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    Published on: November 30, 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.

    This week's topic: The challenges that vendors (first party) and sellers (third party) find when working with Amazon ... and lessons that retailers can learn.

    And now, the Conversation continues...


    KC: I read a piece in the Seattle Times the other day about how third party merchants often are using outside consultants to help them navigate the Amazon system.  I actually wasn’t surprised by this, in part because I know this is a small part of what you do. But I also wasn't surprised because I think it is fairly common knowledge that as focused as Amazon has been on creating a great user experience for the customer, it has been, shall we say, less focused on making it a great experience for vendors big and small.  What are the common complaints that you run into … and do these shortcomings create opportunities for Amazon’s competitors?

    Tom Furphy:
    When we left Amazon back in 2009, we wrote an investment thesis as to where we saw the future of retail and e-commerce heading. One of the themes of that thesis is that Amazon would grow at breakneck pace through $500 billion in volume. We recognized that such growth would create business opportunities to help vendors (first party) and sellers (third party) work with Amazon because Amazon is much different than traditional retailers. To capitalize on the opportunity, we’ve since built a suite of technologies and services inside Ideoclick to help vendors and sellers be more effective on Amazon.

    This is important because Amazon thinks of itself first and foremost as a platform. We’ve talked here about the fact that Amazon doesn’t like to rely on “humans” because “they are variable”. They would much rather deliver the model through a platform combination of data, systems and processes. This makes them challenging to work with for traditional human-based businesses that want to interact with them like a traditional retailer.

    As you noted, the Seattle Times article focused on consultants that help Third Party Merchants with Amazon. This is the side of the house where Amazon already has invested heavily to offer pretty good tools to support sellers. Also massive businesses, such as publicly-traded Channel Advisor, have built technology platforms to help sellers optimize their results on Amazon. The fact that there is still a burgeoning network of consultants despite these tools speaks volumes about how daunting Amazon can be. It also shows how significant the opportunity is on the “first party” side of the business, where the tools are years behind. To their credit, Amazon does realize this and is building new tools to close the gap with the third party side.

    KC: Are there common frustrations?

    TF:
    That it’s hard to speak with and work with their buyers, that Amazon is an expensive retailer to serve, that they are not transparent, that they are constantly asking for more funding, that it’s difficult to properly manage content on Amazon and that pricing and third-party competition makes it a difficult environment to preserve brand equity.

    KC: But other than that, it is a perfect vendor experience.

    TF:
    To be fair, not all vendors voice all of these frustrations and not all of it is necessarily valid. Much of it comes down to how much the manufacturer has adapted to Amazon or how naturally suited their products are for the e-commerce model.

    Amazon knows what it takes to deliver a great customer experience and they’ve built a platform to support that. They don’t endeavor to make it difficult on vendors, but they don’t want to train them all either. They insist that vendors conform to their way of doing business because they have proven that doing so will enable the platform to perform as designed and will result in the best customer experience. This requires manufacturers to develop new skills and capabilities in house or to work with external partners that have demonstrated the ability to work effectively with Amazon.

    KC: This seems consistent with Amazon's customer-first ethic ... it isn't like Amazon is making these demands in an arbitrary fashion. It seems to be focused on doing everything possible to making the consumer experience as positive as possible. I guess the next question is whether Amazon's approach creates a window for competitors to create better vendor relationships that actually allow them to pass Amazon on the competitive track.

    TF:
    I’m not sure that this in itself creates an opportunity for competitors. I think there was a window from probably two to five years ago where other retailers’ human staff could have worked closely with vendors’ human staff to build effective competitive programs. But Amazon’s machine has such a lead now that it would best behoove competitors to double down on their customer focus and build their own platform capabilities as soon as they can, and get them in front of customers as soon as possible. I think what Wal-Mart is doing with Jet is a good example of such a move. The jury is out on whether it will be successful, but I think it’s the kind of bold move that competitors need to make.

    KC: My argument always has been that while competitors such as Walmart/Jet and Target are simply focused on selling more stuff, that’s checkers compared to the chess game that Amazon is playing in creating an ecosystem that will be shoppers’ first best choice.  But the downside of that, I would imagine, is that size sometimes means that a company pays less attention to its core businesses … and when that happens, companies often run into problems.  To what extent do you think Amazon's size could end up being a problem?

    TF:
    Let's go back to something you said before, and that we've focused on a lot here on The Innovation Conversation - that first and foremost, Amazon is about focusing on the customer. Everything the company does is geared toward driving a better customer experience and sequentially solving as many of their customers’ needs as possible. As they’ve grown, that naturally evolves from being a straightforward online retailer, to welcoming more third-party sellers, to offering streaming content services, to creating content, to expanding into categories like AmazonFresh. It means adding services like IoT ordering, voice assistance and ordering via Alexa and Echo, drone delivery, two-hour delivery and beyond. While this may appear to be moving away from the core business, it’s really just a continuation of the fundamental proposition of starting with the customer and working backward.

    To be more efficient, effective and to enable scale and consistency, Amazon takes a platform approach to the business. To accomplish this, Amazon relies on machine learning, systems and rote processes to deliver its services. Everything they seek to solve for the customer works back into the platform so that the platform can best deliver the solution consistently at scale.

    Where many companies risk becoming distracted by diversification or expansion, Amazon focuses on continually making the platform more effective. Small tweaks throughout the platform can then be replicated across the business at scale. It’s less about training humans and more about letting the machines do the learning, make the adjustments, and then leverage the adjustments at scale. All while their people obsess over the customer experience and work to improve it with every move. This approach doesn’t dilute focus, it actually improves it.

    KC: That's extraordinary, and I think it points to a core difference between Amazon and everybody else. And we'll follow up on this subject in our next Innovation Conversation with a discussion of what kind of infrastructure vendors need to develop in order to do business on and with Amazon ... and the lessons that this offers to other retailers.

    The Conversation will continue...

    KC's View:

    Published on: November 30, 2016

    by Kevin Coupe

    The Boston Globe reports that Eataly has opened its Boston outpost in the city's Prudential Center, described as a "45,000-square-foot Italian food emporium" that includes "four restaurants, 10 eateries, two cafes, three bars, five fresh production counters, 10,000 products, and hands-on cooking school."

    But what grabbed my attention were a couple of comments made by co-owner Mario Batali, who said that his goal is to make Eataly a place that combines "the geo-specificity of the deliciousness of New England" with a reflection of the best of Italian cuisine.

    First, Batali talked about simplicity: “I’m less interested in technique at this point, in my salty old age, than I am in product. It’s the truly confident chef that knows to buy a scallop, put a little drop of olive oil on it, and not do anything to it at all. It’s less about the trickiness and more about the confidence.”

    I love that. I also loved what he said about maintaining excellence at Eataly:

    "Opening day is the least difficult,” he said. “We’re new, and everyone is on the floor making sure everything’s working. How we do on a busy Saturday two weeks from now is how we’ll judge ourselves.”

    Absolutely true. Absolutely critical to long-term effectiveness. And absolutely an Eye-Opener.
    KC's View:

    Published on: November 30, 2016

    In Minnesota, the Star Tribune reports that Barnes & Noble is opening a new concept store in Edina, Minnesota, a 21,500 square-foot store in the Galleria mall there that will include a restaurant and bar "aimed at getting people to stay longer."

    The store is two-thirds the size of a store Barnes & Noble had in the same mall that did not have a restaurant or bar, though, presumably, it had a lot more books.

    According to the story, "The 100-seat cafe, restaurant and bar serves breakfast, lunch and dinner, with prices ranging from $5 to $7 for sides such as tabbouleh and potato purée to $16 to $26 for a brisket burger or slow-cooked short ribs ... Barnes & Noble executives are counting on people meeting a friend for a drink at the bookstore, social interaction that its online rival Amazon.com hasn’t duplicated."

    The Edina location is one of four around the country where Barnes & Noble is testing the concept; the others are in Eastchester, New York ... Folsom, California ... and Loudoun County, Virginia. The story says that the company "expects that as many as 100 of the 638 locations could be relocated or revamped to accommodate the smaller footprint with a larger food and beverage section."
    KC's View:
    It seems to me that when one reads about the independent bookstores that are thriving even in the age of Amazon, one of the things that seems consistent is that they do so by doubling down on the book/reading experience, not by offering short ribs and martinis. But maybe that's because they actually are more focused on books as a cultural imperative, as opposed to books as a commodity.

    I'm not saying that the new Barnes & Noble concept isn't viable. I'm actually in favor of trying new things and cutting through traditional boundaries. I'm just not yet persuaded that this is the answer.

    It also may end up that Barnes & Noble, no matter how good the brisket burger, may be caught in a middle ground between Amazon on one end and the likes of Powell's Books on the other. And that middle ground may be typified by quicksand.

    Published on: November 30, 2016

    Bloomberg reports that Kellogg Co. said yesterday that it is pulling all its ads from the website Breitbart News, described as "the right-wing news organization whose former chairman Steve Bannon has been tapped as a top adviser to president-elect Donald Trump."

    The story goes on to say that "brands advertising on Breitbart have drawn flak in recent weeks, with activists saying the website espouses racist and anti-Semitic views. A screen shot showing an advertisement for Kellogg's Frosted Mini Wheats was part of an online campaign to get marketers to abandon the site ... AppNexus, one of the biggest digital advertising services, barred Breitbart from using its ad-serving tools earlier this month because it felt the publisher violated its hate-speech rules."

    Kris Charles, a spokeswoman for Kellogg, said that the company works regularly with "media-buying partners to ensure our ads do not appear on sites that aren't aligned with our values as a company. We recently reviewed the list of sites where our ads can be placed and decided to discontinue advertising on Breitbart.com. We are working to remove our ads from that site."

    Bloomberg notes that Breitbart News Network CEO Larry Solov has said in the past that the company "has always and continues to condemn racism and bigotry in any form."

    And the Associated Press reports that Breitbart responded to the Kellogg's decision this way: “Kellogg’s decision to blacklist one of the largest conservative media outlets in America is economic censorship of mainstream conservative political discourse. That is as un-American as it gets.”

    Two other points worth noting here.

    The Bloomberg story says that Breitbart "had 19 million unique monthly visitors in October, up from 12.9 million a year ago, according to ComScore."

    And the Washington Post reports that "Kellogg isn’t the first brand to pull its advertising from the website. That growing list includes Allstate, Nest, EarthLink, Warby Parker and SoFi." In virtually all these cases, the companies' ads were placed on Breitbart by third-party media planners, and the companies are now reining those companies in and taking greater control of the placements.
    KC's View:
    Gee, I can't imagine why a company looking to appeal to a broad spectrum of consumers would be concerned about a website that refers to pundit Bill Kristol as a "renegade Jew" because he did not support Donald Trump, or features stores with headlines such as “Birth Control Makes Women Unattractive and Crazy,” or “Hoist It High And Proud: The Confederate Flag Proclaims A Glorious Heritage,” or “There’s No Hiring Bias Against Women In Tech, They Just Suck At Interviews.”

    Look, this is going to get complicated for a lot of CPG and media companies. The CPG companies aren't in the business of offending potential and existing customers, and media companies have to figure out how to navigate some treacherous terrain.

    There was a piece in the New York Times the other day that looked at how different media outlets were dealing with the term "alt-right," which some describe as focused on economic nationalism, and others define as a term that "euphemizes and legitimizes the ideologies of racism, anti-Semitism, Islamophobia and white supremacy," as well as "hard-core misogyny."

    You can take either view you want. CPG companies have to make choices, and most almost always going to choose a path that they believe will be seen as inclusive ... because not being seen as inclusive by either customers or employees won't be good for business. It is that simple. By this standard, I think Kellogg's made absolutely the right decision. (It was not, no matter what anyone wants to say or think, a "right-or-left" decision. It was a business decision.)

    Where this is going to get more complicated is if they are accused of being anti-American because they choose not to advertise in certain places. If this sort of thinking gets any sort of traction, then we're all in for trouble. Last time I checked, Kellogg's has the same freedom of speech rights that Breitbart does. And that includes deciding where and when not to speak.

    One final note. Politics have come up a number of times recently on MNB, and I have received emails from some folks suggesting that this is a topic I should avoid. While I understand and appreciate the advice, I think these are entirely legitimate business subjects to discuss here on MNB ... it may not always be safe, but I think being safe is overrated. And if we don't talk about these issues as a community, we run the risk of ignoring or underestimating their import. I'm going to do my best to be fair, but I don't want to shy away from the subject when it seems appropriate to be engaged.

    Published on: November 30, 2016

    In the UK, This Is Money reports that former Tesco CEO Philip Clarke "will not be charged after an investigation into an accounting scandal at Britain’s biggest retailer."

    Clarke was fired in 2014, and shortly thereafter it was revealed that the company has been systematically and systemically been overstating profits and understating expenses. The revelations led to both internal and government probes into the company's accounting practices. However, the story says that the UK's Serious Fraud Office (SFO) has concluded that there is "insufficient evidence to pursue the case."

    The story also notes that "the SFO charged three Tesco executives for fraud and false accounting in September. Christopher Bush, who was managing director of Tesco UK, Carl Rogberg, who was UK finance director, and John Scouler, who was UK food commercial director, were charged with one count of fraud by abuse of position and one count of false accounting. The trio, who will stand trial next year, have denied the charges."
    KC's View:
    Some are criticizing the SFO for being under-resourced and unable to conduct an effective investigation. But this looks to me more like the guy at the top being able to create what in the Nixon administration they used to call "plausible deniability."

    Published on: November 30, 2016

    • Boomerang Commerce is out with analysis of how Amazon, Walmart and Walmart-owned Jet are competing in the toy/game space this holiday season, concluding that Amazon has the biggest assortment (with five million SKUs) but Jet has lower prices on the most items (beating Amazon on 64 percent of items).

    Walmart is said to be lower than Amazon on 55 percent of items, and the analysis says that "Walmart and Jet offer the most aggressive price discounts, with products discounted by 54% and 47% respectively."
    KC's View:

    Published on: November 30, 2016

    ABC News reports that "Kevin Roper, the Walmart truck driver who hit the limo van comedian Tracy Morgan was riding in on the New Jersey Turnpike in 2014, accepted a plea deal Tuesday that allows him to enter a pre-trial intervention program.

    "If Roper successfully completes the program's 300 hours of community service, all charges will be dismissed and he will avoid trial for the crash that killed comedian James McNair and severely injured Morgan.

    "Roper had no record prior to the accident and was eligible for the non-prosecution diversion program as a first-time offender."

    The National Transportation Safety Board (NTSB) had concluded that "Roper had been awake for more than 28 hours prior to the collision and was driving 20 miles per hour above the speed limit."
    KC's View:

    Published on: November 30, 2016

    • The Conference Board said yesterday that its monthly index of consumer confidence hit a nine-year high in November, jumping "to 107.1 in November after dropping to an upwardly revised 100.8 in October." The Wall Street Journal reports that "the results showed consumers shrugging off uncertainty ahead of the U.S. presidential election, as most people in the survey were contacted before Nov. 8. A small sample of respondents was polled following the election, with a cutoff date of Nov. 15."

    One analyst said that the report was "consistent with an improving labor market and solid growth in consumer spending." And another economist said that "whether the increase reflects merely relief that it’s over or joy on the part of Trump supporters is unclear, but the bottom line is that the index is now at its highest since July 2007."
    KC's View:

    Published on: November 30, 2016

    • Neiman Marcus Group said this week that it has named Michael Fung to be its Interim Chief Financial Officer and Chief Operating Officer. Fung is a former Chief Financial Officer for Walmart US, and most recently was Chief Financial Officer and Treasurer for 99 Cents Only Stores.
    KC's View:

    Published on: November 30, 2016

    We neglected earlier this week to note the passing last weekend of the outstanding character actor Fritz Weaver, who did Shakespeare, Eugene O'Neill, Arthur Miller and Lanford Wilson plays on Broadway ... played a Jewish doctor killed by Nazis in the TV miniseries "Holocaust" ... and did character roles in series ranging from "Mission: Impossible" to "Mannix" and "The Twilight Zone," and in films ranging from Fail Safe to The Big Fix to The Day of the Dolphin. He was 90.
    KC's View:

    Published on: November 30, 2016

    ...will return.
    KC's View: