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    Published on: March 9, 2016

    Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

    And now, the Conversation continues...

    KC: Tom, I have two different things I'd like to chat about this week..

    Last week's bankruptcy at Sports Authority strikes me as just the latest example of a bricks-and-mortar business being unable to compete in a digital world.  But as I think about that business, I'm trying to think about how I would've done it differently.  After all, they sell a lot of sports equipment - like clothing and shoes for various sports and equipment like baseball mitts - that I would think of as requiring one to try them on before buying.  But of course, that still means that there is tons of other stuff that doesn't require seeing and touching to buy, plus there is the matter of showrooming, in which people look at the equipment in the store and then look for a better online price.  Like I say, I'm not sure how I would've solved the problem if I'd been in Sports Authority management.  If you were, how would you suggest competing … and what are the parallels with other retail venues, like the food business?

    Tom Furphy:
    I would think of a store not as a place to store inventory for customers to peruse and purchase, but as the ultimate showcase for products. It’s not about product access, it’s about product experience.

    Embrace showrooming. It’s an advantage over online competitors. Make the store the must go-to place to try products in as “live” an environment as possible. For Sports Authority, that could mean pulling most of the inventory off the floor, perhaps keeping one or two units of each item on the floor for demo purposes. With all the room created by having less inventory, I would create experiential stations throughout the store – room to throw and catch a ball, space to swing a bat and make contact with a ball, space to chip golf balls, cast a fishing pole, or pedal a bike on a trainer. I would enable experts from the manufacturers to come into the store regularly for “demo days” to showcase products and interact with customers. I would have a robust mobile app that allows my customers to order the products they are trying, right then when they’re inspired. The inventory could sit in an efficiently organized backroom for immediate pickup (better responsiveness than online competitors), or it could be available for delivery in a couple of days (same responsiveness as online competitors).

    To help support the economics of this model, I would develop creative funding strategies with the manufacturers. We should be valued by them for providing a compelling demo environment. Whether the shopper buys from us or from an online competitor, we are adding value. But we would fight to get the sales with a great site/app experience and comparable pricing. I would also automate as much of our shopping experience as possible. Our website and app should provide a great experience to enable product discovery and easy purchase. Any replenishable items should move to a subscription platform. We would focus on the shopper and strive to deliver an unbeatable proposition of experience and efficiency.

    The parallels to the food business should seem obvious. Stores that win in the future will make the purchase experience for non-differentiated products as automated as possible via website, app and/or subscription. The perimeter of the store will expand to enable richer customer experiences. The produce department can parallel the farmers market, full of product experts. The fish monger or butcher will get out in front of the counter directly engaging with shoppers. Stores will teach cooking techniques to inspire shoppers to expand their boundaries. The experiential opportunities in the food business are almost limitless. This is where the industry incumbents, with stores, have the best opportunity for differentiation over online competitors.

    KC: Some of what you describe as being an ideal food shopping experience could be seen at Providore, the European food hall-style store in portland, Oregon, that I wrote about a few weeks here on MNB (it can be seen here), though at this point without the online component - when I saw it, in so many ways it seemed like a 21st century food shopping experience, albeit seen through the prism of a traditional European format.

    As far as Sports Authority goes, I agree with you ... though I think what you describe probably seems counterintuitive for traditional retailers. At Sports Authority, in so many ways, they seemed to adhere to a "pile it high, sell it cheap" philosophy that was completely non-differentiated. It also is interesting to see in the Wall Street Journal this morning a story about how Dick's Sporting Goods - which was prominently mentioned in news reports as a company that could take advantage of Sports Authority's issues by adding locations and attracting its customers - had a weak fourth quarter and is looking as short term issues as it tries to make both its stores and website more relevant and vibrant. I'd suggest that they start by reading your comments...

    But let's move on to another subject...

    There have been several stories in recent weeks about former Amazon executives being hired by companies like Target and Instacart.  I've always felt that as influential as Amazon is, it actually is more so because of all the former Amazon employees who worked there and then, for a variety of reasons, moved on to other corporate jobs or entrepreneurial opportunities.  Would you agree?  Is Amazon (and other, similar tech companies) the ultimate training ground and recruiting target for companies looking for great people with a 21st century retail orientation?

    I think there is some truth to that, but it is not as clear as you might think. Certainly, former Amazonians have a deep appreciation for the power of e-commerce. They understand what it takes to engage a shopper digitally and get them through to purchase. They appreciate the power of intelligence and personalization. They understand the nuances of the supply chain and all of the levers that are required to make e-commerce transactions profitable. They have plenty of scar tissue from experimenting and failing, then iterating until something works. They are bold. They believe that today is Day 1, they have bias for action and they seek team conflict in making decisions.

    That all works incredibly well inside Amazon, where the culture fosters (actually demands) it. However, in many corporate cultures, that can be caustic. Today you see certain former Amazonians thrive in corporate environments, while others bounce around. Those that thrive are sensitive to bring in just enough of the Amazon DNA to make a positive impact, but are sensitive to balancing that with the current culture. Those that bounce around tend to come in, cause a bunch of churn, and then move on because they are not a fit. Generally, if someone had career experiences prior to Amazon, they likely have a better appreciation for culture and are better suited for a corporate climate coming out of Amazon.

    As far as employees leaving Amazon to go on to become entrepreneurs in their own rights, the result is also a mixed bag. I was speaking with a venture capital investor the other day about this topic. His take is that he has not had much success in backing former Amazonians. He has observed that many people that are trained in the Amazon way, perform best as a cog in the Amazon machine, and that it is hard for them to thrive independently on the outside. While they can be entrepreneurial inside the support system of Amazon, they are not nearly as effective on their own without the safety net.

    I can see his point. It seems like many of the best former-Amazon entrepreneurs – like Jason Kilar of Hulu or Nadia Shouraboura of Hointer – had either run their own companies before Amazon or were in Amazon so early that they had a direct hand in building the Amazon machine.

    KC: That makes sense. It seems to me that while it won't always be workable, one of the things that business leaders have to understand is that if you bring someone on with the goal of getting them to disrupt from within, you actually have to let them disrupt, though I totally get what you're saying about how, if not well managed, this can cause cultural tumult that can be counterproductive. But I guess my message to retailers generally is that if you can make it work, it's worth the effort ... because if you don't disrupt from within, there will be people who will disrupt you from the outside. And the technical term for those folks is "competition."

    The Innovation Conversation will continue ...

    KC's View:

    Published on: March 9, 2016

    by Kevin Coupe

    This probably was inevitable. The implications could be far-reaching.

    Variety reports that "Amazon is set to debut a live, daily show dedicated to fashion and beauty. 'Style Code Live,' a 30-minute show, will stream starting today, Monday through Friday, at 9pmET/6pmPT, and be offered free to all viewers at" The show will have a stable of hosts as well as guests, and "will offer viewers tips on fashion and beauty. Viewers will then be able to shop for the corresponding products in an accompanying gallery just below the video player."

    Unlike most such shows, I suspect, the metrics for whether this successful will have less to do with how many people watch and more to do with how much stuff is sold because of the subjects it covers. I do think that they need to be careful not to make it seem like an advertorial ... they'll gain credibility by being willing to not sell certain products that they don't feel meet their standards. This strikes me as being entirely within Amazon's wheelhouse, since it is the company that virtually created the concept of online user reviews for products it is selling.

    But what really makes this interesting is Amazon's willingness to go live. I've been writing for several years now that it strikes me as just a matter of time before Amazon - and its brethren, such as Apple and Netflix and Facebook, for example - start bidding on the rights to carry major sporting events. They have the money, they have the users, and they have the desire to create ecosystems that simultaneously cement and expand their brands.

    Which leads me to another story ... the piece in this morning's Los Angeles Times saying that Facebook is in negotiations with the National Football League (NFL) to live stream "Thursday Night Football" games.

    The Times writes that "a matchup of the titans of tech and TV would mark a watershed moment for the media and Silicon Valley, whose leading companies are flush with cash and hungry for premium content to attract more eyeballs and ad dollars ... Amazon, Apple, Google and Verizon are also rumored to be interested in a deal that is likely to command hundreds of millions of dollars for the NFL."

