOLD.  All the best.





    Got the following email from MNB reader Bryan Silbermann:

    What a great way to start this post-holiday week:
     
    First, Kevin riffs on bfresh, which really seems to be a breath of fresh air in the crowded retail space. 
     
    Next, who but Michael can weave together Queen Elizabeth, Cal Ripken and Woody Allen to tell a tale of perseverance and commitment?
     
    Loving it with my morning coffee.


    We aim to please.




    But, apparently, we don;t please all the people all the time:

    At the beginning of the year you promised less stories about Apple, Amazon and Walmart and more stories about innovation and innovative retailers.  I think you have not completely lived up to that promise.

    Your article today is proof that you are trying.  Keep up the good work.  I loved the "peak under the fence" at the new format.


    If I promised that ... and to be honest, I don't remember that ... I misspoke.

    Mostly because I think that the vast majority of my stories about Apple, Amazon and Walmart are about innovation.

    When it comes to the companies and situations I decide to write about, I don't believe in quotas.




    Yesterday, I posed an email from a reader who accused me of being biased against Haggen. Another reader had some thoughts about that:

    I want to respond to the reader who thinks your comments on Haggen are biased.

    I have been an active reader and contributor for years, and as I see it your comments and views are part of what makes Morning News Beat interesting and useful.  I sometimes agree with you, and sometimes I don’t, and I would guess most readers feel the same way.  I would hate to get to the point that I only want to read views that I agree with, since that would limit my understanding of the world around me.  While facts are very important, In the final analysis, isn’t an opinion naturally biased in some way?


    And from another:

    Your reporting on Haggen is obviously in the "I calls 'em as I sees 'em" category.  That is your  prerogative, and what your readers want to hear.  Nothing you (or anyone else) say, positive or negative, is going to change the course of history in regard to that company.  What will be will be.  From what I read, and with no inside info, it does appear that they have dug themselves a hole that they probably can't get out of, and have bit off more than they can chew on.  Other time worn metaphors may also apply.
    KC's View: