business news in context, analysis with attitude

Published on: June 1, 2018

by Kevin Coupe

The Wall Street Journal has an interesting piece about the current state of crisis management, noting that technology can be a mixed blessing.

The Journal is absolutely right about that. Social media can turn a misstep into a conflagration, generating enormous outrage within minutes that then gets covered in the traditional media, which only adds to the outrage.

Of course, social media also provides companies with the ability to respond quickly. So that’s a good thing, though, to be fair, it is rare that the response is able to douse the fire as quickly as it was created.

And then, there’s another reality that is good news for companies caught in this scenario - the Journal writes that the “same rapid cycle can work in companies’ favor” because “it often means that controversy blows over faster than ever.”

And let’s face it - there’s always a new controversy to fuel people’s feelings of outrage. It is like societal ADD.

All of these factors contribute to an increasingly complicated minefield that companies have to pick their way through when presented with controversies that implicate them, involve them, or have been created by people who work for them.

It is like a perfect storm - when Facebook and Twitter are made available to people in an increasingly polarized society, where people are so infected with epistemic closure that they are unable to concede even the legitimate motivations driving the people who disagree with them, then all you get is heat, and heat for heat’s sake, and very little light.

I wish I had an answer to all this, some sort of secret formula for resolving all the rancor. I don’t.

Companies just have to know that this is a minefield in which they easily could find themselves, and it won’t necessarily be because of anything they’ve done or haven’t done.

How they respond - and how fast they respond - could well prove to be the Eye-Opener.

Published on: June 1, 2018

CNBC reports that Walmart is rolling out its Jetblack personal shopping service in the New York area, moving beyond beta testing to make the order-via-text service available to more metropolitan area shoppers.

According to the story, “At $50 per month, Jetblack is not an exact counter to Amazon Prime, which costs $12.99 per month. Rather, it is intended for more affluent shoppers, particularly moms. It also isn't exclusive to products on Walmart.com and Jet.com. It will send shoppers items from other retailers, such as Saks, Bluemercury and Pottery Barn … Jetblack is also working with third-party delivery services such as Deliv and Uber to bulk up its supply chain.
… A membership includes white-glove delivery as soon as the same day or next day, complimentary gift wrapping and easy returns.”

Jetblack has been developed by Walmart’s Store No. 8 incubator, and is “being led by Rent the Runway co-founder Jenny Fleiss, who joined Walmart last year.”

"The goal is to think about game-changing technology, to think about the future of retail five years down the road," Fleiss says.

CNBC writes that “other projects being run under Walmart's Store No. 8 incubator include Project Kepler, a start-up working to build cashier-less stores similar to Amazon Go, and a virtual reality initiative.

"Thousands of people are on our waitlist [for Jetblack]," Fleiss said. "We want to save people time.”

Published on: June 1, 2018

The Wall Street Journal reports that Costco has announced its plan to use part of its savings from last year’s tax law changes to raise employee pay, saying “it would increase its starting hourly wages by $1 to $14 or $14.50 an hour. Other hourly workers will receive raises of between 25 cents and 50 cents. The new wages take effect on June 11.”

The move is seen as “intensifying the battle for workers in a tight U.S. job market … Unemployment in the U.S. has fallen to some of the lowest levels since the end of World War II, forcing Costco and other large employers to compete for talent in an industry with high turnover.”

The story says that as it announced the pay increases for some 130,000 employees, Costco also same-store sales that were up seven percent in the just-ended quarter, as well as profit that was up to $750 million, from $700 million a year ago, on total revenue of $32.36 billion.

Published on: June 1, 2018

USA Today reports that Stew Leonard’s, the iconic farm-fresh dairy store, has received approval to build a new 80,000 square foot store in a former Sears location in New Jersey’s Paramus Park mall.

The story notes that this will be Stew Leonard’s first New Jersey supermarket, though there are two independently owned Stew Leonard’s wine stores in the state. The new Stew Leonard’s would be the company’s seventh supermarket - it has three in Connecticut and three in New York.

The new store is expected to open during the first half of 2019.

The Paramus Park mall opened in 1974, and Sears was an anchor tenant from the day the mall opened until the store was shuttered early this year.

Published on: June 1, 2018

Yesterday, as it happens, we had a story about how former Walmart executive Bill Simon keeps going on TV to complain about the fact that Amazon is able to use other businesses, like Amazon Web Services, to help support its growing retail business.

Now, the Wall Street Journal has a story about Amazon’s cloud ventures:

“Amazon’s web-services business has been blazingly successful, and a look at how that came to be stands as a master class in how Amazon wins—and why now it has become a political target. The unit has become the Seattle company’s cash cow, providing 73% of its operating income, or $1.4 billion, on about 11% of its $51 billion in total revenue it reported in the most recent quarter.”

The story goes on: “A web-services platform such as Amazon’s lets businesses and other entities rent computing resources at giant server farms, allowing them to do computing tasks in the so-called cloud rather than buying their own servers and software. Amazon was early to build such a platform, and in doing so it upended the information-technology industry, pressuring incumbents that sold hardware and software.’

Amazon’s web services strategy “echoes one Amazon employed in retail. There, it built a dominant platform and became a powerful ally to brands and vendors of goods sold on its website. Then Amazon also began selling its own brands and goods that competed with some of its vendors.”

Totally worth reading, here.

Published on: June 1, 2018

The Wall Street Journal reports that Sears Holdings plans to close more than 60 Sears and Kmart stores in addition to the more than 200 closures that it already had announced.

The announcement came as Sears said its Q1 sales dropped 31% from a year earlier to $2.89 billion. Sears has not had a quarter in which sales were higher than a year earlier since 2011. In addition, the Journal points out, “same-store sales fell 13% at Sears locations and by 9.5% at the company’s Kmart outlets.”

According to the story, “The company said it had identified 100 unprofitable stores overall and notified workers Thursday at 15 Kmart and 48 Sears stores that their locations would close later this year.”

Published on: June 1, 2018

• CNBC reports that Walmart has “published a slew of patent filings that could reshape the shopping experience as we know it. While there's no guarantee any of these ideas will actually be brought to life, they offer a glimpse into Walmart's vision for the future of retail.

Among the filings were for smart shopping carts, wearable tracking devices (that could track and improve employee productivity), in-store drone assistance, and Blockchain-powered delivery truck fleets.

The story notes that Walmart “has published 1,419 patents since 2009.”

Published on: June 1, 2018

• Albertsons Companies said yesterday that it is expanding and elevating its Own Brands portfolio with a new top shelf culinary presence: Signature Reserve, which it describes as offering “unparalleled quality and exquisite taste for customers who are obsessed with the exceptional … The initial launch of Signature Reserve is seven decadent flavors of ice cream, all featuring globally-sourced ingredients that are perfect for entertaining or everyday indulgence.

Albertsons said that it “plans to introduce additional new Signature Reserve products in other categories throughout 2018, including ultra-premium pasta and pasta sauces imported from Italy, single-origin packaged coffees from Sumatra and Nicaragua, and four varieties of hand-picked loose leaf tea.”


• The Food Marketing Institute (FMI) has announced “a subscription-based online community for emerging food and beverage brands that offers education, mentoring, nurturing and access to sources of capital.” Dubbed Emerge, the program is designed to “help resolve complex industry issues by addressing a need for productive trading partner relationships with food-producing companies that have a product or product line with limited grocery distribution and seek more sales velocity. The key objective is to help these brands grow sustainably by expanding their distribution, and enhancing their operations, financing and sales. This collaborative community environment will host mentors, offer education, manage supportive outreach and provide access to investors.”

FMI president/CEO Leslie G. Sarasin said, “Through our new virtual community, FMI Emerge, our retail members can become better equipped to meet increased consumer demand for products focused on a variety of attributes such as local sourcing, health and wellness, artisanal and global cuisine.”

Published on: June 1, 2018

• Supervalu said yesterday that it has named Rob Woseth to the position of executive vice president and chief financial officer. Woseth has been interim CFO since July 2017.

Published on: June 1, 2018

Responding to our story about Amazon-owned Whole Foods expanding the number of markets where Prime members can get discounts, one MNB reader wrote:

You know, this will be interesting; to see if Amazon does something new for Prime members, or with the data they collect. Most retailer loyalty cards are nothing more than entitlement cards used for card members to qualify for “Loyalty Card Customer” discounts. Loyalty programs, for the most part have just been a way to mitigate ad markdowns. Which sounds exactly like Amazon is going to do for Prime members that shop at Whole Foods….offer deeper discounts to a defined membership group.

Now if such a program drives an increase in Prime membership which as you mention increases store level customer count, then that’s a win for them if the incremental markdowns at store level don’t outweigh the Prime membership revenue through directing Whole Foods customers to buy more gross profit light products each visit…nothing like increasing ones ad mix and everything that goes with that to throw a wrench in store operations….and profitability.

MNB reader Kris Kenyon Jackson wrote:

I was in the Jacksonville, FL Whole Foods and saw that Sunscreen was 50% off for prime members. I loaded up and bought way more than I originally intended as this was such a great deal! So I saved a ton but also bought more, so it’s a win/win for all!




On the subject of endangered malls, MNB reader Glenn Cantor wrote:

Instead of the closure of shopping entities that we currently call “malls,” I think the name and concept of what we perceive as a cluster of connected stores will supplant traditional malls.
For example, retail town centers are everywhere.  They combine restaurants, small stores, and entertainment with larger, stand-alone stores located on the perimeters of the overall property.
 
Instead, it would appear that stores like JC Penney are threatened, and not necessarily retail shopping.

From another reader:

As a kid who grew up in arguably the height of the Mall, I believe their potential saving could be in what the kids always found attractive about them. Hint, it wasn’t buying stuff. At least not for our group. The real value was that you could meet all of your friends there and interact away from the house or neighborhood.
 
Turn the malls into a source of community with the benefit of some great food opportunities that go beyond renting space to the local chains and sprinkle in some services and you could be on to something.
 
I work from home and would welcome a space that I could go to get some work done while having the ability to actually walk to a great lunch and maybe grab some groceries on the way out. I cannot think I am alone in this area. I would make that a separate space from the entertainment options to keep the worlds divided.
 
Make it a walkable living community in the suburbs with desirable condos and it could be the new hot living destination!




Yesterday, we took note of a CNBC interview with former Walmart CEO Bill Simon, who the story says “slammed Amazon for using cloud and ad revenues to support what he called meager retail profits.”

Simon told CNBC that Amazon has been “gaining traction and profitability by other business activities that have nothing to do with retail," including Amazon Web Services and advertising. Walmart, on the other hand, “went out head to head, knuckle to knuckle and won market share in retail by executing a business model that customers wanted.”

I commented, in part:

First of all, let me say that I respect Bill Simon’s career and especially his military service - he spent 25 years in the U.S. Navy and U.S. Navy Reserve.

But I’m really getting tired of his whining about Amazon - these days, he seems to make a habit of appearing either on CNBC or Fox Business and complaining about how Amazon is treated and evaluated, and how unfair it all is. I wish he’d just knock it off … though, to be fair, his comments do reflect how some folks in the retailing community think. They complain rather than compete effectively.

I don’t think there’s any question that Amazon has figured out a formula that helps to support its retailing business, which continues to evolve as the company looks for new competitive advantages. But that’s a smart thing, not something to mock. They figured out a better way, or at least a more effective way, which was something that other retailers were not able to do.

Now it is up to other retailers - such as Walmart - to figure out how to be competitive, as opposed to whining about it.

Simon … might have been better off wondering why he didn’t figure out a way to better compete with Amazon, and peer around the corner into the future, when he was in Walmart’s c-suite between 2010 and 2014, a time when Amazon was achieving considerable competitive traction. If he’d done a better job then - he was replaced because of disappointing store sales - maybe current CEO Doug McMillon wouldn’t have to make all the expensive strategic moves he’s making now just to close the online gap between Walmart and Amazon.

On the other hand, it is possible that economic circumstances made it impossible for Simon to do what needed to be done then, even if he knew what to do. But he should keep in mind that economic circumstances now make it possible for Amazon to do what it does, and necessary for Walmart to do what it is doing.

I’m just asking Simon to stop whining. Show a little style, concede that Amazon has been smart enough to reinvent the game and create a new economic model, and talk about what its competitors must do to differentiate themselves and succeed.

MNB reader Robert Dyer responded:

As I read your story on Bill Simon’s observations on Amazon and their ability to offset low margins in retail with the higher margins in cloud services, it brought to mind a similar strategy that Safeway utilized in their attempt to keep their retail pricing competitive – Blackhawk.  Blackhawk was their gift card subsidiary that they sold in to other retailers and merchandised through kiosks.  If you have bought a gift card at a kiosk in a grocery/drug retailer, it most likely sat on a Blackhawk kiosk.  For years Blackhawk masked the true profitability of Safeway, until it was sold and split off from Safeway through investor pressure.  Soon afterwards, as the true financial picture was revealed, Safeway was merged with Albertsons.
 
Maybe in the future, given a similar investor pressure to realize improved investor returns, Amazon might have to do likewise.  But given the high level of appreciation of Amazon stock and their current trajectory of success, I do not see that happening any time soon.

MNB reader Charles P. Moore wrote:

Tough but fair response to Bill Simon, ex-CEO of Walmart.

Seems to me that anyone from Walmart (even a former leader) decrying Amazon in this area is a bit of 'pot meet kettle’ situation. It can be argued that Amazon’s practices are 'predatory’ in so far as profits from one area of the business (or capital raises) allow them to price below actual cost in order to drive other competitors out of business. But Walmart (and lots of big box retailers) deployed a very similar strategy of pricing differentially by market in order to drive out competition during their national expansion phase. Could certainly be described as ‘predatory’ as well.

So, perhaps Simon has Walmart’s blessing to make these arguments, that is, to promote a legal rationale for a DOJ antitrust action that would slow down Amazon a notch.

For better or for worse, if we do see a DOJ case with Amazon, it’s likely more about Bezos and the Washington Post than the actual practices.

Meanwhile, this may become a bit of a Coke vs Pepsi battle in which the winners are Coke and Pepsi, with everyone else squeezed.

From another MNB reader:

I’m with you on Simon’s commentary.  Bill was out-strategized by Amazon. For a long-time military leader, that Bill didn’t lead the company into unchartered waters, is on him. He exited with lots of stock that has done very well since his departure so let’s not feel too sad for Bill.
 
For whatever reason, Bill was unable to sell a different vision of success to the Walmart Board during his tenure as CEO.  I don’t mean to sound critical – but he needs to take a page from President GW Bush playbook and stay silent now that he’s out of the corner office.  Bill was unable to develop a formula for “selling more” – which is necessary in successful retail (and business) today.

And from another:

Of course there is a measure of respect for Bill Simon but what he is complaining about is realistically just a broader and more updated portfolio of businesses at Amazon than at WalMart.

Seems like in the late 90’s as WalMart steamrolled across the continent and globe with Supercenters, they used food in their portfolio and priced it with the profits of the rest of the store to come out whole….it sure was tough to only have food in those days.

Good point.

And, from one more:

Finally! Thank you KC for saying what needed to be said. About time he gets off that high horse.

Published on: June 1, 2018

The amazing life of John McCain - war hero, politician, presidential candidate, statesman - is the subject of a new HBO documentary, “John McCain: For Whom The Bell Tolls,” and it is very much worth your time.

McCain currently is battling brain cancer, and it seems to be a foregone conclusion that he is nearing the end of the road, though he has faced the end before and survived. But, remarkably, while McCain seems comfortable looking back, he seems anything but mournful; he hopes that he has done some good, feels that he has lived with honor, is willing to acknowledge his mistakes, and has strong feelings about the health of the nation and our politics.

McCain’s is the central voice of the documentary, but there are generous and heartfelt testimonials to his life and career from politicians as disparate as Joe Lieberman, Joe Biden, Bill Clinton, Hillary Clinton and Barack Obama. As polarized as our politics may be, there seems to be a sense even among those who may disagree with him on issues that McCain’s priority has been fulfilling the American ideal and promise.

As good as the documentary is, it made me want to read McCain’s latest book, “The Restless Wave.” McCain’s “Faith of My Fathers” remains one of the best memoirs I’ve read, and I am looking forward to settling down with what McCain says almost certainly will be his last book.

In the documentary, the point is made that after a lifetime of teaching us how to live, McCain now is teaching us how to die. Not enough can be said of this extraordinary American.



Showtime, meanwhile, has an ambitious four-part documentary called “The Fourth Estate,” which is a behind the scenes look at how the New York Times covered the first year of the Trump administration. I’m sure that not everyone will like it, but I thought it largely was a warts-and-all look at a bunch of people who mostly want to get it right - not just in its political coverage, but also in its Pulitzer Prize-winning coverage of the sexual harassment and Me Too movement (at the same time as the Times had to deal with its own problems in this area).

If you’re willing to come to it without feeling that the Times is the devil incarnate, you may find it both instructive and illuminating. If you cannot do that, well, you wont want to watch it anyway.



Ah, Solo. The new film about Hans Solo’s early days has gotten a mixed critical reaction, but I have to admit that I liked it more than I expected. Written by old Star Wars hand Lawrence Kasdan and his son, Jonathan Kasdan, Solo fills in some narrative blanks, offers some fresh perspectives on an old legend, and even springs some plot surprises on audiences that have been steeped in this mythology since the late seventies.

Alden Ehrenreich is no Harrison Ford, but he grew on me as the movie went on; the truth is that he not only makes us realize how good Ford was, but how misguided it would be to reboot the Indiana Jones character with a new actor.

Donald Glover is terrific as Lando Calrissian, and Woody Harrelson, Thandie Newton and Emilia Clarke are all terrific - better than the movie, if I’m being honest.

Solo isn’t close to being the best of the StarWars movies, but it is a lot better than The Phantom Menace.



I have a couple of wines to recommend to you this week - the 2016 Flor de Verano Albarino from Spain, which was wonderful with a spicy shrimp dish I made, and the 2017 Messanges Rose from France, which is made from Cabernet Franc, was perfect with a mushroom frittata I cooked last night.



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

Sláinte!!