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    Published on: December 12, 2016

    by Kevin Coupe

    The New York Times had a piece over the weekend by novelist Ann Patchett, who also happens to be the co-owner of Parnassus Books, an independent bookstore in Nashville.

    The column offered a look at some of the elements that make independent bookstores successful even in a marketplace where there is a major bricks-and-mortar category killer, Barnes & Noble, a dominant e-commerce player, Amazon, and the growing influence of e-readers such as the iPad and Kindle. Those elements can include specialization, which can turn what might be a disadvantage into an advantage:

    "I’m a sucker for a little bookstore," Patchett writes. "In the right hands, the limited space can set off an explosion of personality and innovation. It’s like going to a French bistro with five tables and five things on the menu: You discover they’re exactly the right five things. New York City, land of skyrocketing rents and ubiquitous nail salons, has some of the best tiny bookstores in the world, including the Corner Bookstore, 192 Books and my favorite, Three Lives & Company. Sometimes what’s lost in square footage is made up for by a brilliant staff, or maybe it’s just that the people who work in tiny stores really do know exactly where every book is located. And they’ve read them."

    It strikes me that this a great and Eye-Opening lesson for every retailer.

    Patchett also shares some advice she got before she got into the bookstore business:

    "The best advice I got was this: If you want customers, you have to raise them yourself. That means a strong children’s section. If e-books have taken a bite out of the adult market, they’ve done very little damage to children’s books, maybe because even the most tech-savvy parents understand that reading 'Goodnight Moon' off your phone doesn’t create the same occasion for bonding."

    Again, an Eye-Opener for every retailer.
    KC's View:

    Published on: December 12, 2016

    The Wall Street Journal has an interesting story this morning about how "a long trail of empirical evidence shows that the increased productivity brought about by automation and invention ultimately leads to more wealth, cheaper goods, increased consumer spending power and ultimately, more jobs."

    The story is relevant because of last week's stories about a) Amazon opening a checkout-free store in Seattle, and b) President-elect Donald Trump nominating fast food executive Andy Puzder, who in the past has stated a desire to automate his franchises, as his new Secretary of Labor. Both stories elicited varying protests from people who thought that these developments were bad for American workers.

    The Journal piece quotes James Bessen, an economist who teaches at Boston University School of Law, as pointing out that "in the case of bank tellers, the spread of ATMs meant bank branches could be smaller, and therefore, cheaper. Banks opened more branches, and in total employed more tellers."

    Automation can have negative impacts, of course: "Some individuals are uprooted and suffer. In 1900, 40% of U.S. workers toiled in agriculture; today, that figure is less than 2%. Manufacturing employment in industrialized countries has declined in recent decades, as fewer people make more goods. But society, on the whole, has come out ahead."

    At the same time, the story quotes a Deloitte LLP study saying that "technology alters the quality, as well as the quantity, of jobs ... The authors found big increases in both low-paying and high-paying jobs. There are more barbers and barkeepers. But there also are more accountants and nurses, reflecting the rising complexity of the modern economy." And paradoxically, "many of the fields most transformed by technology have produced the biggest increases in employment, from medicine to management consulting."

    That said, the Deloitte piece concedes that "bifurcated labor markets have ill effects. Disappearing factory jobs have largely been replaced by jobs in the service sector, where highly skilled workers, like doctors and computer programmers, are paid more, while many others see to the comfort and health of the affluent. In the middle, wages have stagnated, helping spawn our current age of populism."
    KC's View:
    In other words, you can't make an omelette without breaking a few eggs. The problem, of course, if you happen to have the job that goes away because of automation, and you're not prepared for what comes next, and where the opportunities may be, the whole notion of not being able to stop progress rings kind of hollow.

    I also suspect that the people in the trenches - or rather, the people who are losing their jobs in the trenches - will be unimpressed by such pronouncements from management consultants and academics. But I found the piece illuminating, and worth reading before making knee-jerk comments about how automation is evil.

    Published on: December 12, 2016

    The Puget Sound Business Journal reports that Costco is saying that since it switched from American Express to Citi Visa cards as the sole credit card accepted and offering holder benefits at its membership warehouses, one million people have opened new accounts, with between 20,000 and 40,000 of those representing new Costco members.

    As the story notes, the switch of close to 12 million Costco members and Amex holders to Visa accounts was not a smooth one, with members complaining about the customer service levels offered by Visa.
    KC's View:
    Interesting story, if only because Costco and Citibank were getting a lot of blowback in the days and weeks immediately following the shift.

    If nothing else, this demonstrates that if you keep your head down, stay aligned with your strategy and do the things necessary to execute and implement, you can turn things around. Even when drama is happening all around you, it makes sense for businesses not to allow the tumult to affect the way they go to work and come to market.

    Published on: December 12, 2016

    The Wall Street Journal reports this morning on how PepsiCo is running into a roadblock as it tries to shift its portfolio to healthier foods and drinks.

    Consumers.

    "Here is a company pulled in two different directions," the Journal writes. "Chief executive Indra Nooyi has vowed to turn the maker of Fritos, Cheetos, Lay’s and Pepsi into a health juggernaut. But while consumers say they want to eat healthy, often what they really want is chips.

    "Despite an expanding stable of 'good for you' brands like Quaker oatmeal, Naked juice and Sabra hummus, PepsiCo Inc. fell behind the goal it made in 2010 to triple revenue from nutritious products to $30 billion this decade. Its new 2025 goal, announced in October, is that sales growth of its nutritious products 'will outpace' the rest of its portfolio."

    PepsiCo is not alone. The Journal writes, "Nestlé SA, deep into a big push into healthier food, has warned it will miss its revenue growth target for a fourth straight year. A big reason behind recent woes at General Mills Inc. is weak Yoplait yogurt sales. Campbell Soup Co. blamed a recent sales downturn on execution problems at its fresh-food division after a poor carrot harvest and protein drinks recall."
    KC's View:
    I have to believe that moving to healthier food is the more sustainable strategy, even if it takes longer and costs more. Showing leadership often is not a painless process.

    Published on: December 12, 2016

    Tech Times reports that "Starbucks is reportedly gearing up to roll out a new personalized rewards program, designed to give customers better incentives based on their preferences. The popular coffee chain aims to boost its incentives by offering customers what they want, based on what Starbucks already knows about them. With the personalized rewards program, each customer will get unique Starbucks offers via email and the Starbucks app, taking Starbucks Rewards to the next level."
    KC's View:
    Isn't this sort of the Holy Grail of rewards programs - providing incentives that are relevant to how people show and behave?

    This is right in line with something that we talk about a lot here on MNB - that the winners, over the long run, will be the companies that have the most actionable information and then actually act on it. Easier said than done, I know ... but in the current competitive environment, it is a lot smarter than just throwing stuff against the wall to see what sticks.

    Published on: December 12, 2016

    There was a fascinating piece in the New York Times over the weekend about the private equity business, and specifically how two equity groups turned Twinkies into big profits.

    Here's how the Times framed the story:

    "Across the nation in the summer of 2013, there was a feeding frenzy for Twinkies. The iconic snack cake returned to shelves just months after Hostess had shuttered its bakeries and laid off thousands of workers ... Nowhere was it sweeter, perhaps, than at the investment firms Apollo Global Management and Metropoulos & Company, which spent $186 million in cash to buy some of Hostess’s snack cake bakeries and brands in early 2013.

    "Less than four years later, they sold the company in a deal that valued Hostess at $2.3 billion. Apollo and Metropoulos have now reaped a return totaling 13 times their original cash investment.

    "Behind the financial maneuvering at Hostess, an investigation by The New York Times found a blueprint for how private equity executives like those at Apollo have amassed some of the greatest fortunes of the modern era."

    You can read the entire story here.
    KC's View:
    The Twinkie is a great example to use in this case study because it is such a basic, relatable product. I just found this fascinating - it is about money and power and jobs and risk and reward. And about money. (Did I mention money?)

    I have to admit that I read this as if trying to decipher hieroglyphics. This world is so far from my experience that I just found it fascinating ... even though I have to admit to a certain amount of cynicism about it.

    Me, I must confess that I subscribe to what Raymond Chandler wrote in "The Long Goodbye:"

    "There ain't no clean way to make a hundred million bucks.... Somewhere along the line guys got pushed to the wall, nice little businesses got the ground cut out from under them... Decent people lost their jobs.... Big money is big power and big power gets used wrong. It's the system.”

    Published on: December 12, 2016

    • Interesting observation from 24/7 Wall Street - that both Walmart and Amazon, locked in a pitched e-commerce battle, have seen their stock prices go up 14 percent this year.

    The story notes that while the investor class has been skeptical about Amazon's cost of doing business and customer acquisition, which has seemed more focused on market share than profit; recently, the story says, Walmart seems to have earned some investor confidence with a re-energized approach to e-commerce.

    But, the story says, "Amazon's market cap is $365 billion and Wal-Mart's is $216 billion. Wal-Mart's shares will need to outperform Amazon's by a wide margin next year to show that investor confidence this year was warranted.


    Forbes reports that "Amazon wants to put its digital voice assistant, Alexa, into as many devices as possible. For help, it’s partnering up with more chipmakers to make it easier for outside developers to get Alexa up and running on devices like speakers, thermostats and wearables."

    For example, "Conexant, maker of audio processing chips, announced it’s releasing a development kit approved by Alexa Voice Services, which is Amazon’s program for hooking up third-party products to Alexa in its cloud." And " chipmaking giant Intel announced last week that it would be integrating Alexa into its smart home platform kit, called the Smart Home Hub. Intel is also creating a reference design of a smart speaker powered by Alexa that’s coming out in early 2017."

    The goal is to integrate Alexa software into as much hardware as possible - in part because Alexa serves as a window into Amazon's ecosystem, making it easier to buy stuff from it, and in part because Amazon knows that it is competing with the likes of Google and Apple for consumers' hearts and minds and wallets.


    Investor's Business Daily reports that Amazon is pushing deeper and more strategically into the fashion business with "a line of private-label dress shirts for men.

    "Amazon announced Buttoned Down, a private-label shirt brand with a starting price of $39.99 and available to members of Amazon Prime. The company said it plans to expand into dress pants, sport shirts and sweaters in the future."
    KC's View:

    Published on: December 12, 2016


    • The Associated Press reports that Los Angeles prosecutors are suing four national retailers - JC Penney, Sears, Kohl’s and Macy’s - "accusing them of duping shoppers into believing they got bigger discounts than they actually did."

    According to the story, prosecutors say that "the retailers falsely advertised higher regular prices for merchandise so customers believed they were getting bigger bargains. California law bars retailers from advertising a higher original price unless the product was sold at that price within three months of the ad ... The lawsuits seek civil penalties up to $2,500 for each violation and injunctions to stop so-called false reference pricing to increase sales."


    • The Financial Times reports that Tesco Bank "left its customers exposed to cyber crime by issuing sequential debit card numbers, a practice most banks avoid because it lets hackers remain undetected while working quickly through thousands of accounts, according to rival lenders."

    What was called a "sustained cyber attack" - and a "heist described as unprecedented by regulators" - on Tesco Bank last month forced the company to repay the equivalent of $2.6 million (US) to some 9,000 customers.

    Tesco has not commented on the precise circumstances behind the theft, only saying that no customer data was stolen.
    KC's View:

    Published on: December 12, 2016

    • Coca-Cola CEIO Muhtar Kent said on Friday that he plans to step down from the job on May 1, and will be succeeded by company president/COO James Quincey.

    Kent will remain as chairman.
    KC's View:

    Published on: December 12, 2016

    Got the following email from MNB reader Rich Heiland:

    Been reading your site about Sears and want to add something...

    In many small towns, the "Sears" store is really a local store. It is a franchise owned by hometown folks.

    Take my small town, Huntsville, Texas. For years the Sears store was small - appliances, electronics, tools. Good folks, good service and they grew. Two years ago they moved into a vacated "kinda big box" in a shopping strip. Alas, it was a failing strip and a year-and-a-half ago HEB bought it and announced plans to put in a mega-store.

    HEB has been very fair and generous about helping the surviving stores in that strip move and the folks with the Sears franchise are about halfway through building a new store on the end of the newest, most upscale strip in our town with a Target, Academy Sporting Goods, Kroger Signature, Ross, etc. 

    So, what happens to these folks - not even open yet and no doubt in debt - if Sears goes belly up? What happens to the brands, inventory supply chain?

    I totally agree the Sears-Kmart story is one of total mismanagement, even incompetence. But the pain is not going to be just in big boxes. It is going to be felt on "Main Street."

    No answers, no opinions really. Just an observation.


    On a related subject, got an email from MNB reader Ken Wagar:

    Today in your MNB comments you made reference to Fast Eddie Lampert. I have no interest in him, I agree with your comments about Sears/Kmart and it is clear he has been a poor steward of those companies.

    However, it struck me that while he has often and for a long time been referenced as "Fast Eddie" there is little difference between calling him Fast Eddie and calling Hillary, Lying Hillary and to 100 other nasty prefixes that have become common in this divided country in which we live. Maybe a very small step in a better direction would be to start referring to people by their names rather than the often derogatory adjectives we seem to find being used for everyone from the disabled, the disadvantaged to immigrants to the President. I know this is a very small thing, but it did strike me as not helpful to real communication.


    I think this is a very good point. I'm willing to take the small step in a better direction that you suggest.

    MNB user Larry Richardson wrote:

    Kevin…in your article (“The Impending Death of a Retail Icon”) I believe a lot of analysts/consumers probably have seen the Sears debacle play out the way it has been anticipated.  I have been saying for some time now that I also believe that Shopko will shortly follow suit on the commerce chopping block.  Retail companies need to stay fresh and relevant.

    MNB reader David White wrote:

    Sears is still open? Imagine that…




    Got the following email from an MNB reader about Hy-Vee, which, we reported last week, is testing the use of traffic lights to tell customers which checkout lanes are shortest.

    Which prompted one MNB reader to write:

    The best can stackers strike again. The bane of our industry. Nothing against Hy-Vee, who actually tends to be, relatively speaking, one of the more innovative companies in our industry.  My point is that the most efficient, most disciplined, most risk averse are typically the individuals who have risen to the top in an industry which prides itself on efficiency, discipline and risk aversion.

    What word is missing? Imagination.

    This is why, IMHO, the industry as a whole is having such a difficult time with the most difficult retail environment I have seen in my 30+ years in the industry. Imagination, true outside of the box imagination, is a skill which has rarely been rewarded in this industry simply because the price of failure is typically too high. Additionally, the patience necessary to cultivate and experiment with an operational concept, retail format, or merchandising idea, allowing such imaginative innovations to mature to fruition, is rarely taken. (So as not to tar with too broad of a brush, there are always exceptions, Wegmans and HEB leap to mind in the more conventional segment of the industry just to name two.)

    I’ll not sound the death knell of the supermarket industry here, as I have seen it rung too many times over the years and yet the industry has always proven itself to be remarkably resilient. However, there are, again IMHO, definite winds of permanent change mounting in this retail environment such that unimaginative, incremental alterations around the edges will not be sufficiently adequate to address but shall be ignored at a retailer’s peril.


    From another reader:

    I’ve never understood why grocery doesn’t do the same things as airlines and banks…one line to queue in? Whole Foods does this at Columbus Circle in Manhattan and it prevents customers from searching for the shortest line, or worse yet becoming upset because in the line they’ve chosen has an issue with an item price, broken eggs, or worst of all…someone who writes a check and doesn’t even dig for it until the receipt is handed to them. With a queue system no one feels hurried or delayed.

    MNB reader Claire Tenscher wrote:

    I hope Hy-Vee has taken into consideration that the shortest line isn’t always the quickest! I’m having a fun time imagining shoppers rushing back and forth between lines that have a green light, akin to cars switching lanes in a traffic jam.

    In commenting on this story last week, I wrote:

    Forgive me, because I don't want to denigrate what Hy-Vee is trying to do here. Anything that reduces checkout lines is a good thing. But...when compared to the technology being tested by Amazon in Seattle that will eliminate checkout lines and lanes, this seems like small ball.

    It just strikes me as a vivid difference in thinking.


    Which prompted one MNB reader to write:

    A team or company has to go with the roster it has at the time. They can’t always swing for the fences and a homer, but sometimes must go for a single, double or even a bunt to compete.

    Fair enough.




    On Friday, MNB reported on how President-elect Donald Trump said he would nominate Andrew F. Puzder, CEO of the company that franchises the Hardee's and Carl's Jr. fast food chains, to be his secretary of labor, and noted that there are those who suggested that Puzder has not made workers and their careers a centerpiece of his business strategies.

    Puzder, the New York Times reported, has been "an outspoken critic of the worker protections enacted by the Obama administration," and a firm critic of efforts to boost the minimum wage. Puzder also has advocated for replacing fast food employees with robots. Machines, he once said, were “always polite, they always upsell, they never take a vacation, they never show up late, there’s never a slip-and-fall or an age, sex or race discrimination case.”

    I commented:

    I found myself curiously conflicted yesterday when I heard the Puzder quote about automation. On the one hand, I feel bad for the poor fast food employees being replaced by robots. But on the other hand, I took a different position on automation when Amazon made its revelations earlier in the week. Is Hardee's any different from Amazon, at least in this regard.

    Here's what I think. The problem is not automation replacing people. That's inevitable. As one MNB reader said yesterday, when was the last time you went to a bank teller as opposed to using an ATM or banking online? Cars replaced horses, which put buggy whip manufacturers out of business. People read newspapers and magazines online, which reduces the need for newspaper delivery boys and girls. This stuff is inevitable.

    What is important, in my mind, is where you go from here. Once you accept that technology creates the displacement of humans in certain segments, you then have to look forward and figure out where the next jobs will be. And that's what you train people for. Tomorrow's jobs, not yesterday's.

    If I were president (and this is something that nobody would want), I think I'd want a Labor Secretary who came from a company like Linked In or Monster - someone who knows where the jobs are going, as opposed to where they have been. I'd want someone who thinks in terms of the highest common denominator, not the lowest. I'd like someone who created a company that invested in employees and did not see them as liabilities.

    But that's just me. And I'm not president.


    MNB reader Edward Zimmerman wrote:

    Good comment ... One element to consider, the restaurant industry is the largest private employer in the country representing 10% of jobs. Having a Sec who “gets it” is not a bad idea to manage a structural transition toward your thought of where the jobs are going …

    From another reader:

    Agree with you, plus have you eaten at Hardee’s or Carl’s? Talk about lowest common dominator.

    MNB reader Jeannine Wilkins wrote:

    I’d prefer you as president over the new guy coming in! And, your ideas about who to select for Labor Secretary are very insightful and it would be great if that could happen!

    And MNB reader Rick McNeil chimed in:

    You said “If I were president (and this is something that nobody would want)”.  You are too modest.  The bar has been set low.  I’m sure many of your readers who would prefer you to the other choices we’ve had recently.

    Trust me. The bar cannot possibly be that low.

    Though ... talk to me again in 2018.
    KC's View:

    Published on: December 12, 2016

    In Week Fourteen of National Football League action...

    Washington 27
    Eagles 22

    Texans 22
    Colts 17

    Bengals 23
    Browns 10

    Broncos 10
    Titans 13

    Cardinals 23
    Dolphins 26

    Bears 17
    Lions 20

    Steelers 27
    Bills 20

    Chargers 16
    Panthers 28

    Vikings 25
    Jaguars 16

    Jets 23
    49ers 17

    Falcons 42
    Rams 14

    Saints 11
    Buccaneers 16

    Seahawks 10
    Packers 38

    Cowboys 7
    Giants 10




    And, because there is more than one kind of football, we have a special guest report from MNB reader Stephanie Steiner, who wanted to make sure that we included the following:

    The Seattle Sounders FC defeated Toronto FC in a grueling and bitter competition that went long and hard and ended in sudden death penalty kicks. It was the first trip to MLS Cup for both Clubs. Stefan Frei was the MLS Cup MVP.
    KC's View:
    I'm really glad that Stephanie wrote in with this info ... since I have no idea what to make of the fact that the final game apparently went into overtime with a 0-0 score, but somehow Seattle beat Toronto 5-4. Not sure exactly how this happens, but it sounds impressive.