    It is just the beginning. It reflects the disruptions that are taking place in virtually every industry. And it is an Eye-Opener.
    KC's View:

    Published on: March 9, 2016

    The Boston Globe reports that a Chipotle in Billerica, Massachusetts, has been temporarily closed by the company following the diagnosis of four employees with norovirus.

    According to the story, "All employees who feel sick will be tested and not allowed to return to work until they recover. The restaurant will be fully sanitized before it reopens."

    The story goes on to say that "a Chipotle in Brighton’s Cleveland Circle was at the center of a recent norovirus outbreak in December. About 140 people, largely made up of Boston College students, fell ill with symptoms of norovirus after eating there. A follow-up inspection found three critical health violations at the restaurant."
    KC's View:
    This appears to be part of Chipotle's Defcon-three approach to food safety, always on alert and ready to react to even the smallest incident. A few months ago, this probably wouldn't even have been noticed... but in a transparent, highly sensitized food safety environment, this is what food companies have to do.

    To coin a phrase, the price of staying healthy seems to be eternal vigilance.

    Published on: March 9, 2016

    USA Today reports that Dos Equis has decided to retire its "Most Interesting Man in the World" advertising campaign, which has, over the past nine years, helped enable the brand to almost triple its business.

    The character - who says, "I don't always drink beer, but when I do, I drink Dos Equis" - always has been shown as living a rich, diverse and fascinating life, and described with phrases such as "sharks have a week dedicated to him" and "Presidents take his birthday off." He has been played by Jonathan Goldsmith, who has had some contractual issues with the ad agency ... which may partially explain why, once the character has been retired, he will be replaced by a younger, equally interesting character, though details about the new campaign have not yet been revealed.

    According to the story, "Dos Equis knows that change can be divisive, which is why the brand along with the creative agency behind the ads, Havas, have spent the last year and a half thinking about the campaign's next move ... But first, Dos Equis will ride Goldsmith's departure for the next several months. The brand has plans for a social media campaign leading up to Cinco de Mayo using the hashtag #adiosamigo and will distribute life-size cardboard cutouts of Goldsmith to grocery stores and bars for fans to pose with. The brand will also give customers the chance to win some of the Most Interesting Man's possessions, like his mariachi suit, plus a grand prize trip to Mexico. Then, it will be time to move on."
    KC's View:
    These guys don't need any advice from me, but if I were running this campaign, I'd make sure what when the Most Interesting Man in the World heads off into the sunset, his phone number is on speed dial. The new campaign could work, but it might not ... in which case they'll be able to get a lot more publicity by bringing him back. (I think Priceline tried to retire William Shatner's spokesman character a few years ago, but had to bring him back just because of popular demand. It happens when a persona seems interconnected to the brand.)

    I'm not nuts about the new (final?) ad in the campaign showing the Most Interest Man taking a one-way flight to Mars; it seems forced, as if they can't wait to get him off the stage. On the other hand, if the new campaign doesn't work, they can do a series of ads in which he is rescued from Mars, like in The Martian.

    That'd be okay, though. If I recall correctly, the Most Interesting Man in the World is forever young ... after all, didn't he find the Fountain of Youth, but not drink from it, because what's the point?

    I suspect we'll see him again.

    Published on: March 9, 2016

    The Wall Street Journal reports that "after years of management, menu and marketing changes, Burger King has finally figured out what it wants to be: a fast-food chain. Following unsuccessful efforts to appeal to a broader, more health-conscious customer base with salads, snack wraps, smoothies and low-calorie french fries, the unit of Restaurant Brands International Inc. has returned to its roots as a purveyor of inexpensive burgers, fries and, now, hot dogs."

    The company says that its efforts to simplify its menu and get back to basics has improved the company's prospects to the point where it is considering expansion - there has been virtually no new Burger Kings in the US for the past few years, but now the company thinks it can add "thousands" over the next five years.

    Getting back to the company's original identity has meant that "restaurants bear signs saying 'grilled since 1954,' wooden tabletops are branded with the Burger King logo, and the company is promoting its flame-grilled hot dogs as tasting like they’re from a backyard barbecue."
    KC's View:
    Of course, based on my limited experience with Burger King, I'd suggest that its burgers taste like they've been cooking since 1954. But I'm a fast food snob/cynic.

    Published on: March 9, 2016

    The Los Angeles Times reports that Whole Foods "has signed agreements with SolarCity and NRG Energy Inc. to install rooftop solar units at up to 100 stores and distribution centers." The locations are in nine states, though the companies have not yet disclosed specifics.

    The story notes that Whole Foods currently "has rooftop solar installed at 20 stores," and that "a store's rooftop solar unit can generate about 5% to 20% of the yearly electricity that store needs."
    KC's View:
    A decision that is entirely consistent with its brand. No argument here.

    Published on: March 9, 2016

    • The Columbus Dispatch reports on the development of "a collaborative $10 million state, federal and private program" that is designed to "provide loans and grants to grocery stores to encourage them to locate or remain in under-served areas of the state" ... The program will make loans and grants available to large and small grocers as incentives for them to build stores in low- and moderate-income areas, or to renovate and remain in those neighborhoods. Funding will be available for land acquisition, construction, equipment, infrastructure and related expenses, officials said in a statement.

    "The money will come from a public-private partnership: $2 million from the state, $2 million from the federal government and at least $6 million from the private sector. About five to 10 projects could be funded initially."

    • The Bellingham Herald reports that "the union that represents Haggen employees says that government regulators have given approval to a potential deal where Albertsons would purchase the remaining core Haggen stores ... In a written statement, the United Food and Commercial Workers International Local 367 said the Federal Trade Commission has approved a potential acquisition of the core stores and that both Albertsons and Haggen are finalizing the purchase agreement."

    Haggen has not commented on the report.
    KC's View:

    Published on: March 9, 2016

    • Walmart said yesterday that Marcus Osborne, the company's vice president of health and wellness payer relations, has been promoted to the role of vice president, health and wellness transformation.

    • Weis Markets announced it has hired two new directors to support the company’s operations and marketing departments. Crystal Osunde, PharmD, has joined the company as Director of Pharmacy Operations and Ed Sheedy has been appointed Director of Category Analysis, Promotional Income & Retail Strategies.

    Osunde held pharmacy-related management positions at both Target and CVS, and Sheedy was Director of Category Management Insights at Ahold USA.
    KC's View:

    Published on: March 9, 2016

    George Martin, the legendary British music producer who helped bring the Beatles to fame and fortune in the early sixties, and who was often referred to as the "fifth Beatle" because of his influence on the band, has passed away. He was 90.

    Martin was knighted in 1996, and inducted into the Rock and Roll Hall of Fame in 1999. He once told the Wall Street Journal that, "Put simply, my job was to make sure recordings were artistically exceptional and commercially appealing, maximizing the qualities of artists and songs.”
    KC's View:

    Published on: March 9, 2016

    From an MNB reader...

    On your Monday story from the NYT about list prices, retailers in California are talking about an effort by the Attorney General to end the practice of long-term TPR prices. No one seems to know what the outcome will be, but what is being targeted is apparently the practice of having a long-term or permanent TPR tag on the shelf that shows a regular price that is never in effect, and a discounted price that is actually the everyday price. Which is common for almost all supermarket retailers in CA. It will be interesting to see how this plays out.

    This kind of stuff may not be illegal. But it doesn't exactly sound transparent.

    Regarding the regulatory issues that may derail the Staples - Office Depot merger, MNB user Bruce Wesbury wrote:

    I for one hope the Government stops the merger. This will allow Office Depot to die a slow death and help Staples regain some lost market share a lot cheaper than the merger would have cost.

    We wrote yesterday about tennis star Maria Sharapova, who said that she was found to have taken a banned substance in tests administered at this year's Australian Open, calling it a "huge mistake." Sharapova said that the drug was a heart medication that she has been taking for 10 years, but that recently has been placed in the 'banned substance' category by the World Anti-Doping Agency; she said that she should've known that it had been banned but did not, and she took full responsibility for her mistake.

    One MNB user responded:

    Bravo Maria!  I think?  She has taken a substance for her heart for 10 years and now it is performance enhancing?  Ok; if she in fact has a heart condition and she needs the medication; shame on Nike for their knee-jerk response.  I hope it is what it seems; we need role models that own what they do!  Sharapova 30; Tennis Love.

    It wasn't until after MNB was posted yesterday that I saw the stories about how Sharapova was losing endorsement deals with companies like Nike (which, ironically, has stood up for some pretty sleazy male athletes over the years). I was surprised how fast some of these companies moved; perhaps they've been burned so many times that they have no tolerance for potentially risky alignments.

    If Sharapova's explanation is both true and accurate, then I think they should've stuck with her.

    We continue to get email about Starbucks' much discussed changes to its loyalty program.

    One MNB user wrote:

    Although I do not completely agree with Mr. Coupe on this one, given the choice of staying with Starbucks or drinking the likes of Dunkin Donuts Coffee; a Loyal Starbucks customer is there for the coffee.  The free item is just a perk.  A bad cup of coffee, is an all day experience!!

    I work in the retail trade Nationally and the one thing you can give Starbucks credit for is a pretty good cup of coffee no matter where you travel.  It’s a lot like shopping at a Kroger or Public’s and a Walmart.

    You don't have to call me Mr. Coupe, whether you agree with me or not.

    From another reader:

    Kevin, you might be right, but I have the choice between Starbucks and Caribou. I visited both, but used my Starbucks program more because of their reward program and payment program.  As soon as I read the new program details, I did the math and made my decision. Deleted the app of my phone, and gave all my business to caribou. Just one person, but in my mind they lowered the value of their program.

    From MNB reader Kris Widener:

    The change may not turn people completely away, but for folks like me that will buy 2-3 coffees per day justify it knowing I'll have a free sandwich or "fancy" drink to enjoy by the weekend are very turned off. The dissuasion to use the app should be their real concern. Kroger has the reward mechanism right and it'll be interesting to see how the less achievable "reward" impacts card use.

    From another:

    What a bummer about the changes to Starbucks loyalty program!  I've been a gold member for the better part of a decade now and to be fair - this may be the change that makes me just not care to go there anymore.

    My husband and I usually get venti brewed coffees (diabetes runs on both sides so we try to avoid excess sugar) and the loyalty program was the only thing that kept us going to Starbucks - it's really not that great of coffee compared to some of the local roasts we can get around here (if you make it to Cincinnati - Coffee Emporium - fantastic).  When I first joined, 10 visits got me a free drink.  Now 12 and soon (by my calculation) around 15.

    I never asked to have separate transactions because, well I would get to my free drink soon enough (and normally my gold membership - due to expire in Dec was renewed by March at the latest).  The local places around here all offer buy 10/12 get one free - and I'm supporting local economy, and at least one has a drive through so I don't have to wait until I get my kid dropped off at school to get my coffee (as opposed to having to run into Starbucks).

    Maybe they should look into grandfathering people - or even go by the ounces of coffee? I don't know, but this will make me think twice before pulling in.

    And another:

    I’ll be interested to see how Starbucks values items that are not purchased at their store.  I purchase Starbucks coffee from the grocery store and wonder how they convert that ‘value’ in stars.  And, it’s been easy to be a gold member with 30 stars, now they want me to spend $150 for gold status?  Might be just as easy to maintain that status, but since my closest Starbucks is an hour away, I can’t just pop-in to take advantage of promotions.  Feeling penalized.

    I don't think they'll do anything to reward people who buy Starbucks products elsewhere ... it just doesn't seem workable.

    So far, I seem to be in the minority. Which I find weirdly reassuring.

    Finally, in Michael Sansolo's column yesterday about the need for a little theatrical savvy in the modern retail store,, there was this passage:

    So, it isn’t about Meryl Streep working the deli. (Though, in view of our ongoing infatuation with the movies, it is worth noting that Streep played the owner of of upscale grocery store in "It's Complicated.") It is about building store personality through our people, one at a time. It’s about finding people who like to interact with other people to give our store that extra edge.

    Extra credit to MNB reader Cindi Sandy:

    Sorry, but Meryl Streep owned a bakery in It’s Complicated.

    You are absolutely right.

    And for the record, that was not Michael's mistake. It was mine ... I added the line during the editing process.

    My apologies for the goof.
    KC's View: