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    Published on: September 12, 2016

    by Kevin Coupe

    Last week, it was widely reported that the US Navy accepted delivery of what was described as the most technologically advanced and complex warship ever built - the USS Zumwalt, a 610-foot stealth destroyer that cost $4 billion to construct. (You can see the picture at right.)

    I was on the US Navy site, reading about the Zumwalt, and found a piece by Rear Adm. James Downey, who supervised the building of the Zumwalt for more than 2,000 days.

    "Building a first-of-class ship is no small feat, and this team faced their share of challenges in doing so,"Downey writes. "Inspiration, however, was never one of them. Adm. Elmo 'Bud' Zumwalt Jr., whose name will forever be inscribed on the ship’s stern, was a man who led by inspiration. He inspired people, ideas, change and innovation, and he was a firm believer that it has always been and will always be the people that set our great Navy apart from the rest."

    Downey also writes that, among the many lessons he learned during the project, there were a couple that stand out. And I thought they stood out as lessons that could be applied to many business, and worth sharing here.

    "Much of the success of this program is based on taking calculated risk and owning that risk. After Adm. Zumwalt assumed his role as CNO, he told his staff, 'My basic philosophy is, if a proposed change is in doubt, make it and see what happens. It is easy to get a thousand reasons why you shouldn’t do something…change it and see how loud the screams are'.”

    "As practiced by this ship’s namesake, value your people. Technology and capability change by the minute. What doesn’t change is the drive and the dedication of the people you are leading. They are your greatest investment."

    I love these lessons. Embrace change, and see how loud the screams are. And know that one's people are always greater change agents than technology.

    Eye-Openers, I think.

    One other quick note. Considering how other-worldly the USS Zumwalt looks, it strikes me as kind of poetic the name of the man who commands the ship.

    Captain James Kirk.


    KC's View:

    Published on: September 12, 2016

    The Detroit Free Press had a story over the weekend about how industry experts believe that Kmart could be headed to bankruptcy as early as next year, as it faces the reality of "plunging sales, deteriorating finances," as well as the closure of "hundreds of unprofitable stores in the past decade in an effort to stop the losses, which have exceeded $8 billion since 2011. Once known for blue light specials, Kmart is now infamous for its red ink."

    "It's incredibly hard to run a retail company when every quarter you get less sales and less customers coming through the door," says Neil Stern, senior partner at McMillan Doolittle. "You can only cut costs for so long and sell assets."

    Kmart spokesman Howard Riefs, needless to say, has a different take on the company's position: "We are an asset-rich enterprise with multiple resources at our disposal to fund our transformation, including $4.7 billion of inventory already paid for; a substantial, valuable real estate portfolio and leading proprietary brands such as Kenmore, Craftsman and Diehard."
    KC's View:
    Asset rich? Really? Because it seems to me that those assets don't include any significant level of innovative leadership, marketing smarts, merchandising savvy, or a workforce that has been empowered to make a difference at the grassroots level. Add to that fewer customers and sales, and the image of a company that is closing stores and selling assets, and one has to wonder exactly what meaningful assets Kmart is talking about.

    Published on: September 12, 2016

    The Seattle Times reports that Amazon is actively pursuing video rights to light sports events as a way of attracting viewers to its online streaming service, which it hopes would also turn those people into customers.

    The sports it is looking at in the near term include the French Open tennis championships, professional rugby, golf, auto racing and soccer, the Times writes, noting that they all are perceived as having global appeal. Amazon also is interested in baseball and basketball, but the video rights for those sports tend to be unavailable "for the foreseeable future."

    The Times writes that "with live sports, Amazon could offer programming viewers can’t get from rivals like Netflix, and erode the traditional media companies’ hold on some of the most valuable TV fare." Amazon already spends "billions of dollars a year" on video programming, including original TV series and movies; the story notes that Amazon "has been exploring the creation of a live online pay-TV service since late 2015."
    KC's View:
    This seems entirely sensible to me in terms of Amazon's strategic thinking, and entirely likely in terms of the options people will have in terms of watching live events.

    I'm rather surprised that Amazon hasn't offered to host a presidential debate on the subject of technological innovation and the future of business ... they could curate questions from the Amazon customer base, and I think the candidates would turn this down at their own peril. (If nobody at Amazon had this idea, and this prompts them to do so, I'd like to volunteer my services as one of the panelists asking the questions. I have a bunch of them.)

    Published on: September 12, 2016

    The Denver Post reports that Chipotle has settled 97 cases over the past several months that were brought by customers made ill by food they'd eaten at the fast food restaurant. In each of the resolved cases, the story says, the cause and effect were confirmed by the US Centers for Disease Control and Prevention (CDC), so there was not much room for Chipotle to debate the issue.

    The Post says that the financial terms of the settlements were not disclosed, but also reports that one of the plaintiffs asked for "free burrito" Chipotle coupons to be part of the settlement.

    William Marler, the lawyer and food safety specialist who represented each of the plaintiffs, tells the Post that "in 25 years of doing foodborne illness cases, I’ve never had a client ask for coupons for the restaurant they had gotten sick at."

