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    Published on: September 15, 2017

    by Kevin Coupe

    The Atlantic has a story that connects Nordstrom’s announcement that is is testing a new concept called Nordstrom Local, which will offer a wide variety of services but won’t stock any merchandise, to Apple’s comment this week that the company now refers to its stores as “town squares,” saying that in these retail units, “aisles will be ‘avenues’ and trees will provide customers shade from overhead fluorescents. The company dreams its flagship stores will become ‘gathering places,’ complete with classes on coding, music, and photography.”

    There is a philosophical and strategic connection, the story says: “Retailers are, very consciously, promoting these in-store ‘experiences’ - or at least, they are doing so at the flagship stores in big cities that they like to draw attention to. It’s a reaction to the fact that buying is now something that can be done anywhere, and that reaction can be detected in a linguistic shift.”

    It isn’t exactly a new conceit - the earliest shopping malls were designed with town squares in mind - and the stores that do this may have to be concerned that in the long run, if every store were to follow this approach, it will become commoditized.

    But the point is that at least in certain markets, and usually appealing to higher end consumers, savvy retailers understand that they have to do anything they can to do-commoditize the shopping experience and create environments that cannot be replicated online.

    They’re at least moving forward with their Eyes Open, with the fundamental understanding that success is achieved in the areas where they are different, not the same.
    KC's View:

    Published on: September 15, 2017

    Business Insider covers a speech given in London by Amazon's vice president for global innovation policy and communications, Paul Misener, in which he talked about the key role that failure has played in the company’s evolution and revolutions.

    Some excerpts:

    • ”It's OK to be wrong, it's OK to make mistakes — it's OK to fail," Misener said. "That's the key part I want to communicate to you today is the importance of failure in any sort of innovation. At Amazon, we have a lot of experience with failure. We have failed many times — some very public, colossal ones, some private. But we are failing and we will continue to fail. Many times we will fail going forward, I'm confident of that.”

    • ”This willingness to fail, it's a big deal. I get that that's hard to adopt because you've got all sorts of people — maybe your boss, maybe an investor, maybe the press — looking for failures. That's not a very fun thing to go through. No one likes to fail. But if you accept that failure is necessary for innovation, it's actually quite important and it becomes a lot easier to deal with.”

    And, the story says that Misener “cited Auctions — an early eBay competitor — and zShops — mini-shops for other retailers within the Amazon site — as examples of past failures. But he said the learnings from these experiments contributed to the success of Amazon Marketplace, which allows other people to sell over the website. ‘It turns out now that fully half of the things sold on Amazon are not sold by Amazon but through other partners. It's introduced a new class of customer for Amazon, the seller customer.

    “'It was this willingness to fail and trying to get things right eventually finally that led us to this very beneficial way of doing business’.”
    KC's View:
    To be honest, the notion of failure - especially so-called “fast failure” - gets a lot of lip service in business, especially in retailing. People in my line of work love to pontificate about how important it is, and I see executives talking about it all the time.

    But the thing is, the ability to cope with and grow from failure has to be built into an organization’s DNA, and very few companies are engineered that way. They worry about stock prices, which rarely go up when initiatives fail. They worry about the cost of labor, which doesn’t tend to go down when you have people working on initiatives that end up failing. Their CEOs worry about their own futures and compensation, which don’t tend to look as promising when they have failures on their resumes. Mid-level managers are almost programmed to resist uncertain initiatives, because running programs that fail usually don’t lead to raises and advancement. And even if you say you’re trying to get beyond all these factors, saying it and actually doing it are two different things.

    Companies that have this built into their structures from the beginning have an advantage in this way. Companies that do not have an enormous challenge facing them if they really want to be innovative.

    Published on: September 15, 2017

    Fortune has a fascinating piece about how many CEO changes there have been in the food industry over the past 18 months, in both the retail and supplier companies.

    “Is this coincidence, or evidence of some meaningful moment in the nearly $1 trillion U.S. grocery industry? The answer,” Fortune writes, “may be a bit of both. Some of the CEOs were Big Food veterans just following the normal course of succession as they approached the age of 65. But for years now they had also been under an enormous amount of pressure…”

    That pressure has built up because “the old tricks of the trade have stopped working” - the days have passed when economies of scale combined with population increases would lead to inevitable growth. Now, there is a multitude of new and nimble competition from all sides, consumers have more options (including online) than ever, and there is a growing mistrust of so-called “big food.”

    As Kenny Rogers once sang, “You gotta know when to hold ‘em, and know when to fold ‘em.” Increasingly, CEOs are cashing out of the game.

    You can read the entire story here.
    KC's View:
    I was talking to a friend of mine about this story, and she thought - with some justification - that “somebody needed to come up with a story and this article was the result! You could make a similar case for other industries as well. “

    Which I think is true. But I do think that there is a line from the story that definitely deserves attention - that “the old tricks of the trade have stopped working.”

    That’s an important recognition, but I have to wonder the degree to which that realization has sunk in, at least beyond the C-suite execs thinking about their retirement plans, or about spending more time with their families (without thinking about whether their families actually want to spend more time with them).

    If it were, then there would more companies ending the practice of slotting allowances and promotional fees, which have them making money on the buy instead of the sell. There would be more retailers coming up with their own solutions to the problem that is Amazon Prime, which is amazingly targeted in terms of how it buses relevance to build loyalty. There would be a lot more failed initiatives, as retailers try things that don’t work but learn from those efforts.

    I don’t see that happening. And the fact that this trend cuts across a lot of industries only makes me think that there are a lot of industries in which leadership is incapable of or unwilling to deal with disruption in meaningful ways.

    Published on: September 15, 2017

    Nielsen is out with a study about how “organics have become more accessible—and popular—than ever, with dollar sales shifting across channel lines.

    “Premier natural and fresh outlets account for 26% of organic spend, but share has started to shift in the last two years,” the study says. “Warehouse/club stores, which gained 0.8 percentage point in the last two years, now represent 27% of all organic spend. But organic products aren’t just making headway in the channels that high-income shoppers are more likely to frequent. In fact, supermarkets, mass merchandisers and discount grocery channels now represent a combined 25% share of organic spend, up 2.0 percentage points from two years ago.”

    In addition, the report says, “organic growth is also spreading across the actual store. Notably, fresh departments are top drivers of success for retailers when it comes to organic offerings, but there are still many other opportunities for growth across center store aisles that carry shelf-stable packaged goods, dairy and frozen foods.

    Nielsen notes that “in the last year, 88% of U.S. households have purchased organic* food and beverages—a trend that’s growing in strength as consumers increasingly turn to more healthy and clean options in food, beverages and non-food categories like personal care.”
    KC's View:

    Published on: September 15, 2017

    CNBC reports that Morgan Stanley is estimating that roughly 38 percent of Whole Foods shoppers currently are members of Amazon Prime, and that Amazon’s $13.7 billion acquisition of Whole Foods will result in roughly half those people - or about 2.5 million people - joining Prime.

    While Morgan Stanley concedes that “price cuts, Prime Now and other investment will pressure profitability,” the bigger picture suggests that this acquisition will drive sales and profits in the long run, expanding and solidifying its ecosystem.

    SearchEngineLand reports that performance marketing platform Kenshoo has done a study suggesting that 56 percent of consumers are consulting Amazon to do product research before doing anything else, and that 26 percent check Amazon while in bricks-and-mortar retail stores. While more people consult Google at some point during their search process, this is said to be the highest percentage garnered to this point by Amazon.
    KC's View:

    Published on: September 15, 2017

    • Lidl has announced that it has identified a location in Alabama where it will open its first store in the state - Decatur.

    Lidl currently operates nine stores on the US east coast, all opened this summer; in total, Lidl operates some 10,000 stores in 27 countries.

    Axios reports that the federal Trade Commission (FTC) has confirmed that “it is probing the breach at credit check agency Equifax that implicated data from 143 million people. That's a surprising move for an agency that usually keeps its investigations under wraps.”

    The story suggests that the fact “the FTC publicly commented on the investigation at all is evidence of the wide interest in the Equifax breach — thanks to the eye-popping number of Americans who might be affected.”

    • The Financial Times reports that Nestle is taking a majority stake in the California-based Blue Bottle coffee company. The story says that Nestle is spending up to $500 million for a 68 percent stake in the company, which “by the end of this year will have more than 50 cafes in California, New York, Washington, Miami and Tokyo.”
    KC's View:

    Published on: September 15, 2017

    The other day we ran an Eye-Opening email from an MNB reader in which he talked about how AI is transforming the ophthalmologist business, and how young people need to be preparing for a new reality.

    I commented:

    There’s no question that AI is a threat. But we know it is coming, which means that we have the ability to prepare … and for our children to prepare by developing new skills and new attitudes toward their lives and careers.

    People have a choice. Shape the future, or be shaped by it.

    One MNB reader thought I was being overly simplistic:

    Saying this economy is all about “choice” is like using the “Buggy Whip” example as an analogy to explain away what’s going on.  It does not fully reflect today’s economy.  The attitude that “this has always been the way of the world” and “people just have to take personal responsibility” is simply ignoring the fact that not everyone has the ability or is in a situation to take the necessary steps to advance in this brave new world.

    My great grandfathers and uncles were in the various “transportation” industries in the buggy whip era:  Cartwrights, Wheelwrights and Blacksmiths.  No Buggy Whip manufacturers, I admit.  But, there was room for all of these skills in the automotive industry as those trades became obsolete.  Cars still needed a “cart” and wheels and there was plenty of metalwork and finer detail work to be done.

    Yes, some retraining was required.  But, NONE of them had to go out and get an advanced degree.  Possibly, they would not have had the ability to do so.  Given that an IQ of 100 is the average, that means 50% of our population may not have the aptitude.  I’m guessing my family tree had at least a few branches that would have lost out if higher education was mandated.

    And, then there is the issue of the resources needed to go off and get that necessary education or training.  That receptionist, is s/he being paid enough to have the savings to go back to college for four years?  Any other “adult” responsibilities that might make it a bit difficult to work (somewhere), go to school and—oh, I don’t know—take care of children or elderly parents?  So, make that a six year transition . . . and then find work.  Oh yeah.  Receptionists should be rushing out to become optometrists.  And, if they don’t?  Well, too bad. I guess they just didn’t have the initiative to take action.

    Moreover, what about the optometrist? During my last eye exam, a “tech” used all sorts of gadgets to vet my prescription, check for glaucoma and evaluate my peripheral vision.   A tech-only situation would likely lower the cost of the exam and it might take less time.  I’ll just find an “eye doctor” when something goes wrong.   So, all you receptionists, forget about becoming an optometrist.  Put (most of) them out of business by becoming a tech!  The optometrist should have been getting another degree to design or program all of those gadgets by now, anyway.  I mean, why spend time on all those pesky medical journals and conferences to learn the latest in identifying and treating eye disease.  Come on!  This is a dying profession.  There will be AI to take care of all that.  Get on to your next career.  Optometry/Engineering; potato/potahto.  It will be a breeze.

    Yet, I agree “choice” is the operative word. But, it’s not about “their” choices.  It’s about “our” choices that concerns me.  Those of us who have the “choice” might want to reconsider if continuously searching for the cheapest or fastest way around things—often at a “human” cost—is the best choice.  We also have to choose what we will  do if the worst case scenario does play out.  What if we get to a point when there is no place for some people to shift, due to physiological and/or situational circumstances?  Not because of a lack of initiative, laziness or any other “personal flaw”  that are too often used to label those who are not making it in this economy.  What will we chose to do then?

    Don’t think that’s important?  Then, don’t whine when you become one of “them.”  Optometry isn’t the only profession with plenty of AI and gadgets that could put the associated practitioners out of business.  But, feel free to believe, “I’ll always find some other place to go.”  That’s your choice.

    We took note the other day of a Washington Post story about how “median household income rose to $59,039 in 2016, a 3.2 percent increase from the previous year and the second consecutive year of healthy gains, the Census Bureau reported Tuesday. The nation’s poverty rate fell to 12.7 percent, returning nearly to what it was in 2007 before a financial crisis and deep recession walloped workers in ways that were still felt years later.” But, “inequality remains high, with the top fifth of earners taking home more than half of all overall income, a record. And yawning racial disparities remain, with the median African American household earning only $39,490, compared with more than $65,000 for whites and over $81,000 for Asians.”

    I commented:

    I continue to believe that the inequality factor in all this is the faulty foundation that makes all the gains we make - no matter who is responsible (or in office when they happen, which is not the same thing, no matter what party you are in) - problematic.

    This prompted one MNB reader to write:

    If we've seen the median income increase and the poverty rate decrease why does it matter if inequality has increased as well?

    Overall, doesn't that mean the overall standard of living is increasing and isn't that a good thing? Isn't it more important that we can have a US specific poverty rate that reflects an overall higher standard of living than we've had in the past?

    Yes, the recession has has taken a lot of time to overcome but in the medium and long term we have seen an overwhelming increase in the purchasing power and quality of life of Americans across all income strata.

    If anything, shouldn't we care more about the changes between income levels (there is work to be done here but this does not nullify the above)?

    If you're simply arguing for an ideal (maybe a perfect world would have incredible growth that benefits everyone at the same time) how do you propose we get there? We've seen the free market and liberalization of markets constantly yield the best results across the world. Why argue in a counterfactual and not embrace the methods that seem to work? Of course, I'm assuming you favor a more involved government to address the inequality (this is based on my interpretation of your past commentary).

    I recognize some of the above statements are broad but they're in response to broad commentary and I believe they generally hold true.

    All fair points, though I would not necessarily argue that more government intervention is the best way to go. I’d rather private enterprise focus on addressing the inequality and helping the people who have less achieve more.

    I’m not suggesting that an increase in the median income and a decrease in the poverty level are bad. Far from it. But I do think than inequality matters, because inequality breeds cultural and societal discontent. The poverty level may be going down, but the distance between people who have a lot and the people who have little is growing … and I just don’t think that’s healthy.

    Am I arguing for an ideal? Sure … but what’s the point of arguing for anything less?

    I’m with Robert Kennedy, who once said:

    The gross national product does not allow for the health of our children, the quality of their education or the joy of their play.  It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.

    It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.

    And it can tell us everything about America except why we are proud that we are Americans.

    He didn’t say that as long as more people have more, and fewer people have less, we’ve achieved the American dream.

    The other day, in the context of a story about Walmart’s decision to streamline its UYS organization, I commented:

    I … found myself thinking about my old friend Glen Terbeek, who has forgotten more about the food and retailing business than I’ll ever know. Glen used to talk about how companies can actually be more effective by driving down the decision-making process to more granular levels. If Walmart has some 4,000 stores in the US, for example, he would argue that it ought to be broken down into pods of 10 or 15 or 20 that can be more responsive to local market needs.

    I guess the question I have is whether streamlining and simplifying is the same as centralization … and if so, does it really serve the goal of making a company more nimble and responsive?

    One MNB reader reacted:

    Your friend Glen could not be more correct, smaller is always more nimble in most business. To add, WM has built one of a very few relatively nimble businesses on a centralized platform, one store at a time from their founding. I would still consider them pretty nimble for their size even today, now they want to be more nimble in there centralized platform. What allows them to work on becoming more nimble is they are not changing their centralized model to become nimble they are adjusting within the model. So after this news from WM, how many retailers will start slashing and burning there businesses to cut cost? If WM does it we should too!

    Like sheep many respected grocery retailers in the last 15 years have attempted to go centralized walking away from there successful division models…why, because most retailers think that WM is the gold standard on the way to operate. One footnote, consultants have sure become rich delivering the WM model to entrepreneurial multi division chains as their saving grace. The lessen not learned has been that it has not worked successfully in the long term for any grocer. Can anyone name one grocery chain that has successfully converted from entrepreneurial divisions to centralization, Albertsons, Safeway, Winn Dixie and to a degree Kroger, the dramatic shift in culture simply catches up! When will they learn or will they?

    So back to nimble, it rarely exist if your too big, the local connection erodes because one size fits all and local entrepreneurial spirit erodes in centralizing divisions. Lastly, the old successful culture pulls in to many directions. It could take generations to change, but who has time?

    So, be aware of what is happening in your business, connect with the consumer and employees, give the right products at a value and make sure the product is available.

    The WM’s and Amazons are the lion, for example chains like Kroger needs to know where the lion is and what he is doing, but they don’t need to out run the lion they need to out run all the other competitors!

    On the subject of the West Coast-based startup that is rolling out a five-foot-wide high tech vending machine with a limited range of nonperishable items and calling it Bodega, which offended some folks who think of the bodega as an urban retail store format usually are owned by immigrant families, MNB reader Ron Rash wrote:

    Speaking for myself, if calling their new machine “Bodega” is misappropriating, then there are about a zillion cafes with serious issues. Culturally, being offensive is a different story, and I would need to think about that one for a while.

    More importantly, I can’t see myself buying non-perishable items from the Bodega box, carting them back to my apartment, and then going to the local bodega/convenience store for the fresh stuff.

    KC's View:

    Published on: September 15, 2017

    In Thursday Night Football action, the Houston Texans defeated the Cincinnati Bengals 13-9.

    It has been pointed out to me that I have been neglectful in my Major League Baseball coverage lately, and have failed to point out that the Washington Nationals have clinched the National League East divisional championship, and the Los Angeles Dodgers have at least clinched a playoff berth. I also haven’t done any reporting of the Cleveland Indians’ remarkable 22 game winning streak, which is baseball’s longest winning streak in the last 101 years.

    Now I have.

    And, just to stay up to date, last night, as the Indians defeated the Kansas City Royals 3-2, it was the Los Angeles Angels’ 5-2 loss to the Houston Astros that clinched a playoff spot for the Indians. That means that Cleveland is guaranteed at the very least the second wild car spot, even if they lose all 15 of the games they have left.

    Which they won’t.
    KC's View:

    Published on: September 15, 2017

    …for the lateness of this morning’s Wake Up Call. We had some server issues, but everything seems to be working just fine now.
    KC's View:

    Published on: September 15, 2017

    Robert B. Parker’s flawed Massachusetts police chief Jesse Stone returns this week in a new novel by Reed Farrel Coleman, “The Hangman’s Sonnet,” with an entry that finds Stone barely hanging onto his job and sanity after the murder of his fiancé in the final pages of the last book in the series, “Debt To Pay.”

    “The Hangman’s Sonnet” concerns a series of murders that seem connected to a so-called lost album recorded decades ago by a now-aging folks singer, and it is up to Jesse and the Paradise, Massachusetts, police department to put the pieces together. It is a solid procedural, told with attention to detail - as with the best of the genre, it generates a kind of momentum that keeps the reader moving from page to page and chapter to chapter. And there’s even a cameo appearance by Parker’s other major creation, Spenser, the Boston private detective who has headlined some 46 books and counting.

    Since Coleman took over the Jesse Stone series - Parker passed away in 2010 - he has turned out increasingly complex books that have dug deeper into Stone’s psyche than Parker did. Largely, this is because Coleman is a very different kind of writer; a highly accomplished novelist, his other series - with protagonists such as Moe Prager and Gus Murphy - are as focused on damaged and guilt-ridden heroes as on the cases they investigate. In the case of Stone, Coleman seems to have connected to his protagonist’s past as a professional baseball player and current drinking problems to an extent that Parker did not, and “The Hangman’s Sonnet” uses his alcoholism and almost broken spirit as major plot points.

    I love Parker’s work, but I think it is fair to say that he wore his angst a lot more lightly than Coleman does. The music of Coleman’s writing tends to be more mournful than Parker’s was, and he reaches for soulful character notes that Parker did not. (This isn’t to say that one approach is better than the other. They’re just different.)

    As I think I’ve noted here before, Coleman’s Stone books have an entirely different rhythm than Parker’s, which works because they’re written in the third person and don’t use the first person narration of the Spenser series. (Ace Atkins has been masterful in capturing Spenser’s voice in the books he has written about him since Parker’s death.) Parker loved dialog, and tended to be minimalist in terms of physical descriptions, though when he did them the result was a kind of hard-boiled poetry. Coleman’s books depend more heavily on narrative, but that’s okay, especially since he’s writing about characters who to many of us are old friends.

    “The Hangman’s Sonnet” is a terrific entry in the Jesse Stone series, and I recommend you check it out.

    Last night, my daughter took me to a concert … which all by itself would be cool, but this concert featured Kelly Clarkson, so it was sort of a big deal. I have to admit that I may have been the only person in the wildly enthusiastic audience who was completely unable to sing along with the plethora of hits that she performed, being woefully unfamiliar with her oeuvre. But I have to say that I had a great time … there’s nothing like spending an evening with an adult child, and in this case, I found Clarkson to be a funny, absolutely winning performer with a great sense of how to tell a story and when to be charmingly self-deprecating.

    I was reminded of a conversation that I had with Ric Jurgens, who used to be the CEO of Hy-Vee, many years ago, in which he told me that even after his kids became adults, one of his great pleasures was to go with them to CD stores and pick out music together; it gave him a sense of their evolving musical tastes, he was exposed to stuff he might not have known about, and he got to share precious time with his children. When he told me that, at a time when my kids were quite young, with was with the suggestion that I should find similar ways to continue connecting with my kids. That’s advice I have taken quite seriously over the years.

    I do have to wonder, though, since I haven’t talked to Ric in a long time … what does he do with his kids these days, since there aren’t really any CD stores around anymore? He’s been retired from Hy-Vee for awhile, but I’ll have to look hum up one of these days…

    That's it for this week. Have a great weekend, and I'll see you Monday.

    KC's View: