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    Published on: March 27, 2017

    by Kevin Coupe

    Helluva way to start a Monday, but...

    Re/code has a story, based on a new study by PwC, saying that close to 40 percent of US jobs could be "vulnerable to replacement by robots in the next fifteen years," the most of any country with an advanced economy.

    According to the story, "30 percent of jobs in the United Kingdom could be threatened by technical advancements in automation from AI and robotics, compared to 35 percent in Germany and 21 percent in Japan ... The US has a higher percentage of jobs under threat by automation because more workers in the U.S. are employed in positions that require routinized tasks, like filling out paperwork."

    Normally, this is where I would make a quip about the Borg, and how "resistance is futile." Or a Terminator/Judgement Day joke, suggesting that the domination of Skynet could be imminent.

    But I don't feel much like being clever about such things this morning. This is serious stuff, and requires serious people and serious public policies to cope with these changes.

    I don't believe that this move toward automation and technological replacement of people in certain jobs is intrinsically evil, but I do think that we have to do a couple of things in reaction to this likely inevitable shift.

    First, there has to be a national consensus that people with jobs that can be replaced with technology need to be offered the opportunity to be retrained so that they can be relevant in a new economic reality. People in government love to talk about public-private partnerships, but this strikes me as an area tailor-made for such an approach. It is time to stop talking and start acting in the country's best interests.

    Second, I do think there are going to be areas in which people actually can become a differential advantage to their companies. Michael Sansolo had a piece here last week about how the real estate industry, against all odds, has remained people-centric. And when I think about retail, I believe that for the companies that make it so, the deployment and utilization of great people can serve as an enormous competitive advantage.

    That means investing in people, so that they feel invested in the business. It means figuring how to stop dickering around about minimum wages and/or living wages, and mapping out a way in which great people can maximize their earning potential because they make a difference in creating and sustaining great companies.

    There always will be new ideas and technologies that offer retailers the opportunity to shave down their labor numbers. Scanning was one. Self-checkout another. Checkout-free stores, like the Amazon Go test, may be next ... and, inevitably, there will be another great idea after that.

    This is where resistance may not be futile - if the resistance is not just about saying "no," but rather creating strategies and tactics that are people-driven and people-focused.

    But here's one thing I do know. The march of technology will continue, and its footsteps will only grow closer and louder. But, Spoiler Alert!, not everybody thinks so.

    The Re/Code story concludes by pointing out that the PwC researchers "point to a few policy interventions that might be explored to address the effects of broad job loss due to automation, like workforce re-training programs or universal basic income schemes.

    "But new policies require government action, and in the U.S. - where job loss to automation may reach 38 percent by the 2030s, according to the study - the Trump administration doesn’t seem immediately concerned.

    "At an event with Axios Friday morning, Treasury Secretary Steve Mnuchin said that job loss to technical advancements in AI and robotics 'isn’t even on their radar screen' and that he imagines these changes are more like '50 to 100 more years away'."

    This is the point where the Borg might say, "What fools these mortals be." And even allow for a small, collective smile.

    The future is here, like it or not. We have to open our eyes and deal with it.

    Like I said. Helluva way to begin a Monday.
    KC's View:

    Published on: March 27, 2017

    by Kevin Coupe

    Okay, I can't leave you starting a Monday morning with such a sobering Eye-Opener as the one above.

    So I've got another one.

    Perhaps you saw that Fortune is out with an issue in which it names the world's greatest leaders.

    Number one, as it happens, is Theo Epstein, president of baseball operations for the Chicago Cubs, who engineered the organizational makeover that positioned the team to end a 108-year championship drought with a World Series win. This replicated a feat that Epstein performed in Boston, where as general manager he helped lead the Red Sox to a World Series win after a mere 86 years without a championship.

    An excerpt:

    "A few weeks before spring training of 2012, in the ballroom of a budget hotel in Mesa, Ariz., Theo Epstein stood before nearly every person connected with the baseball operations of the Chicago Cubs and told them how the Cubs were going to win the World Series.

    "Epstein devoted the first three days of the session to on-field strategy: hitting philosophy, pitching philosophy, defense, and baserunning. But the entire last day was devoted to character. The Cubs, Epstein insisted, would acquire only players with outstanding makeup. Even Epstein realized himself how far he had evolved since he put so much faith in numbers when he began as general manager of the Red Sox. Now character did not just matter. It was essential to Epstein’s blueprint to win the World Series."

    The story notes that "Epstein gave his scouts very specific marching orders. On every prospect he wanted the area scout to give three examples of how that player responded to adversity on the field and three examples of how that player responded to adversity off the field ... Cubs scouting reports would never look the same again."

    This reminded me of an executive I know who likes to take prospective hires out for a meal and watch how they interact with waitresses and waiters; if they are condescending or rude in any way, they don't get hired. And I know a couple of executives who love to recruit employees from restaurants where they have exceptional experiences, because they know that those skills are both exceptional and priceless. (I once had breakfast with New Seasons CEO Wendy Collie in Portland, and watched her work hard to recruit our waiter, who would've been a fabulous addition to any staff. It was enormous fun to watch.)

    Character matters. That always is an Eye-Opener.

    Character, by the way, also means not taking the credit, even if you deserve it.

    Epstein responded to the owner with this statement to ESPN: "I can't even get my dog to stop peeing in the house. That is ridiculous. The whole thing is patently ridiculous. It's baseball—a pastime involving a lot of chance. If [Cubs All-Star Ben] Zobrist's ball is three inches farther off the line, I'm on the hot seat for a failed five-year plan. And I'm not even the best leader in our organization; our players are."

    That's character.

    Oh, one other note.

    In the Fortune ranking, Pope Francis, who "continues to inspire and surprise as he reconciles the conflicting demands of traditionalism and modernity within the Catholic faith," came in third.

    When asked about this, Cubs manager Joe Maddon had an easy explanation:

    "The Pope didn't have as good a year."

    The Fortune rankings are very interesting, and can be read here.
    KC's View:

    Published on: March 27, 2017

    Bloomberg has a story suggesting that while tradition bricks-and-mortar retailers love to blame their troubles on Amazon, a more accurate view of the situation might be that Amazon gets too much of the blame while traditional retailers get too little.

    Among the problems pointed out in the story are: too much retail (more retail square footage per capita than any other nation) ... too much lag time between conception and opening ("trends change much faster than permits can be issued, buildings constructed and subsequently rented," and "that lag can be consequential") ... too many shopping experiences that are geared to a nineties consumer point of view ... not enough shopping experiences designed for the fact that millennials simply live their lives differently (they don't own cars or houses and wait to have children, which affects what and when they buy certain things) ... and consumers, because of the transparency offered by the internet, have a better sense of what things cost and when discounts will happen, which affects traditional retailers' ability to promote effectively.

    While there are exceptions to the rule, the story suggests, "for every retail out-performer you can name, there are many more under-performers. Those warnings about excess retail space are almost a decade old. If anything, the existential threat to the consumer retail industries are even more acute today."
    KC's View:
    I'm not sure there are very many people who would suggest that the nation is under-stored, and yet I wonder how many new stores will be opened this year that, from the moment the front doors swing wide, are destined to be under-performers simply because they don't bring anything different to the table.

    I know that most companies and executives are judged by sale growth, and that most sales growth is linked to new stores. But maybe it is time to start rethinking this benchmark.

    Published on: March 27, 2017

    CNBC reports that a new study from Citi Research says that Walmart is "'best positioned' among the major food retailers to capitalize on the next phase of growth in online grocery and take on Amazon."

    The reason? "Amazon's prices on grocery items tend to be higher than Wal-Mart, which accounts for about 20 percent of grocery sales domestically ... the price gap between Wal-Mart's store pick-up prices relative to AmazonFresh was an average of 30 percent," the story says. Plus, "Wal-Mart has been rapidly expanding its online grocery business and concentrating on the so-called click-and-collect model, which allows consumers to pickup orders at stores."

    The story goes on to say that "Kroger also scored high among the pure-play grocers in terms of its online grocery positioning compared with e-commerce giant Amazon, particularly as it related to pricing. But at the bottom of the list was Whole Foods Market."

    Interesting piece, which you can read in its entirety here.
    KC's View:
    The Amazon and Walmart/Jet online experiences continue to be very different, and it will be interesting to see whether Walmart is able to use pricing to make inroads against Amazon. I'm not persuaded, even though Walmart clearly is diversifying its offering, and its online chief Marc Lore seems to be enjoying having Walmart resources to play with. Amazon remains more robust and about far more than just selling stuff, and I tend to believe that this will be its long-term advantage.

    But, as the next two editorial stories make clear, the landscape is changing...

    Published on: March 27, 2017

    The New York Times over the weekend had a story about Amazon, writing that "for years, retailers have been haunted by the thought of Amazon using its technological prowess to squeeze them into powder. That battle has mostly played out on Amazon’s home turf, the world of online shopping."

    But now, the Times writes, "the fight is coming directly to retailers on actual streets around the globe, where Amazon is slowly building a fleet of physical stores. And while most of the attention has been focused on Amazon’s grocery store dreams, the company has a more ambitious collection of experiments underway.

    "If those experiments work — and there is no guarantee of that — they could have a profound influence on how other stores operate. Over time, they could also introduce new forms of automation, putting traditional retail jobs in jeopardy. At the same time, locating those stores close to customers’ homes could also help Amazon further its ambitions of delivering internet orders within hours."

    The Times writes that Amazon "is exploring the idea of creating stores to sell furniture and home appliances, like refrigerators — the kinds of products that shoppers are reluctant to buy over the internet sight unseen ... The stores would serve as showcases where people could view the items in person, with orders being delivered to their homes. These would not be your average Home Depots: Amazon has considered using forms of augmented or virtual reality to allow people to see how couches, stoves and credenzas will look in their homes."

    Furthermore, Amazon is said to be "kicking around an electronics-store concept similar to Apple’s retail emporiums ... These shops would have a heavy emphasis on Amazon devices and services such as the company’s Echo smart home speaker and Prime Video streaming service."

    And that doesn't even count the Amazon Books stores that the company has opened, the Amazon Go and Amazon Fresh Pickup stores that seem likely to open any day, and other potential bricks-and-mortar concepts that nobody - not even the sources quoted by the Times is talking about.

    You can read the entire Times story here.
    KC's View:
    Amazon's bricks-and-mortar approach has been slower to gain traction than its online business - one expert says that it likely is because Amazon, surprisingly, "has not figured out physical retail yet - but it doesn't surprise me at all. (That same expert thought that Amazon would have hundreds of stores by now, a notion that I've argued with for about as long as Amazon has been testing the bricks-and-mortar waters.)

    I've been saying here for some time that Amazon Books is the kind of format that could be adapted for a number of other categories. And one of the smartest retail minds I know has told me that he believes Amazon Books is the most exciting format he has seen in years. The Times story only reinforces my opinion.

    Published on: March 27, 2017

    MarketWatch has a story suggesting that one of the reasons that Walmart has been bulking up through the acquisition of online fashion businesses - like Moosejaw and ModCloth - has been to " compete with, and fend off, Amazon.com Inc., which is also making a push in the apparel arena."

    The story notes that Amazon "has been adding private label brands at a pace as robust as Wal-Mart’s acquisitions. By KeyBanc Capital Markets’ count, Amazon has at least 14 private-label apparel brands in the U.S. and U.K., nine for Prime members exclusively. Analysts there estimate that the e-commerce giant has a $14 billion-plus apparel business ... Moreover, Amazon is highlighting the brands when customers do a generic search. And the pricing is competitive."

    In acquiring these online businesses - and operating them separately - Walmart is "evolving," with the apparent recognition that it has to improve its assortment and expertise, as well as reach out to shoppers who in the past might have avoided Walmart, if it is going to be competitive with Amazon in the fashion arena.
    KC's View:
    Like I said, the landscape is changing. It is going to be a fascinating game to watch play out.

    Published on: March 27, 2017

    Barron's has a story suggesting that amongst all the problems that Whole Foods has been facing lately - including an expansion plan that didn't work, a shuffling of the executive suite, and questions about the efficacy of its new "365 by Whole Foods" concept - one of the biggest may be Trader Joe's.

    "Trader Joe’s has found a successful niche peddling both affordable health-conscious food and unhealthy indulgent snacks," the story says. "And it’s got plenty of locations within a short drive of many Whole Foods. In fact, 42% of Whole Foods stores are located within a five-minute drive of Trader Joe’s, up from 39% four years ago, according to UBS analyst Michael Lasser. That’s more than Kroger at 34% and Sprouts Farmers Market at 12%."

    In fact, Trader Joe's expansion has come close to keeping pace with Whole Foods'. Barron's writes that "Trader Joe’s has found the right niche at the moment, and actually sells more per square foot of store space despite having lower prices than Whole Foods on many products" - twice as much per square foot, according to some analyses.
    KC's View:
    In so many ways, "365 by Whole Foods" was supposed to be an answer to Trader Joe's. But it wasn't. And isn't. And I see little evidence that it ever will be.

    Published on: March 27, 2017

    Marketing Week has a story about how "Starbucks says its heavy focus on technology is enabling it to embrace conversational commerce 'very rapidly,' allowing consumers to order coffee at home or in their car using smart devices such as Amazon Echo."

    Starbucks' chief technology officer, Gerri Martin-Flickinger spoke at the company's shareholder meeting last week and pointed to the ways in which consumer interaction "with technology is radically changing. While young people currently 'use one finger and point and click' to order, she predicts the next generation 'won’t even do that' – and will use their voices instead."

    Starbucks already has "announced it would be implementing voice ordering into its mobile app. So far, it has made the feature available to roughly 100,000 customers in the US, and it plans to roll it out nationwide by the end of the year."
    KC's View:

    Published on: March 27, 2017

    Count Walmart, PepsiCo and Starbucks among the companies that "have joined the advertising blackout against Google after learning their ads are appearing on YouTube next to videos espousing racist and anti-Semitic views," according to a story from CNet.

    Variously calling the offending content "appalling" and at odd with their corporate cultures, the companies pulled all of their ads from Google-owned YouTube after the company did not live up to promises to change its policy about hate speech.

    Other companies that previously pulled their ads from YouTube include Coca-Cola, Johnson & Johnson, McDonald's, and Marks & Spencer.

    CNet writes that "this marks the latest bad news for YouTube, the internet's second-most-trafficked site. It's faced increasing scrutiny as waves of anti-Semitic and racist incidents have shocked the country over the past several months. As people have searched for reasons why this appears to be happening, their attention has fallen squarely on extremist news sites, social media and services like Twitter, Facebook and YouTube."
    KC's View:
    The purveyors of this hate speech are disgusting. Making sure that one's brand has no connection to such messages can be difficult, but I admire these companies for doing their best. It is, I think, just another example of how vigilant everybody has to be in a time when some people think the internet empowers them to say anything they want about anyone they want.

    Published on: March 27, 2017

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

    CNBC reports that starting April 1, Amazon will be collecting sales taxes from 45 states. The only states where Amazon won't collect sales taxes will be Alaska, Delaware, Oregon, Montana and New Hampshire - the five states in the union that do not have state sales taxes.

    For a long time, states did not require online merchants to collect sales taxes because it was believed that this would inhibit the growth of a nascent industry. However, as the e-commerce venue has matured and become more mainstream, states have gradually changed their policies.

    It also probably helped that estimates are that the states have missed out on hundreds of billions of dollars in tax revenue because of the old policy.


    • The San Francisco Business Times reports that grocery delivery company Instacart has agreed to write a $4.6 million check and "change the way it explains fees to users as part of a settlement of a class action lawsuit brought by employees of the company. "

    The settlement requires Instacart to be transparent about how it assesses fees and where the money goes; it also has to resolve issues related to "improper tip pooling and failure to reimburse workers for business expenses," as well as "create a formal policy that explains under what circumstances a worker can be deactivated from the Instacart system - essentially, being fired - and a process for disputing deactivation."

    Despite agreeing to write the check and change its procedures, Instacart continues to deny the validity of the claims made against it.


    Reuters reports that Amazon has agreed in principle to acquire Souq, described as "the largest online retailer in the Arab world ... If the deal goes through, Amazon would be getting access to markets with large purchasing power, including Qatar, the United Arab Emirates and Kuwait.

    Amazon has not confirmed the report.
    KC's View:

    Published on: March 27, 2017

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

    • In Nebraska, the Lincoln Journal Star reports that Fareway Stores "plans to build a 6,500-square-foot full-service meat market" in southeast Lincoln.

    The story notes that "its Fareway Meat Market is a new concept. The first one opened in Omaha last year, and the Lincoln location will be the second one ... Fareway is known for its grocery stores, which are mostly in small towns in Iowa and neighboring states. In Nebraska, the company has several stores in the Omaha area and one in Nebraska City."


    • The Indianapolis Business Journal reports that "struggling Marsh Supermarkets has stopped paying rent on six Indianapolis stores, a move that might suggest the struggling chain is preparing to close them to shore up finances."

    While not responding to questions about those specific locations, Marsh told the Journal that "the cutthroat grocery industry is prompting the company’s decision to further reduce its footprint."

    The Journal notes that Marsh "has steadily shrunk since Florida-based Sun Capital Partners acquired it in 2006 for $88 million in cash and the assumption of $237 million in debt. Marsh, which had 120 groceries when the deal closed, now has 67."


    • The Wall Street Journal reports that "Hollywood studios are preparing to upend decades of tradition by releasing movies at home less than 45 days after they debut on the big screen ... The studios and theater owners have long been at loggerheads over the issue, which Hollywood executives consider vital to their long-term survival and cinemas consider a threat to theirs. But now, faced with changing consumer habits fueled by proliferating on-demand entertainment options, the two sides are finally discussing a compromise."

    The sole remaining issue, sources tell the Journal, "is when and on what terms it starts, not whether it does ... By year-end, it is likely films will start to become available on VOD several weeks after their theatrical debut for between $30 and $50."

    This shift, the story says, "would transform the economic model of the movie business, while blurring the line that has long made film first and foremost an out-of-home, big-screen experience."

    But movie companies don't have a lot of choice, since they are hungry for new revenue streams: "The home-entertainment business declined 7% in 2016 to $12 billion, following a 6% drop in 2015. Global box-office growth has been slowing, rising just 1% last year to $38.6 billion."

    The first step in recognizing disruption is admitting that it is taking place. The second step is owning it, and trying to turn it to your advantage. This has been a long time coming, and the move by movie companies was predictable.
    KC's View:

    Published on: March 27, 2017

    • SpartanNash announced that it has promoted Mike Pahud, CFO at its Caito Foods division, to COO of the company.
    KC's View:

    Published on: March 27, 2017

    We had a story last week about the South Coast Plaza in orange County, California, a mall that has found a way to remain differentiated and successful even as other malls face significant problems.

    Which prompted MNB reader Michael Seelig to write:

    While reading this article I was reminded of a story my Grandfather told me a number of years ago. In the mid 1960’s he owned a few men’s clothing stores. All in the greater Los Angeles area and most in a downtown area or (what is now referred to as a strip mall) along a street with other retail outlets.

    At the time South Coast Plaza was being built he has a store in Costa Mesa, CA, just a couple of miles away. The mall approached him and asked him to relocate his store to the mall. After discussions, he determined that the higher rent was not worth being inside with other stores, because no one would shop that way and he would lose traffic.

    Now, he was still very successful, but years later as we discussed this decision, he shared that he would probably have made a different decision, had he known… I never got a sense of regret, just a what if…


    I tend to have a lot of "what iff" feelings about the men's clothing store business in Southern California. I spent much of my time at Loyola Marymount University working my way through school at a Marina del Rey clothing store called the British Stock Exchange - it was a yuppie-geared store before the term "yuppie" was coined. Terrific store, owned by a guy named Tim Dyckman ... but I think even Tim would concede that he took his eye of the ball and took the business in directions that were not sustainable. I learned a lot from that experience...




    Got several emails about the new Target format.

    MNB reader Norm Myhr wrote:

    Two entries is essential for food business, if Fred Meyer is an example of food/general merchandise store. They may note that evening shoplifting of general merchandise out the food door will also get a boost unless they take steps to protect it.

    And MNB reader Brian DeLonjay wrote:

    So you rearrange the store to make it easier for the customer to pick up less than $5 worth of products and leave (ok maybe $10)?

    My advice: Take your time and read what you plan on doing. If you want it to be easy, set up a Milk Vending Machine outside or sell milk through the Pharmacy Drive-Up Window?


    And, from MNB reader George Denman:

    I suggested this redesign several months ago on your web page. I shop Target on occasion and they even carry Graeter’s here in the Ohio valley but it is not convenient to walk the entire width of the store just to get to the food merchandising. Just look at Meijer and Walmart where they have a door entrance for food and another on the opposite side for general merchandise. Is this a “duh” moment….




    I quoted a line from War Games (1983), which prompted MNB reader Mark Boyer to write:

    Another memorable line from that movie: “I’d piss on a spark plug if I thought it would help.”

    Who comes up with this stuff?


    In this case, probably Lawrence Lasker, Walter F. Parkes, or Walon Green - the three credited screenwriters on the movie. (Screenwriters don't get nearly enough credit, OMHO.)

    You're right. It is a great line.




    Finally, we had a terrific email last week from MNB reader Rich Heiland, who wrote about his experience as a newspaper publisher dealing with local merchants in Hanover, Pennsylvania, when, in 1991, Walmart came to town. (If you missed it, the email is worth reading here.)

    That email prompted a note from another MNB reader:

    I Googled his name to find out about to find out about his WOW business and found a Rich Heiland who won a Pulitzer.  It has to be him, right? No wonder it was one of the best emails ever in MNB! 

    Indeed, that is the same Rich Heiland.

    FYI ... the Pulitzer was awarded to the Xenia Daily Gazette for spot news reporting about a 1974 tornado that struck the community, killing 33, injuring more than 1,000 people, and causing almost $100 million in damages. In fact, the Gazette saw its own roof torn off, it lost electricity, and 14 of the paper's 80 employees lost their homes. And yet, they went to work ... which is why my default position is to defend the press. The vast majority of reporters and editors do their absolute level best to get the facts right ... without regard to politics or ideology.

    Which is why Thomas Jefferson - who had his own problems with the press, especially when it was reporting that he was having an affair with Sally Hemings, which he denied - once said, "Were it left to me to decide whether we should have a government without newspapers, or newspapers without a government, I should not hesitate a moment to prefer the latter."

    Is the press always right? Of course not. Can the press do better? Often. But when I think about the press, I think not just of Woodward and Bernstein, and personal heroes like the great Pete Hamill, but also of people like the staff of the Xenia Daily Gazette.
    KC's View:

    Published on: March 27, 2017

    March Madness - the NCAA Men's Collegiate Basketball Tournament - has just one week left to go, and the Final Four teams have been determined. On Saturday, it will be the University of Oregon vs. the University of North Carolina, and Gonzaga vs. South Carolina.
    KC's View:
    I must confess that I know absolutely nothing about college basketball ... but for the first time this year, at the urging of my son, I filled out a bracket ... and, go figure, I have Oregon and Gonzaga in my Final Four. Which says a lot about dumb luck.