    Chipotle experienced a variety of food safety problems at a number of its locations last year, forcing it to re-evaluate some of its procedures and sourcing policies, as well as engage in aggressive marketing to bring back previously loyal customers.
    KC's View:
    It is pretty amazing that someone who got sick enough from Chipotle food to sue the company then turns around and asks for free burritos to be part of the settlement. I've always written here that one of Chipotle's differential advantages has been the extreme loyalty felt by its customers, who believe that the chain speaks to them in terms of relevant food and culture, and this settlements confirms that.

    I do think that Chipotle can't play this card too many times, and it cannot afford more food safety problems. Which means it has to go above and beyond regulations and even expectations to make sure their food is safe. There is not a lot of room for error.

    Published on: September 12, 2016

    BJ's Wholesale Club announced last week what it called "significant upgrades to its omnichannel offering that will make it easier for Members to find great values in-club, online or through mobile." Those upgrades, the company said, "include a streamlined membership site, enhanced search and navigation features and an improved online assortment." The goal is to make it easier for people to both join BJ's and shop its site, as well as providing a larger assortment of products online.

    This is said to be part of a broader effort to be more e-connect: "Earlier this year, BJ's launched its Pick Up & Pay service, which lets Members shop online with the convenience of in-Club pick up. The company also launched a Tech Advisors service, which provides Members with free technical support for a wide range of tech and electronics products, both before and after purchase."

    Terms of the deal were not disclosed.
    KC's View:
    Investing in technology is par for the course these days for retailers that want to be seen as relevant. Not making such investments is a reflection of management with its collective head in the sand. (Or someplace else.)

    Published on: September 12, 2016

    The Wall Street Journal reports on the comments of a management expert, Andre Spicer, professor of organizational behavior at Cass Business School in London, who suggests that Tesco's corporate culture hasn't changed very much since a C-level shakeup and the revelation of accounting misdeeds.

    It was just last week that the UK Serious Fraud Office (SFO) charged three former Tesco executives with false accounting practices, related to the company's systematic and systemic underestimation of costs and overstatement of revenues as a way of bolstering its stock price. And it was two years ago that Tesco replaced CEO Philip Clarke with Dave Lewis, who has been trying to deal with increased competition while focusing on core businesses and at the same time remaking the company's culture.

    While "Tesco has made a big deal about changing its corporate culture,” Spicer tells the Journal, "It is doubtful though that much has changed over the course of the past two years ... You can replace the CEO, you can replace senior management. But it takes much longer to change the corporate culture of a company.”

    Indeed, the Journal writes that "A recent report published by the Institute of Directors, a British organization for company directors, ranked Tesco’s corporate governance as the lowest of the companies in the FTSE 100 Index due to low scores for accounting and audit practices.

    Tesco maintains that "the last two years have seen an extensive program of change at Tesco."
    KC's View:
    I'd be less concerned about Spicer's comments than I would be about the corporate governance findings. Just on the surface, there's no excuse for that ... and it creates the image that many of the changes at Tesco have been cosmetic.

    Published on: September 12, 2016

    • Subway announced last week that it has acquired "a digital technology team and assets" from Avanti Commerce, a Canadian e-commerce solutions provider that has been partnering with Subway since 2011.

    According to the announcement, "The 20-person team joining Subway Digital from Avanti Commerce will remain and grow in Vancouver, which is a technology hub for Canada and a centralized location for technology and digital talent. As part of the Subway Digital group, the new team will be dedicated to the expansion and customization of unique e-commerce and omni-channel platforms for the sandwich chain."
    KC's View:

    Published on: September 12, 2016

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

    • The Irish Independent reports that c-store chain Applegreen, which primarily operates in Ireland in the UK, is considering a strategic investment in the US that would have it expanding beyond the 10 locations that it already has there. (Six are on Long Island, and four are in Massachusetts.)

    ""We're still in learning mode in the US," says CEO Bob Etchingham. "We're still developing relationships. We do want to continue to develop there, but we're doing it in a very measured and cautious fashion ... We will look to make a decision as to whether we push on in the United States, probably sometime in the first half of 2017."

    The story notes that Applegreen has signed a franchise agreement with 7-Eleven for the US, but to this point, US operations "are breaking even and not consuming much management time." The question is whether to push the US envelope even farther.

    • The Washington Times last week reported last week that an Albertsons bakery in Louisiana got a lot of attention on social media when it refused to inscribe a birthday cake with the words, "Trump 2016."

    After the customer drew attention to the incident on social media, local TV stations picked up the story, and then it went national ... as illustrated by the Washington Times piece.

    This stuff just makes me nuts. You're a baker. Bake the freakin' cake, and write whatever the customer wants on top of the cake, assuming it isn't profane or vulgar. This goes for gay weddings and presidential endorsements. Writing something on top of a cake does not constitute a personal endorsement.
    KC's View:

    Published on: September 12, 2016

    Eddie Antar, one of the best known retailers in the country from 1975-85, reportedly passed away over the weekend at age 68. No cause of death was disclosed.

    Antar was better known as Crazy Eddie, who had at the height of his success 14 stores from Boston to Philadelphia; he was so well known that Dan Aykroyd satirized his TV commercials - in which a spokesman shouted that the store's prices were "insane" - on "Saturday Night Live."

    Antar also was a convicted felon, spending almost seven years in federal prison on a racketeering conviction related to stock manipulation, skimming money from the company, and inflating both sales and inventory figures.
    KC's View:

    Published on: September 12, 2016

    Last week we took note of a US News & World Report story saying that a Columbia University analysis of 35,000 Yelp reviews of 2,840 Walmart stores suggests that "race and socioeconomic factors" have a role in the levels of customer service offered by the retailer - the poorer the neighborhood, the lower the service levels. Walmart said that the analysis was "flawed and without merit."

    One MNB user responded:

    Is it that Walmart is offering less service, or the community shopping the store is contributing to the environment? Several years ago I did a multiple years assignment in a town in Louisiana that was populated primarily by lower income African Americans. It was typical that the Walmart parking lot was littered with trash, including diapers, fast food sacks, beer bottles and soda cans. You had to pick your way through the lot to get to the store. Many of the retail stores in the town had the same issues, but it seemed worse at Walmart
    And in the store there was plenty of evidence of shopper negligence; open packages of food, candy wrappers, clothing strewn on the floor and racks, partially eaten fruit, abandoned shopping carts, etc.
    I’m not sure research can lay all of this on Walmart.

    I think everybody has to be careful about painting with too broad a brush.

    Internet Retailerreported the other day that Amazon is trying to combat the sale of counterfeit goods on its site by requiring certain sellers to pay a fee that may be as high as $1500, plus requiring them "to provide proof of purchase from select manufacturers and distributors before allowing sellers to list those products on The brands subject to the new fee and authorization process include counterfeit-prone brands, such as Nike and Lego."

    MNB reader Bob Thomas responded:

    This is a nice move by Amazon and it will probably get some of the small counterfeit sellers off the site.  To really solve the problem there has to be more cooperation with Brand Owners who can notify Amazon and have pages taken down or “suspended” immediately.  Then hold the funds of the counterfeit site until the Brand Owner has a chance to try to recoup some of the damages caused by the sales of the counterfeits.  But Amazon does not come close to the amount of counterfeit sales on the Alibaba site.  The Alibaba excuse that they are supplying a platform and are not responsible for the content is like me saying I own a house of ill repute and get a percentage of sales but I am not involved in prostitution.

    On the subject of Kmart;s continuing problems, one MNB user wrote:

    A few years back, Kmart Australia was a basket case.  Guy Russo, of McDonald's Australia, came on board. He lowered prices, expanded the offer, and made Kmart "ok" to shop in.  "ok" became their slogan.

    Recently, Wesfarmers, who own both Kmart & Target in Australia, decided to also hand the now basket case Target brand across to Mr Russo.  Kmart is now turning profits of $400 million, & it won't be long before Target is also at those figures if you believe Mr Russo.

    Perhaps US Kmart Execs should jump on a plane, & mirror the offer of Kmart Australia.  It's a great offer, and one that has turned the fortunes around for Kmart, and no doubt Target soon also.  Kmart Australia has successfully grabbed the discount mantle from Woolworths owned Big W, and now claims to be wanting to be the "Australian Walmart", which was always Big W's ground (Big W also had advice from Jack Shewmaker).

    Regarding the "superbug" problem I talked about here last week, one MNB user wrote:

    Although it’s tough getting an actual percentage, most estimates put the percentage of all antibiotics manufactured used in agricultural settings at at least 70% and upwards to 85%.  And this is not just to treat infections, but more likely to promote growth.  So don’t worry about taking little Johnny and Jane to the doctor for that ear infection…that is not the reason for all the superbugs.  Instead, it’s that $2 cheeseburger. 
    P.S., the issue of antibiotics is personal to me.  I have a chronic case of Lyme disease.  Despite a prevalence of evidence that the Lyme bacteria can persist beyond  the 2-3 weeks of standard treatment, the CDC doesn’t acknowledge it.  As a result, I have to travel from Long Island to Connecticut to see a doctor that isn’t covered by my insurance. 

    KC's View:

    Published on: September 12, 2016

    In Week One of National Football League action...

    Giants 20
    Cowboys 19

    Lions 39
    Colts 35

    Vikings 25
    Titans 16

    Bears 14
    Texans 23

    Browns 10
    Eagles 29

    Bills 7
    Ravens 13

    Chargers 27
    Chiefs 33

    Raiders 35
    Saints 34

    Buccaneers 31
    Falcons 24

    Bengals 23
    Jets 22

    Packers 27
    Jaguars 23

    Dolphins 10
    Seahawks 12

    Patriots 23
    Cardinals 21

    And, in the US Tennis Open this weekend Stan Wawrinka defeated Novak Djokovic in the men's singles finals 6-7, 6-4 7-5 6-3. And, in the women's singles championship, Angelique Kerber defeated Karolina Pliskova 6-3, 4-6, 6-4.
    KC's View: