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    Published on: March 9, 2018

    by Kevin Coupe

    There’s been a weird story going around this week, about how Amazon’s Alexa-powered digital assistants, have in some cases started laughing for no apparent reason.

    Not just laughing. It was, some folks said, sort of an eerie laugh. And sometimes, people said, it would happen in the middle of the night, with no prompting.

    While there has been no explanation for the unprompted laughing, Amazon has responded to the controversy by saying that under certain circumstances, Alexa misinterprets words it hears as “Alexa, laugh.” Now, it says, it has changed the programming so Alexa does not respond to that phrase. Instead, if you want Alexa to laugh, you have to say, “Alexa, can you laugh?” This phrase, it says, is likely to have fewer false positives.

    The New York Times writes this morning that the stories have reawakened concerns about the technology:

    “Critics have argued that the always-on devices pose a threat to privacy and security. There have been reports of children ordering items through the devices without parental consent, and last year Burger King took advantage of the devices by incorporating a command into a commercial.

    “Despite those concerns, the technology has been widely embraced. Reports vary on just how many Americans use such devices, but all suggest that adoption is relatively high.”

    In fact, surveys suggest that as many as one in five USA adults use the technology in one form or another.

    I, for one, being someone who always will go for the easy laugh, am a little disappointed that they’ve disabled the “Alexa, laugh” prompt. And I’m even more disappointed that when you ask Alexa if she can laugh, all you get now is a little “tee hee.”

    I know this seems like I’m not taking the privacy concerns seriously enough, but I’d less that worried about this. The world needs more laughter. I actually wouldn’t mind if every once in a while my Alexa system burst out in a guffaw or a chortle; if it did, I’d ask it to tell me what was so funny.

    For the moment, I just have to occasionally satisfy myself by asking Alexa to explain the Prime Directive to me. Or, asking it to beam me up.

    The responses tend to be Eye-Openers.
    KC's View:

    Published on: March 9, 2018

    Bloomberg reports this morning that Toys R Us, having been unable to find a buyer for the company or restructure its debt, now is preparing to liquidate all of its US operations.

    According to the story, “Although the situation is still fluid, a winding down of the U.S. division has become increasingly likely in recent days … Hopes are fading that a buyer will emerge to keep some of the business operating or that lenders will agree on terms of a debt restructuring.”

    Toys R Us filed for bankruptcy protection last September, and then had a holiday season that was worse than expected. It entered the year with about 800 stores in the US, but had already announced plans to close about a quarter of its fleet.

    Any US liquidation will not affect the company’s global operations, though its Europe and Canada businesses also have been in trouble. The company’s Asia business has been profitable.
    KC's View:
    Good to know, even as Toys R Us’s stores circle the toilet, that its senior executives can drive to their big, fancy homes at night, warm in their luxury cars, knowing that they were successful at one thing - persuading a bankruptcy court judge to allow them to be paid millions of dollars in bonuses that they said would incentivize them to stay at Toys R Us.

    One MNB reader wrote to me early this morning about this story, and pointed out the following passage from the Bloomberg story:

    The downfall of Toys R Us can be traced back to a $7.5-billion leveraged buyout in 2005, when Bain Capital, KKR & Co. and Vornado Realty Trust loaded the company with debt to take it private. For years, the retailer was able to refinance its debt and delay a reckoning. But the emergence of online competitors, such as Inc., weighed on results. Massive interest payments also sucked up resources that could have gone toward technology and improving operations.

    And, this reader wrote:

    Like your thoughts on tobacco execs, I hope there is a special circle in hell for the VCs who steal the value from these businesses then dump the flaming corpses leaving a trail of unemployed workers and empty buildings.

    How much more competitive could TRU have been if they were not funneling all their earnings to pay down debt that the VCs brought on to complete the buyout?  

    Companies need to innovate and deliver on solid customer experiences but they can't do that if excessive debt is forced on them.

    Couldn’t have said it better myself.

    Published on: March 9, 2018

    Bloomberg reports this morning that Costco is pushing its suppliers “to lower prices on everything from steaks to televisions, aiming to keep customers away from rivals like Amazon.

    According to the story, Costco “wants vendors to shoulder a greater part of the cost of limited-time promotions for its 50 million members … Costco’s supplier squeeze signals more pain ahead for consumer product makers like Procter & Gamble Co., Nestle SA and Samsung Electronics Co., which are already grappling with declining brand loyalty and shoppers migrating to online channels.”

    The Bloomberg story says that as part of its more aggressive pricing strategy, Costco also is offering new private label items under its Kirkland Signature brand.

    The story notes that in an analyst call this week, CFO Richard Galanti said that “Costco would use some of its savings from the US corporate tax cut “to benefit its employees, but declined to provide details.”
    KC's View:
    I know that Costco has managed to avoid serious repercussions to its business model even as Amazon has grown, but it seems to me that this has been more like a temporary reprieve. That becomes even more obvious as Costco presses suppliers for lower prices, but I still think that the company has to get more aggressive about its commitment to e-commerce. At the end of the day, lower prices are something that can be replicated by an e-commerce company … which could leave Costco with less of a differential advantage than it would like.

    Published on: March 9, 2018

    Bloomberg reports that Boxed, which bills itself as a purely online version of a membership warehouse store, has rejected a $400 million acquisition bid from Kroger. The decision leaves Boxed, for the time being, as an independent entity; while it had held talks with Amazon, Target and Costco, none of those companies made an offer.

    According to the story, “The Kroger rejection puts Boxed back on the original path set out by Chief Executive Officer Chieh Huang, who has said he wants to remain independent and eventually go public. Boxed has differentiated itself from Amazon by offering a limited selection of household products in bulk sizes, as well as an inexpensive house brand of trash bags, paper plates and other items. The narrower scope lets the company sell more orders using fewer people and less space than a retailer with a bigger inventory.”

    Boxed became a company of interest to bigger retailers last year after Amazon acquired Whole Foods, and competing companies looked for options that could help them jumpstart their online operations.
    KC's View:
    I continue to believe that Boxed may make more sense as a division of a bigger entity than it does as an independent company. Not sure what the owning company will be … but there will be some sort of seismic event that will make Boxed look a lot more enticing, and somebody is going to come along and make them an offer they can’t refuse.

    Published on: March 9, 2018

    In Minnesota, the Star Tribune reports that Supervalu “will build a new urban concept Cub grocery store at E. 46th Street and Hiawatha Avenue in Minneapolis. The 46,000-square-foot store, about half the size of the largest Cub stores, is also the first to anchor a residential complex.”

    Anne Dament, executive vice president of retail, marketing and private brands at Supervalu, tells the paper that “this store is unlike anything you’ll see in any Cub. It’s designed to seamlessly integrate into the community. It’s more chic than you’ve seen before.”

    The story goes on: “The smaller store to open in spring 2019 will feature a large deli area with a selection of Quick and Easy and made-to-order meals, a popcorn shop, a produce section modeled after a farmers market layout, an enhanced floral gift space and a pharmacy. It will have outdoor and indoor seating at the Refresh cafe/bar, where customers can get coffee, ice cream or a warm cookie in the store or the walk-up window outside.

    “The new location east of the Holiday station on 46th will be steps away from a bike path. A bike dock will be included to accommodate those customers. Open seating will be provided inside and out.”
    KC's View:
    This may be the first time that “Cub” and “chic” ever have been used in the same story.

    Let’s be clear. As online retail becomes more pervasive, many bricks-and-mortar retailers are going to find that they and their customers will be far better served by smaller stores with more edited/curated selections that reflect the ways in which the store is different from its competitors. The center store experience is going to have to become something very different … sharply focused, differentiated, with a technology component that integrates it with an online offering that takes care of all the non0-differentiated product.

    Published on: March 9, 2018

    Bloomberg reports this morning that Amazon “ is shifting its Prime Pantry service, which focuses on non-perishable household goods like breakfast cereal, laundry detergent and shampoo, to a $5 per month membership model.”

    According to the story, “Amazon will make the change gradually, encouraging Prime Pantry shoppers to commit to a monthly service charge that gives them free shipping on orders of at least $40, a company spokeswoman said. The current model is for Prime subscribers only and charges $6 per box, encouraging shoppers to squeeze in as much detergent, paper towels and canned food as possible. In the future, those who don’t opt for the new monthly flat rate will pay $8 per box.”
    KC's View:
    I’ll be curious to see how this plays out. To be honest, as big a fan as I am of Amazon, I’ve never found the Prime Pantry offering to be all that compelling; it never has mattered all that much since I have both Prime and Subscribe & Save. (If there is a way that it should matter more, Amazon has done a lousy job of communicating it to me.)

    Right now, in many ways, Amazon seems to be disassembling and reassembling the puzzle in a variety of ays to see what works best. This won’t be the last shift that we’ll see as it looks for ways to be more responsive to shoppers.

    Published on: March 9, 2018

    • Kroger said yesterday that it had Q4 net earnings of $854 million, up from $503 million during the same period a year earlier, on revenue that was up 12.4 percent to $31 billion, from $27.6 billion during the year-earlier period. Total 2017 sales increased 6.4% to $122.7 billion in 2017 compared to $115.3 billion in 2016, with net earnings down slightly to $1.9 billion from $2.0 billion a year ago.

    CNBC reports that “Kroger also said Thursday it plans capital investments of roughly $3 billion in 2018, excluding mergers, acquisitions and buying back leased buildings.

    “CEO Rodney McMullen said he expects new U.S. tax legislation will allow the company to accelerate its turnaround plan announced last October. It consists of investments in employees, growing private-label brands and expanding ‘ClickList,’ where shoppers can pick up online orders in stores.”

    CFO Michael Schlotman tells CNBC that the company will take a “balanced approach” to how it will use savings from tax cuts … About a third of any savings will go to shareholders, a third to workers and a third to customers, he said.”

    One bright spot for Kroger: 2017 digital sales were up by more than 90 percent.

    Crain’s Chicago Business reports that “Starbucks, facing flagging growth in the U.S., is testing digital menu boards to boost sales, especially for the slower afternoon period.” The boards are seen as a way of highlighting “Starbucks' Mercato food line - such as a seared-steak sandwich for $7.95 - which is part of the company's mission to get customers to think of Starbucks as a fuller dining option.”
    KC's View:

    Published on: March 9, 2018

    • National Retail Federation (NRF) president/CEO Matthew Shay released a statement yesterday in response to tariffs being imposed by the Trump administration on steel and aluminum:

    “A tariff is a tax, plain and simple. In this case, it’s an unnecessary tax on every American family and a self-inflicted wound on the nation’s economy. Consumers are just beginning to see more money in their paychecks following tax reform, but those gains will soon be offset by higher prices for products ranging from canned goods to cars to electronics. 

    “The retail industry is extremely concerned by the administration’s apparent desire to ignite a trade war, where the net losers will be the very people the president wants to help. On top of steel and aluminum tariffs, retailers are troubled by the direction of the ongoing NAFTA negotiations and the threat of additional tariffs on consumer goods from China. The true greatness of America cannot be realized when we build walls blocking the free flow of commerce in today’s global economy.”
    KC's View:

    Published on: March 9, 2018

    Remember ... for most of us in the US, this weekend marks the end of Standard Time and a blessed return to Daylight Saving Time. On Sunday, March 11, at 2 am, it will be time to turn your clocks forward an hour. (Assuming, of course, you have clocks that require manual changing.)

    It also will mean it'll be just 18 days until Opening Day in Major League Baseball. More than ever, since I spend way too much time reading newspapers and watching the news, I find myself looking forward to what Robert B. Parker once called the most important thing that doesn’t matter.”

    I don't know about you, but these days I find myself thinking that there are three things that are absolutely necessary to getting through the tumult - late night comics, alcohol, and the return of baseball.
    KC's View:

    Published on: March 9, 2018

    …will return.
    KC's View:

    Published on: March 9, 2018

    “Counterpart,” on Starz, is a terrific series that combines elements of a Cold War thriller with science fiction, and, built on a pair of standout performances by the great J.K. Simmons, is absolutely riveting.

    The premise is fascinating. At some point in the late eighties, a parallel Earth was created … but since that time, its path has been diverging slowly but steadily from our Earth. That Earth is a grimmer place than ours, for a variety of reasons that get spelled out in the series, and the show details a kind of toxic rivalry between the two Earths that is beginning to spill out into the open. The place where the two worlds connect - and can be crossed between - is, quite appropriately, Berlin, a place where two parallel worlds existed in uneasy tandem for decades. (Berlin, photographed in muted colors and casting ominous shadows, gives the whole thing a kind of Third Man vibe.)

    Simmons plays two roles - Howard Silk and Howard Silk. The first one is a low level bureaucrat on our Earth, milquetoast in his demeanor and largely unambitious in his goals. The one from the parallel Earth is a field agent - tough, sardonic and driven. Simmons is great - somehow, no matter which one he’s playing, you know exactly which Howard it is … it is hard to know how he does it, and it is as subtle and smooth as, well, silk.

    “Counterpart” plays out as an enormous puzzle in which certain sections come into focus, but the overall landscape always is shifting and morphing. I find it to be captivating and thoughtful about issues of choice and identity. I’ve seen all seven episodes to date, and can’t wait for the next three … I encourage you to find a way to binge watch the series, because it is totally worth it.

    I had a bottle of wine sitting on the counter - a 2015 Bandol Fontbrune, from Provence, in France. To be honest, I’m not entirely where it came from.

    So the other night we opened it. I was making lamburgers - which, by the way, were delicious, topped with a sprinkling of feta cheese and a dollop of harissa - and I hadn’t picked out a wine.

    It was, fortuitously enough, delicious - perfectly balanced and spicy enough to hold up to the lamb, which had a bit of curry mixed into it.

    “Wine is a grand thing,” Ernest Hemingway once wrote. Never more so, I would add, when the pleasures are both bountiful and unexpected.

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

    KC's View: