retail news in context, analysis with attitude

Published on: October 30, 2015

by Kevin Coupe

Sometimes, the best disruptions come because someone is able to catch and ride a wave.

In this case, literally.

Bloomberg has a piece about a company called Wavestorm, which makes the most popular surfboard in the US. The company has sold about a half-million of the mass-produced soft foam boards, which have been adopted by both novices and experts. Unlike most surfboards, which are developed by "revered" surfboard designers and surfers, Wavestorm was created by a former hockey player and a Taiwanese businessman.

But what really makes Wavestorm different is that it sells its flagship product for $99.99 - and it markets the board exclusively through Costco, and not through the traditional surf shops that tend to dot oceanside communities.

"We don’t want to mess around collecting money from little surf shops and sporting goods stores," says co-founder Matt Zilinskas. “Margins are slim at Costco, but we pump out volume and get paid on time.”

"While Costco stocks several Wavestorm products," Bloomberg writes, "with some paddleboards costing more than $500, the $100 8-foot board accounts for 90 percent of sales. That price, along with Costco’s policy of issuing refunds to customers whose boards break (a hazard of inexpensive foam models), has had a ripple effect on the industry. Huntington Surf & Sport, one of the largest surf shops in Huntington Beach, Calif., an epicenter of the global surf scene, no longer stocks soft-top boards. 'Why even bother when you can go to Costco for $100?' says assistant manager Cody Quarress.

The story notes that the mainstream surfing industry - a phrase that somehow seems like a non sequitur - has tended to scoff at Wavestorm's business model, believing that somehow it is not pure enough. But there seems to be some level of conversion taking place, as people begin to recognize that those $99.99 surfboards may be bringing new people into the sport, creating a market for more expensive, advanced boards.

It is a fascinating microcosm of how and where disruptions take place ... and an Eye-Opening example of how disruption can help to fuel greater growth.

Published on: October 30, 2015

GeekWire has a story about how Amazon is extending the notion of creating an ecosystem...

"Amazon has quietly rolled out e-commerce functionality on its Fire TV devices, the first step in a broader plan by the tech giant to integrate online shopping and product placement into the on-screen television experience. The test began two weeks ago, and is performing above expectations so far, according to a source with knowledge of the situation ... The strategy demonstrates one benefit of Amazon’s far-reaching business, as the company leverages its massive presence in e-commerce to make more money through its consumer devices — something that rivals like Google, Apple and Roku wouldn’t be able to do as effectively."

The approach is simple - put banner ads onscreen so that when people are watching programming on Amazon, they're also presented with easy-to-access ways to make purchases.

"Here’s where it starts to become clear that Amazon has been laying the groundwork for this feature for a long time," GeekWire writes. "Because the Fire TV devices are linked to users’ Amazon accounts, e-commerce functionality can be seamlessly integrated into the television experience. And free Amazon Prime shipping makes the purchasing decision that much easier for Prime members."

The story goes on:

"What about Prime Now? The company’s new one-hour delivery service isn’t yet available as an option through the Fire TV. Delivery choices for now are limited to the standard selections available through Amazon’s website, including free two-day shipping and $5.99 one-day shipping for Prime members.

"But it’s easy to envision a day when you’ll be able order items through the TV and have them show up while you’re watching the next episode of your favorite show. From there, it’s not hard to imagine seeing a pair of shoes in your favorite show, clicking the remote to buy them, and having them show up before the episode ends. And that’s where Amazon’s larger plan suddenly doesn’t seem so far away."

Published on: October 30, 2015

There is a story in the Seattle Times about how Comvest Partners, the investment firm that controls Haggen, essentially financed the company's disastrous expansion from 18 stores in the Pacific Northwest to 164 units all over the western US "by quickly flipping some of the real estate it got from acquiring 146 stores from Albertsons and Safeway."

The strategy, described as a "standard move" for a private equity firm, allowed Comvest "to make a big bold bet without sticking its neck out too much," the story says.

The way it is described by the Times, Comvest/Haggen basically bought the locations that Albertsons and Safeway had to sell - because the Federal Trade Commission (FTC) said that to keep them would be to inhibit competition - and then turned around and sold them to real estate companies and leased the locations them back.

"To be sure," the Times writes, "minimizing risk doesn’t mean Comvest has no skin in the game. Its ownership stake in Haggen is in danger if it doesn’t raise enough cash in its ongoing bankruptcy reorganization to pay off creditors."

The story goes on to say that "the private-equity firm says its business model is to take control of midsize companies, grow them and flip them or take them public in a three- to seven year period. Experts say that private-equity firms also like financing retail transactions by selling and leasing back the underlying real estate because it can be cheaper and easier than taking out a big bank loan."

Published on: October 30, 2015

Walmart said yesterday that for the upcoming end-of-year holiday shopping season, it will offer free shipping only on orders of $50 or more, though it also will offer free in-store pickup at most locations.

Target, on the other hand, said yesterday that " it is once again waiving any minimum order size requirement to qualify for free shipping as well as offering free returns, moves that could give it an edge over its larger rival during the ultra-competitive Christmas period," according to a Fortune story.

According to the piece, "Target sees free shipping during the holidays as a necessary cost to win shoppers ... But Walmart appears to be betting that steering shoppers toward in-store pickup will lead to more impulse purchases."

The Washington Post reports this morning that with its announcement of holiday plans, Walmart seems to "acknowledge a crucial change in our shopping patterns: The center of gravity is spreading away from Black Friday.

"Wal-Mart said that it will start offering 'thousands' of price rollbacks on Nov. 1 on items ranging from tech gadgets to toys to baking equipment. Those deals will last for 90 days. And while the chain has long been cutting prices for the holiday season on that date, executives emphasized that this year they were going to 'do without high-low pricing gimmicks'."

The story goes on to say that "As part of its ongoing effort to create a friendlier, more service-oriented environment in its stores, Wal-Mart also announced that it would have an area in many stores where children can get photos taken with Santa.  They’ll also be spinning Christmas tunes and encouraging employees to add seasonal touches to their attire, something the retailer has not done in recent years.

"To attract shoppers who bounce between digital and in-store purchasing, Wal-Mart will unveil a new mobile check-in feature on its app this season. For customers who opt to buy an item online and pick it up in-store, they can check in as they are entering the store to let employees know they have arrived. The idea is that this will allow the customer to get in and out of the store more quickly."

Published on: October 30, 2015

Reuters reports that the California Office of Environmental Health Hazard Assessment, which is responsible for implementing the provisions of Proposition 65, which requires the labeling of products and ingredients that are viewed as having a cancer risk, now is considering "whether to add red meat and foods like hot dogs, sausages and bacon to a cancer-alert list, setting the stage for a potential battle with the meat industry over warning labels.

"The inclusion of meat and processed meat on the list could reduce consumer demand, hurting major producers and processors like Hormel Foods Corp and JBS USA. It could also open the door wider for litigation against meat companies from consumers diagnosed with certain types of cancer."

The story notes that the issue has come up because a unit of the World Health Organization (WHO) released a report saying that "processed meat can cause colorectal cancer in humans. It said the risk of developing cancer is small, but increases with the amount of meat consumed. The meat industry maintains that its products are safe to eat as part of a balanced diet."

Reuters also writes that "California has often been at the forefront of consumer-oriented initiatives, particularly regarding agriculture. It rolled out laws for larger chicken cages and restrictions on antibiotic use for livestock ahead of much of the rest of the country."

Published on: October 30, 2015

The New York Times this morning has a story about Fairway Markets, the iconic New York food retailer that began life as a family-owned fruit-and-vegetable stand during the Depression, and grew to be a highly respected purveyor of specialty foods to neighborhoods in the city.

These days, however, Fairway is a little bit less iconic. The growth of competing food retailers - especially Whole Foods - has hurt sales and profits. And, the story says, "The New York supermarket wars are just one of Fairway’s problems. A leveraged buyout of the chain by a private equity firm has contributed to a heavy debt load of $250 million. An overambitious store-opening strategy — it vowed to open 300 stores across the country — drained its cash flow and has caused ratings agencies to downgrade its debt. Its stock has plummeted, declining 86 percent since it went public in 2013."

With yet another quarter of bleak financial results in the books, the 15-store Fairway this week "announced a retrenchment and shift in strategy. Now, instead of dotting the East Coast with Fairway stores, the company’s executives said they planned to 'flood the boroughs,' referring to New York City. 'It is the most important and easiest way for us to grow this company,' Jack Murphy, Fairway’s chief executive, told Wall Street analysts in a conference call late Thursday.

"But for now, the flood may be more like a trickle. Only one or two store openings are possible until Fairway shores up its balance sheet. The company said on Thursday it was looking to raise capital to reduce its large debt load and to fund future growth."

Murphy also said that "Fairway needed to respond not only to competitive pressures from traditional and upscale grocery stores, but also to e-commerce sites like Fresh Direct and Blue Apron, which deliver directly to the home. Fairway, he said, is starting its own e-commerce site for a limited test audience next week."

Published on: October 30, 2015

The Washington Post reports on how McDonald's has hired John Cisna - a formerly 280-pound Iowa teacher who ate McDonald's for 540 straight meals, got regular exercise, and lost 56 pounds - as a "brand ambassador" who "travels to pitch the fast food company to auditoriums of students around the country."

Here's how the Post frames the issue:

"Cisna’s story has prompted a lively debate about whether it is appropriate for McDonald’s to use schools as a way to teach kids about healthy eating habits. Nutrition experts — as well as some teachers and parents — also question whether schools, which are letting the fast food company through their doors to market to kids, are allowing themselves to be co-opted.

"Many McDonald’s restaurants provide financial support to underfunded educators and parent-teacher groups. At the same time, McDonald’s features Cisna in a 20-minute documentary it promotes to schools, along with lesson plans and guest speakers, through its nationwide network of franchisees.

"Nutrition experts say the arrangement in an educational environment — at a time of intense concern about youth obesity — ends up sending a dangerous message about what makes for healthy eating to kids in an educational environment."

The Post notes that "McDonald’s and its defenders insist that the program is well intended, dealing with the reality that kids eat routinely at the fast food chain." And the story notes that McDonald's and its franchisees often provide funding to public schools that allow them to provide necessary programming that might not otherwise be available to students.

Published on: October 30, 2015

• Bloomberg reports that "BarFresh Food Group Inc. forged a deal with PepsiCo Inc. to bring its smoothie drinks to U.S. and Canadian restaurants, giving the fledgling company a bigger foothold in what it sees as a $25 billion frozen-beverage industry ... As part of the agreement, the blended drinks will be presented to restaurants alongside PepsiCo’s lineup, with the soda giant getting a percentage of the sales."


• CNBC reports that Urban Outfitters has pledged to end the practice of on-call shifts for employees, requiring them to be available to work at certain periods while not actually paying them for that time.

According to the story, "The move will be made across its portfolio of stores, which include Urban Outfitters, Anthropologie and Free People. Between these three nameplates, the company operates 518 stores in North American and employs 23,000 people."

The story goes on to say that "Gap in August said that it would end on-call shifts at all of its stores, following similar decisions by Abercrombie & Fitch and Victoria's Secret. Victoria's Secret's sister company Bath & Body Works followed its lead with a similar announcement last month. More recently, J.Crew said last week that it would end on-call shifts nationwide and provide one week of advance notice about schedules to employees at all New York store locations."

Published on: October 30, 2015

Remember ... for most of us in the US, this weekend marks the end of Daylight Savings Time and a return to Standard Time. On Sunday, November 1, at 2 am, it will be time to turn your clocks back an hour. (Assuming, of course, you have clocks that require manual changing.)

Enjoy the extra sleep.

Published on: October 30, 2015

Regarding the announcement that the Walgreen-Boots Alliance wants to acquire Rite Aid, one MNB user wrote:

These mergers are not good for the consumer or the economy.  The consumer is the one who loses out in the end, paying higher prices for everything, from groceries to airline tickets. You can't keep eliminating competition and expect retails to drop.

From another reader:

I can't help but say this- are we starting to see the demise of "drug stores"?  Think about it - if you aren't picking up a prescription, why would you go?  And most of the other channels-grocery, mass, warehouse clubs- now offer comparable or less cost for prescriptions.  Target and even Walmart offer similar HBA skus, and at better pricing.  This seems to be a channel that might need to ask itself - why am I here?  I'm  having trouble seeing the future here.

I suggested the other day that antitrust regulators may object to this deal, but MNB user Michael Bruce responded:

Kevin, I had the same thought about this merger, how could the Fed’s allow #1 to acquire #3, but then, thinking it through some more, it really is similar to the current show playing out related to the office superstores.  Today, Walgreens and Rite Aid have more competition for their lucrative prescription business than ever, given that just about every supermarket and discount store I step into has a drug store within the store with full prescription service (and in Target’s case, they’ll all be CVS’ soon).  As to online competition, while Amazon and Walmart don’t have this today, the insurance companies themselves offer a service for obtaining timely delivery of your long-use prescriptions where they just arrive on your doorstep every 90 days.  Given the competition by tens of thousands of supermarket and discount locations, and the insurers with their mail-order process, I don’t see how the old-world paradigms should apply here.

MNB user Andrew Becker wrote:

As to " Hard to imagine that federal antitrust regulators won't have a lot to say about this. Because we're talking about prescriptions here" : The FTC allowed the merger of CVS and Caremark creating a direct conflict of interest harming the consumer. They allowed the merger of Express Scripts and Medco which now controls up to 40% of all Rx's processed through a PBM. They will allow this too. The FTC either doesn't study the long term effects of their rulings or doesn't care. Either scenario is bad for the consumer.

MNB user Jerome Schindler wrote:

There are a lot of reasons FTC should not consider the Walgreen's/Rite-Aid merger as creating an anti-competitive duopoly.  Every major supermarket chain as well as Target, Walmart, Sam's Club and Costco essentially offer about the same number of traditional drugstore SKU's within their four walls, as well as operate a "pharmacy".    If a Walgreen's/Rite-Aid merger makers Walgreen's and CVS a duopoly, then certainly FTC should also deem Target and Walmart a duopoly.  In regard to prescription drugs, 50 years ago when I was a pharmacist there was virtually no insurance coverage and price competition was intense.  I suspect that today the overwhelming number of prescriptions are purchased under some kind of insurance plan with a consumer copay that is the same for them no matter where they go.   Price competition at the consumer level is no longer significant.  The FTC will probably spend considerable time on this for no other reason than they need to do that to justify their jobs.  That's what government agencies excel at.




We had a story about Kroger's expansion into e-commerce the other day, prompting one MNB user to write:

I think what you see here is the positive impact that Kroger’s approach to mergers’ brings. Kroger is known for taking advantage of the benefits of operation synergies from these mergers but also learning what these company’s do well and applying them throughout their companies. Harris Teeter has a very strong program which came into practice back in the 1999-2000. They were ahead of the curve on this and stay committed. It has become one of the greater success stories of “ home shopping”.

MNB user Deron Braun wrote:

Recently the Kroger store in my area implemented the ClickList model and it appears to be doing quite well judging by the volume of cars going through the designated pick up lanes when I’m there.  As an instore shopper the ClickList has impacted the customer experience and hopefully Kroger realizes this. An example of how it’s impacting the shopping experience for the instore shopper can be found right in the aisles themselves.  It has become quite a challenge to maneuver in the aisles now when the ClickList shoppers are at work.  Their carts are much larger than the conventional customer shopping cart which makes it tough to go around and then when you encounter two in the same aisle, forget about going down that aisle.   Hopefully Kroger’s is thinking ahead and all new stores being built will widen the aisles and move the store pickup operations to parts of the store that do not affect the customer experience.




I wrote a commentary piece yesterday about the ubiquitous DirecTV commercials featuring quarterbacks Peyton Manning and Tony Romo doing their versions of the well-regarded Rob Lowe commercials for the same product. But I objected to these new iterations, mostly because while the Lowe ads made fun of people who act in less than appropriate ways (like stalkers), the new ones make fun of people who have high voices, skinny legs, or like to do things like make pottery or cupcakes. In other words, if you're not a quarterback, you're a loser ... and I find that message to be reprehensible.

MNB user Mark Heckman responded:

Kevin, it is undeniable that we live in a pop culture that is purposely being influenced by heighten personal sensibility emanating from a variety of sources,  including a bulging population of lawyers who make their living suing people for saying or insinuating something that might be harmful and insensitive.  I think we can all agree that some of this activity is a good thing when it comes to harmful speech that in some cases has actually led to teenage suicides and hardship. 

Bringing this back to retail, I once approved a television campaign I deemed rather funny and innocuous about "having such crazy prices that we must have lost our minds", only to find out the local mental health associations did not see either the humor or the appropriateness of such a topic.  While we didn’t intend to offend anyone, we apparently did and chose to never run that TV spot again.  On the other hand, I have had shoppers state their ire over offering Senior Citizens a 5% discount on Tuesdays, contending that other people besides Senior’s need discounts and we were discriminating.  The point being that the line between truly hurtful actions and nonsense is often very blurry.

I suppose if you happen to be a guy with a high voice and skinny legs, you have to decide if Peyton and DirectTV is laughing with you or at you.  In this country, you have the right to laugh at it,  get mad about it or just ignore it ……  More often than not,  I chose the latter and have no trouble sleeping at night.

I have no problem sleeping at night. I just have a soapbox, and I decided to use it.

And this is not me being politically correct - I'm the guy who thought that it was actually funny when Vermont Teddy bars made an "I'm crazy for you" bear that came wrapped in a straight-jacket.

From another reader:

So, I guess the campaign won't be effective with people who think like you.  The only thing that matters is how effective it is with people who don't.

So, in other words, people who think it is okay to be cruel to non-quarterback types?

Another MNB reader wrote:

I agree with you 100%. The first time I saw the Manning commercial I was immediately taken aback. I thought, who gives the ok for these things? What they are deeming funny is so far from the views of so many of their viewers and the population in general. Roma’s just added to their attempt at humor. I’m actually surprised Manning and Romo went for the script. I guess another example of anything for a buck. As if they need it.

And another:

Thank you, you have just stated my problem with these very same commercials.  The actions of the “non-cool” guy aren’t offensive or “loseresque”, just not a sports star (which defines the majority of the population) and quite honestly makes me less inclined to subscribe to Direct TV.

And still another:

Your critique of the Direct TV ads really struck a chord with me.  Here we are in an era where we’re finally slowly learning to celebrate differences.  And here we go with not only not celebrating, but “directly” mocking traits perceived as less masculine.  Incredibly tone-deaf.  I’ll bet the “men” at the agency thought this was a real hoot.  There’s no way a diverse organization would have signed off on this.  Is there?

MNB reader Timothy Bastic wrote:

Kevin, you are right on.  Today’s world has bullying issues in First Grade for heaven’s sake,  we do not need to be presenting folks as losers just because, as you say, they are not quarterbacks or successful people.  Thanks for the refreshing comments;  much like the Republican Debate last night no picking on each other but focusing on the issues and world issues.  Refreshing to say the least and also I appreciated the candor about mid-stream media being our worst enemy.  Kudos to the eleven candidates for a meaningful debate….
Perhaps the other side can learn from their example.

First time MNB has been compared to a GOP debate stage. But I guess there's a first time for everything...

MNB reader Jan Fialkow wrote:

Don’t have the time to include the names of all the products I refuse to buy because their broadcast messages imply that the users/buyers of said products are idiots, dolts, sexists or just generally unpleasant people I would never be friends with! What are they thinking?

They weren't.

And one more:

I just want to say your Direct TV commercial comments today are SPOT ON.  I couldn't agree more!  Thanks for a great read today and everyday.

My pleasure.

Published on: October 30, 2015

In Thursday Night Football action, the New England Patriots defeated the Miami Dolphins 36-7.

Published on: October 30, 2015

Been a busy week, so not a lot to write about here today, but...

I want to enthusiastically recommend to you the new season of "Longmire," which Netflix is running after A&E declined to run a fourth season.

"Longmire" is based on a series of novels by Craig Johnson (which I have not read), and focuses on a Wyoming sheriff who tries to keep the peace while wrestling with personal demons. I've often described the Jess Stone novels and movies as westerns that have been set in modern New England, and "Longmire" is a western that just happens to be taking place in the modern west.

Robert Taylor pretty much defines laconic in the title role, and there's a terrific supporting cast, with Lou Diamond Phillips first among equals. The first three seasons, also available on Netflix if you want to catch up, had the backstory of Longmire trying to figure out who murdered his wife; the new, fourth season wraps up that plot line early and moves on ... with Longmire now trying deal with how fictional Absaroka County is changing, driven in part by the arrival of casinos on a local reservation.

I like the series a lot ... and think it is interesting that Netflix is marketing it to people of a certain age who still like old-fashioned narratives. I hope they make season five, and a lot more down the road.




That's it for this week. Have a great weekend, and I'll see you Monday.

Slàinte!

Published on: October 30, 2015

Fresh & Easy began the last chapter of what has been a short yet painful lifespan this morning when it filed for Chapter 11 bankruptcy protection, listing debt of between $100 million and $500 million.

The company, now controlled by Ron Burkle's Yucaipa Cos., said last week that it was running out of money, could no longer fund the business because it could not get get additional financing, and would be selling off assets and laying off its staff.

Fresh & Easy began life in 2007 as British retailer Tesco's first foray into the US, launching in California, Nevada and Arizona amid promises that it would be a different kind of retailer uniquely in synch with the needs and desires of customers. Tesco seemed to find it singularly difficult to live up to those promises, and found ti tough to compete in many of the markets in which it built stores.

In 2013, Tesco filed for bankruptcy and sold the business to Yucaipa, which had a history of supermarket turnarounds, and for a time it appeared that Yucaipa might use Fresh & Easy as a vehicle to resurrect its Wild Oats, but that idea never seemed to gain much traction and the stores seemed to lose relevance with every passing day.

Yucaipa also is going through a bankruptcy with the Great Atlantic & Pacific Tea Co. (A&P), of which it is majority owners and that is selling off all its assets.

There were reports that Fresh & Easy management was hoping that it might be able to sell the company at the last minute, but no takers emerged.