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    Published on: June 30, 2016

    This commentary is available as both text and video; enjoy both or either ... they are similar, but not exactly the same. To see past FaceTime commentaries, go to the MNB Channel on YouTube.

    Hi, Kevin Coupe here, and this is FaceTime with the Content Guy.

    The Wall Street Journal had a story the other day about how some retailers are taking a new approach to inventory. The radical thinking seems to be that "less is more."

    Home Depot is one of the companies cited in the piece, with management saying that rather than having floor-to-ceiling displays of merchandise, the idea is to have less stuff, but all of it within the shopper's reach.

    Walmart and Target also are mentioned in the story, which says that they simply want to have less inventory - just what they need to have, when they need to have it. Walmart has even widened its aisles to make it harder to have more inventory.

    The financial calculation, put put it in terms that even I can understand, is that by having less inventory - but the right inventory - chains will be able to grow sales while keeping their cost of goods flat or even lower. I'm not sure, but this sounds to me a lot like this thing called ECR - Efficient Consumer Response - which consultants created and retailers embraced back in the Jurassic era as a way for supermarkets to try to compete with a newly aggressive (and, at the time, almost stealth) Walmart on costs.

    If there is a reason that ECR didn't have the kind of industry staying power that some would have hoped, it may be because most companies forgot about the "consumer" part of it. They were pretty good at efficiency, but they looked for efficiencies in their own supply chains, but often ignored what consumers needed and wanted. The sad but unavoidable truth is that consumers don't always do what retailers and suppliers want them to do. You can use algorithms to analyze their behavior and react to it, but they are not so successful at forcing shoppers to behave one way or another.

    I've always had to chuckle at all this stuff because, after all, I've spent most of the past three decades doing a large percentage of my shopping at Stew Leonard's - an independent retailer that generally has stocked something like 2,000 items, and that reportedly did about $2 million a week out of the store that I patronized. Most of the items are fresh, and a large percentage are private label. The thing is, I think they figured this all out because they started by carrying just a dozen items or so, and grew slowly and organically, carrying what they knew consumers would respond to. There never was any delusion that they could be all things to all people, or that people wouldn't have to shop elsewhere for the things they did not have. But there was utter certainty about what its retail experience was all about, and that certainty has seen the company through good times and bad, and Stew Leonard's remains a vital retail entity that tells a compelling story from the moment you walk in the front door, and they collect your money for the privilege on the way out.

    The key - and this is most assuredly not rocket science - is having that kind of feel for the shopper, and an extremely strong sense of what your retail brand is. I would never argue that everybody should be like Stew Leonard's ... but I would argue that the way to success is not by simply saying "let's cut inventory," because that's more like a "strategy-of-the-month approach. Tell me the truth: having read about the less-inventory approach in the Journal this week, would you be surprised or shocked if a year from now the Journal has a story about how these same chains are adopting a more-inventory approach?

    Of course not. Because at the end of the day, these companies are looking to solve a wide variety of problems - like the growing market share enjoyed by online competitors - by adopting strategic and tactical approaches that have been crafted out of a desire to be strategic and/or tactical. Not necessarily by an intimate, instinctive understanding of the shopper. They lurch from strategy to strategy because they're trying to find an answer, not because they've said to themselves, "we know who we are, we know who our shopper is, and we know how our differences can make a difference in their lives."

    And that's the key. At least that's what I think.

    There always are going to be cool and innovative ideas, and I'm a big fan of embracing them. Hell, MNB exists because I think that it is important not just to identify them early, but also put them in context.

    At the FMI conference last week, Nadia Shouraboura, founder and CEO of Hointer, talked about her company's efforts to bring a low inventory approach and a retail environment that relies on robotics to a wider number of retail venues. I'm a big fan of Hointer . in fact, I was writing about the business here on MNB more than three years ago. When I went to visit its store last time I was in Seattle, it had been closed down ... I suspect the "retail consultancy" part of the business simply is more lucrative than the "retail" part. That was my argument three years ago - that while Hointer was in the business of selling jeans, it really was in the business of selling technology.

    By the way, I'm not denigrating Hointer. Not at all. I think it is a really cool idea. But I do think that there will be some retailers that will look at what it offers and think that it is a magic key that will unlock the future for them, as opposed to seeing it simply as a tool with which they can advance their central argument about why they are relevant to the shopper.

    If you don't know that, and if that knowledge has not seeped into every level of your organization - the way it has at retailers that range from Wegmans to WinCo, from Dorothy Lane to HEB, to name just a few - then all the Journal pronouncements and consultant-driven strategies in the world can't help you.

    Anyway, that's what is on my mind this Thursday morning. As always, I want to hear what is on your mind.

    KC's View:

    Published on: June 30, 2016

    by Kevin Coupe

    Okay, we have one more addition to the list of products that most people probably would've guessed could not be sold online and delivered by the local FedEx or UPS guy.

    Mattresses.

    Sure, there long have been ways of buying mattresses online or over the phone (1-800-mattres), without having to go to the mattress store. But my friend Bryan Silbermann - yes, the same Bryan Silbermann who is the CEO of the Produce Marketing Association (PMA) - was telling me the other day about an experience he'd had with a company called

    Tuft & Needle, which was started by a couple of guys from Silicon valley who were frustrated with the mattress-buying experience.

    So they put their brainpower to work, and developed an "adaptive foam" model that they say is perfect for side, back & stomach sleepers - and for which they offer a 100-day guarantee. The mattress - which is extremely competitively priced - is shipped via traditional delivery methods in a box ... which the consumer opens, which results in the mattress unfolding. (See the video above. It is totally cool.)

    If you don't like the mattress, the company refunds your money, and asks you to donate it to a local charity.

    Now, when Bryan told me about this, he'd just ordered his mattress, but it hadn't arrived yet. Subsequently, he reported back to me that the experience was every bit as easy as the company claimed it would be, and that the mattress was the most comfortable he'd ever slept on.

    In other words, an Eye-Opener. Except that the idea here is that for the experience to work, your eyes actually have to be closed.

    KC's View:

    Published on: June 30, 2016

    The Wall Street Journal reports that Amazon "has quietly begun its first broad push into perishable private-label foods," offering for sale this week on its site "whole-bean and ground coffee under its new Happy Belly label, pitting itself against crosstown rival Starbucks Corp. Amazon also has rolled out bottled Mama Bear baby food in two flavors."

    The story notes that "similar to its rollout of private-label clothing lines over the past year, Amazon released its new products with virtually no fanfare," but that if successful, the products should be able to bring the retailer higher profit margins. "Amazon has taken pains to disguise the provenance of its new private labels," the story says, adding that "neither of its product description pages identify Amazon, and a customer service phone number is for AFS Brands Inc. in Seattle. A representative there said the acronym stands for Amazon Fulfillment Services."

    The Journal also reports that "Amazon seems to be hoping to establish its brands as something other than just discount alternatives to mass-market competitors. Bags of 12-ounce Happy Belly coffee cost $9.99 each, about $2 more than Starbucks’s breakfast blend, but about $3 less than Starbucks’s French roast in a similar size. And it is less expensive than some small-batch roasters."
    KC's View:
    Amazon has done this before - like with diapers - and it hasn't always worked out. As much as a fan as I am of Amazon, it is hard for me to figure out why I'd try their coffee rather than stick with my usual Starbucks blend, or my favorite Stumptown blend. I would think that a key factor will be generating trial, and then making sure that people actually see its products as having a differential advantage that will cause them to change established behavior.

    Then again, getting people to change established behavior is sort of what Amazon does best. I may be a little skeptical on this effort, but that certainly doesn't mean I'm right.

    Published on: June 30, 2016

    The Wall Street Journal reports that "Visa Inc. fired back at Wal-Mart Stores Inc. in a legal dispute over letting customers authorize a debit-card transaction with a signature, saying that the retailer secretly configured its payment terminals so only personal identification numbers, or PINs, could be used.

    "Visa said it received complaints from customers who could no longer use their debit cards at Wal-Mart stores unless they had a PIN," and charged that Walmart's move "violated the contract that the companies had negotiated in which Visa told the retailer that customers must be given the choice of using a signature."

    The story notes that Walmart sued Visa last month, saying that PIN-based transactions are both more secure and less expensive to process. But the banks prefer signatures since they have healthier profit margins attached to them.

    The suit against Walmart comes just days after Kroger sued Visa over debit card transactions, charging that it was being penalized by the company because it was pushing customers to use PIN-based payment verification instead of signatures.

    “We have rightfully insisted on the use of PIN for debit card transactions in our stores while Visa has continued to demand the more fraud-prone signature verification, which is more profitable to them,” Walmart replied on Wednesday in a prepared statement.
    KC's View:
    I continue to believe that retailers have the high road on this one, and that they need to invest in a major PR campaign against the credit/debit card companies that establish the retail sector as being on the side of consumers. Of course, that's probably against the rules of the game as dictated by the card companies. So maybe FMI or NGA or NRF or NACS could figure out a way to fight the war for them.

    Published on: June 30, 2016

    Just days after reports surfaced that Walmart was ready to begin a national rollout of its Shipping Pass program, which is designed to compete with and undercut Amazon's Prime service, it now is being reported by USA Today that Walmart "is going to offer a free 30-day trial of its ShippingPass, good for unlimited two-day shipping. After the trial period, the price is $49 a year."

    That's half the $99 annual membership cost of Prime.

    Walmart previously had said it would cut its guaranteed delivery from three days to two, matching Amazon's promise.

    In its analysis, the Washington Post writes that "Walmart will face no shortage of challenges in trying to lure shoppers to sign up for Shipping Pass. Prime debuted back in 2005, and analysts have estimated some 40 million Americans have memberships. In other words, many online shopping devotees have already become accustomed to turning to Amazon first, and they’ve made a habit of an unbundled approach to online ordering that Prime encourages, in which they might snap up a book one moment, only to follow with an order of paper towels several minutes later.

    "So Walmart will have to persuade those people to jump ship for Shipping Pass, or cultivate a new group of shoppers to test the appeal of this kind of model."

    Meanwhile, the challenge to prime's supremacy comes as Amazon has announced its 2016 "Prime Day" will be July 12, during which it hopes to replicate the success of the initial version last year, during which it offered limited specials only Prime members - and generated the sale of 34.4 million items.
    KC's View:
    I'm skeptical, but I'm a Prime guy ... not just for the shipping, but also for the other content advantages that it offers. In the end, Amazon may cost more, but people also may well judge it to be the more robust offering.

    Published on: June 30, 2016

    Want to figure out where your customers are? Well, the odds are better and better all the time that they are in front of some sort of screen.

    The Associated Press reports that Nielsen is out with a new study saying that "people spent an average of 10 hours, 39 minutes each day with smartphones, tablets, TV, radio, computers and video games during the first three months of 2016," which was a full hour more that the nine hours, 39 minutes they racked up daily during the same period in 2015.

    Much of that added time is being spent with smartphones, Nielsen says: 81 percent of American adults use a smartphone regularly, and, "of the additional hour in media time that Nielsen has measured this year, smartphone usage accounts for 37 minutes and tablets 12 minutes. Online smartphone use averages an hour and 39 minutes a day — more than double what it was two years ago, Nielsen said."
    KC's View:

    Published on: June 30, 2016

    Newsweek reports that while the Federal Aviation Administration (FAA) has created new rules covering the use of commercial drones, albeit rules that do not empower companies like Amazon and Google to use them for deliveries, it also essentially has created "a legal framework" that will allow anyone who wants to get into the delivery-by-drone business to "work faster to make new rules to accommodate package-delivery drones to fly in American cities as soon as the end of the decade. The attorneys feel confident that the political interest within the FAA and Congress, as well as the lobbying push from Amazon and Google, will make package-delivery drones come sooner than later."

    That's not to say there won't be logistical and even legal issues. But Newsweek suggests that the new rules set the stage for a delivery-by-drone revolution, rather than tamping down on the possibilities.
    KC's View:
    Again, this won't be for everyone, and it won't be for everywhere. But it certainly seems to me that this is a concept that is ripe with possibilities, and I agree (without, I concede, a scintilla of aviation expertise) that it'll happen sooner rather than later.

    Published on: June 30, 2016

    Fortune reports that Walmart-owned Sam's Club is hoping to take advantage of recent travails at Costco over its switch from American Express to Citi Visa as its exclusive partner. Between now and July 4, Sam's announced, people with Costco membership cards can use them to shop at any Sam's Club.

    The move is part of a broader effort being engineered by Sam's management to get more competitive. Sam's also has begun offering self-checkout and store pickup, as well as a stronger food offering.
    KC's View:

    Published on: June 30, 2016

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

    • Chipotle continues to use promotions to drive customers back into its stores after the food safety scares that roiled its business. Investor's Business Daily notes that the newest effort is called Chiptopia Summer Rewards, and it rewards people not based on how much they spend, but on how often they visit a Chipotle and order an entree.

    The three-month program, the story notes, is aimed at recreating old consumer habits, not the expenditure of big bucks in a single visit.

    This is, of course, just the opposite of what Starbucks has been doing ... and for which it has been criticized in some quarters. It is interesting, I think, that the program is designed at re-establishing old habits, rather than generating immediate sales. It may tell us something about how hard Chipotle got hit by the food safety problems it had.


    • Now, it is the dollar stores being targeted by an online startup.

    Money has a story about Hollar.com, described as a company "hoping it can transfer the dollar store shopping experience to the web. It operates exclusively online, and ... as been open for business for a little over half a year."

    here's how the site is described by Money:

    "Hollar.com is not a dollar store in the sense that everything costs a flat $1; instead, almost everything is priced between $2 and $5. Free standard shipping is included for orders of at least $25. Hollar tells us the site has “tens of thousands” of products for sale and adds hundreds of new items daily. When we checked, there were roughly 40 items listed under the category of beach toys, for what it’s worth. The site’s runaway hot seller (more than 100,000 sold) has been mini pillow pets, which are priced at $2 a pop, compared with $7 and up elsewhere."
    KC's View:

    Published on: June 30, 2016

    ...will return.
    KC's View:

    Published on: June 30, 2016

    As is my custom at this time of year, I'm going to be taking a couple of weeks off…

    MNB will be on hiatus from now until Monday, July 18. It seems like a long time, but I'll actually only be missing 10 editions. (Not exactly a Johnny Carson schedule ... a reference that I know makes sense only to a certain percentage of the MNB audience.)

    Being in the Pacific Northwest, I'll be spending the time with Mrs. Content Guy and some friends, and we'll be biking, hiking, wine tasting, beer drinking, rafting and probably a bunch of other stuff. I'll also be teaching at Portland State during the MNB hiatus, as well as going to the (sold out!) Organic Produce Summit, where I'll be moderating a panel on the impact of e-commerce. (Naturally.)

    Between now and my return the MNB archives will, of course, be open. And, I may post the occasional note or picture on Facebook if the spirit moves me … sometimes I can't help myself!

    Thanks…I hope you'll also get some time this summer to recharge your batteries.

    And, as always…

    Fins Up!


    KC's View:

    Published on: June 30, 2016

    Bloomberg is reporting that the US Court of Appeals in Manhattan came down firmly on the side of retailers with a ruling today that rejects a $5.7 billion settlement of a case brought by retailers against Visa and MasterCard alleging improperly fixed credit card swipe fees.

    While the settlement had been reached between lawyers for the card companies and attorneys representing the retailers, a number of major retailers - such as Walmart, Target and Amazon - had criticized it for being too weighted in favor of Visa and MasterCard; for example, they objected to a clause in the settlement that bound every retailer who ever takes either card, in perpetuity, to the terms of the deal, and they also had problems with being barred from ever suing the card companies again.

    The judge specifically took issue with those clauses, and he criticized the retailer attorneys for not doing enough to protect the interests of their clients. "This is not a settlement; it is a confiscation," US Circuit Judge Pierre Leval wrote.

    The Bloomberg story says that "the ruling is a blow to credit-card firms that sought to put an end to bitter court battles over fees amounting to tens of billions of dollars annually. The lawsuit, brought on behalf of 12 million merchants nationwide, was filed a decade ago after earlier disputes over the fees. The rejection of the deal raises the prospect that it will have to be renegotiated or the case may go to trial."

    The story notes that "the settlement was announced in July 2012. Once worth as much as $7.25 billion, it was valued at about $5.7 billion as of August 2013 after reductions for about 8,000 merchants that dropped out of the damages portion of the lawsuit."

    The ruling comes as both Walmart and Kroger are in court battles over debit card transaction fees, evidence that high tensions between the card companies and the retail sector have not only not subsided, but may be reaching new levels.

    MasterCard said was disappointed by the ruling and was considering its options. Visa has not yet commented.
    KC's View:
    I'd say that the banks out to be licking their wounds at this point, and figuring out how to proceed without losing all their dignity. (This should be difficult. Which is a good thing.)

    I'm sure there will be appeals and countersuits and press releases and all the lawyers will end up getting rich - even the clowns who apparently didn't do a decent job representing their clients. But as far as I am concerned, it is a good day when banks and lawyers get slapped around at the same time. Put 'em in their place, I say. It isn;t likely to last, but we can enjoy the brief victory while it lasts.

    Here's the thing, though. This is the moment when retailers have to take the high road ... and communicate clearly and effectively to their shoppers that they are taking these legal steps to hold down prices and better represent consumer interests. That message has to be bold and unambiguous.

    And then, of course, they have to live up to the claim. (That may be another issue. But that's for another day.)