business news in context, analysis with attitude

Published on: July 30, 2018

by Kevin Coupe

The individual stories keep breaking.

The New Yorker broke a story on Friday about how CBS CEO Leslie Moonves has been accused of sexually harassing a number of women decades ago, which seems ironic since more recently he has been an outspoken supporter of the #MeToo movement. It is an extraordinary story, and you can read it here.

The CBS board is scheduled to meet today to decide what, if any, action to take.

Meanwhile, the Washington Post reports that “the Cleveland Orchestra has suspended violinist William Preucil, its concertmaster of 23 years, ‘until further notice’ while opening an investigation into allegations of sexual harassment.”

Forbes had a piece about how former Papa John’s CEO John Schnatter - who lost his job over the use of a racial slur - now is facing allegations that he also has a history of sexually harassing female employees.

Lululemon Athletica announced last week that it has hired Calvin McDonald, formerly of Sephora, to be its new CEO, replacing Laurent Potdevin, who had to step down because of behavior “that did not meet the company’s standards.”

So here’s my question:

Does anyone, anywhere think that this story is anywhere near the end? Does anyone, anywhere think that there wont be more career-ending revelations about men who have behaved badly and victimized women who wanted nothing more than to do their jobs and be treated fairly and wish respect?

And I keep asking myself the same question, over and over:

Who raised these guys? Didn’t they have mothers and sisters and wives and daughters? How did they lose their moral compasses? Who were their fathers? What kinds of male role models did they have who persuaded them that it was okay to abuse women through the abuse of power?

I’ve said it before, and I’m going to say it again.

If you are any sort of leader in any sort of company, it is time for you to step up and say to everyone in your organization, there is no place here for this crap. If you are a victim, here’s my email address and phone number - please get in touch with me now and help me rid this organization of the creeps who are playing this game. I am on your side. And, if you are a predator, get ready to pack your bags ands clean out your office, because there is no room for you here … and I don’t care if you are the biggest superstar in the company. You’re going to be gone, and if we can do it, we’re going to make sure you are going to be prosecuted.

Don’t forget. If living up to your moral and ethical responsibility isn’t enough to get you to do the right thing, remember that you have a fiduciary responsibility to do this. Every suit filed against your company and/or its leadership puts you at risk. You need to get in front of this.

And one more thing. if you are a leader who behaved badly in the past, do us all a favor and step down now. Because the bells of justice eventually are going to toll for you, and it is going to be an Eye-Opener.

Published on: July 30, 2018

The Chicago Tribune reports that drug store chain Walgreens “has unveiled a new digital platform to connect customers to medical services,” allowing “patients to schedule appointments at its in-store Advocate clinics, talk with doctors and therapists through telehealth company MDLIVE, and schedule online dermatology appointments through online dermatology service DermatologistOnCall.”

Walgreens says that it is partnering with a number of regional health care providers around the country, which will make the platform national in scope.

The story suggests that it is not a coincidence that the offering comes in the wake of Amazon making a $1 billion investment in the pharmacy business through its acquisition of PillPack.

The story quotes Giovanni Monti, Walgreens Boots Alliance vice president and director of health care innovation, as saying, “ “We’re very, very focused on our product development and strategy and we’re, of course, very aware of what’s happening in the market, but we do what we believe is right for our customers and augments or accelerates our strategy … “It only makes sense for us to make it even easier for consumers to access different health care services that we or our partners provide, and to do that based on where they are, based on their health conditions.”

Published on: July 30, 2018

Variety reports that Walmart has hired Mark Greenberg, the former CEO of the Epix premium cable network, “to help develop a low-cost subscription video-streaming service … with a lineup of content and a price point designed to appeal to Walmart’s core base of consumers in ‘Middle America’.”

Neither Walmart nor Greenberg have commented on the report.

There have been reports that Walmart would like to launch a streaming video service that would compete with Amazon and Netflix.

Variety writes that “it’s not clear at this point what programming a Walmart SVOD package might include. But its chances of success will obviously hinge on the nitty-gritty details of how much it costs — and what customers will be able to watch … For Walmart, Greenberg represents an exec who’s well-versed in the challenges of running a subscription-video service. He was part of the founding team that created the strategic blueprint for Epix, which was the first cable TV network designed to span multiple platforms: linear TV, VOD and digital devices.”

Published on: July 30, 2018

CNN has a story about how the California Supreme Court has ruled that hourly employees must be paid for tasks they perform even after they’ve clocked out after their shifts, a ruling that “marks a win for labor advocates who say requiring hourly workers to spend minutes doing unpaid tasks amounts to wage theft. Business groups say the ruling will embolden frivolous lawsuits and cost companies money.”

According to the story, “A federal law, called the Fair Labor Standards Act, generally allows companies to avoid compensating employees for time spent on duties the law describes as trivial or too difficult to track. In its majority opinion, the California Supreme Court said the federal rule does not apply in the state when it comes to certain off-the-clock tasks performed by employees … The majority opinion from California's top court suggests the federal law is antiquated, and smartphones or other modern devices can be used to easily track a employee's time down to the minute.”

CNN writes that the ruling is “the result of a six-year legal battle between Starbucks and Douglas Troester, a California worker who sued the company for not paying him for closing tasks that he said took four to 10 additional minutes after he clocked out each day.

“Over the 17 months of Troester's employment at Starbucks, the unpaid time added up to more than $100, according to court documents.”

Published on: July 30, 2018

Agence France-Presse (AFP) reports that taxi drivers in Madrid and Barcelona went on strike last week and over the weekend, claiming that more than 15,000 drivers were acting in solidarity to protest “against ‘unfair competition’ from Uber and Cabify.”

According to the story, “Violence erupted in Barcelona where the strike began on Wednesday. Drivers threw stones at the vehicles of Uber-style licensed private chauffeurs, with some ending up with flat tyres. The attacks prompted Uber and Cabify to suspend their services in Barcelona for as long as the taxi strike lasts.”

Published on: July 30, 2018

MoviePass, the movie ticket subscription service, ran out of money last week and for a time its three million members were not able to avoid themselves of its service, leading to growing skepticism about its ability to stay in business.

In other words, it was not a good day. To get out of the mess, MoviePass had to borrow $5 million, and analysts say it won’t be the last money that MoviePass looks to borrow; the only question is whether anyone will lend it to the company.

The New York Times reports that “Helios and Matheson Analytics, its parent company, said in a regulatory filing on Friday that MoviePass had experienced a ‘service interruption’ the day before because it could not make ‘required payments to its merchant and fulfillment processors’.

“In a message to subscribers on Friday, the company’s chief executive, Mitch Lowe, apologized for the outage, during which some of its three million subscribers could not check in to see movies, and said the service was ‘up-and-running with stability at 100%’.”

MoviePass charges its members $10 a month, which gives them the ability to see one movie a day at participating theaters. The Times notes that “a movie ticket costs roughly $10, so if a subscriber saw more than one movie per month, the company would likely lose money, he said. In April, the company disclosed to regulators that it was losing roughly $20 million per month since September, and that auditors, citing ‘significant net losses’ and problems with capital, doubted its ability to continue.”

Published on: July 30, 2018

The Wall Street Journal has an interesting story about the highly organized and concerted efforts being made to scam Amazon.

An excerpt:

“The scams are used to try to outsmart Amazon’s automated system that ranks some half-billion products in search results, according to interviews with consultants and businesses engaged in these practices, as well as sellers who say they have been approached by such businesses. It’s one of an ever-rotating wheel of tricks used to game Amazon’s algorithms. Some sellers pay off workers inside Amazon to gain competitive information. Others hurt rivals’ listings by barraging them with overly negative or positive reviews.

“The tactics aren’t thwarting Amazon’s sales, which rose 39% in the second quarter, but they threaten to undermine the integrity of one of the world’s largest web marketplaces, which collects nearly half of every U.S. retail dollar spent online.”

You can read the entire story here.

Published on: July 30, 2018

The New York Times over the weekend carried an interview with PayPal CEO Dan Schulman, in which he made the following observation when asked about India’s efforts to ban cash:

“There are two mega-trends happening right now in the financial services industry. One: You’re seeing the digitization of payments. People are moving away from checks. People are slowly but surely moving away from cash.

“That’s driven by the other big trend, which is the explosion of smartphones. In smartphones, you have all of the power of a bank branch in the palm of your hand. You can do basic transactions at a fraction of the cost and a fraction of the time that it took you before. That can enable so many of these underserved populations to come into the mainstream as well and do things that perhaps you and I take for granted, and it can actually make a real difference in their lives.

“The demonetization in India is one of the most audacious and bold experiments that a government has done. India is one of the last places you would think that would try to get rid of cash, but there's a huge issue that goes on. There's a huge amount of graft and corruption. But if the government can directly send that money to you electronically, right into a digital account or a bank account, that could be incredibly impactful in that country. Whether it fully works or not, it is a harbinger of things to come.”

Published on: July 30, 2018

• Reuters reports that Walmart has “quietly retreated” from an ambitious plan that it laid out last year for having store employees “bring online orders directly to shoppers’ homes after completing their usual shifts of up to nine hours on the sales floors.”

The goal of the plan was to take advantage of Walmart’s broad geographic reach and high number of employees to tackle the “last mile” issue that plagues so many retailers. And, by paying the employees to make the deliveries, Walmart would have a way to boost employee wages while getting greater profitability.

The initial test was in New Jersey and Arkansas: “ Walmart started the program with the idea that store employees could courier all items that would fit in a car. But the initiative failed to gain traction with skeptical employees who had to use their time after work, according to sixteen workers who participated in the trial … Fourteen of the sixteen Walmart employees told Reuters that they were put off by the program’s poor compensation. And all of them expressed concern over who would be responsible if they got into an accident or if merchandise was lost.”

The story goes on: “Walmart is now testing a more modest service with just four Walmart employees who deliver goods from a single store in Woodstock, Georgia, Reuters has learned. In this latest initiative, Walmart is also overhauling the guidelines for employees and limiting deliveries to groceries and related items such as paper plates.”

Published on: July 30, 2018

• MarketWatch reports that “as Amazon continues to bring Whole Foods Market into the Prime system, executives say members are integrating the grocery chain’s benefits into their personal habits faster than other perks that come with the exclusive membership.”

CFO Brian Olsavsky said last week that the integration, which essentially means an expansion of Amazon’s ecosystem, has gone well: “We have a traditional grocery store now with Whole Foods, and then we have the combination of those two with home delivery, and we’re using Prime Now or Whole Foods products through Prime Now to make those deliveries, as well as the new kind of stores with Amazon Go that we’re experimenting with.”

Published on: July 30, 2018

• The Wall Street Journal writes this morning that “consumers are starting to see higher prices for recreational vehicles, soda, beer and other goods that now cost more to make as a result of recent tariffs on metals and parts.

“When costs rise, manufacturers generally must chose whether to absorb bigger bills for aluminum, steel and imported components, or pass the increases along to customers. Many manufacturers in recent days, including Coca-Cola Co. and Polaris Industries Inc., have said they plan to raise prices.

“U.S. steel and aluminum prices are up 33% and 11%, respectively, since the start of the year, as producers and their customers begin to price in the tariffs that the Trump administration first applied on foreign-made metal in March. Tariffs on a host of additional imported products from China this month have added costs for companies that use those components to assemble their products in the U.S.”


• The Associated Press reports that Publix “has posted new signs at the store saying only service animals trained to aid those with disabilities are allowed in the store. No service animals are allowed to sit or ride in shopping carts.”

The move - which Publix says is just a clarification of an existing policy - comes because of customers who have been bringing their pets to the store, sticking them in their shopping cards and then claiming that they are service animals.

The AP story notes that “service animals have become a controversial issue as several states have tried to crack down on people potentially abusing federal disability laws … Growing complaints have also emerged as more people have tried to sneak pets onto airlines under the guise of service dogs.”


• The Los Angeles Times reports that Starbucks, “facing a rare sales decline in China, is betting a rapid rollout of delivery service will get the business back on track … Starbucks says deliveries will help it will fend off competitors that are already offering the service, coupled with deep discounts. The goal is for Starbucks to establish itself as a daily routine for customers in the world's second-largest economy.”

Published on: July 30, 2018

• Target announced the hiring of Gemma Kubat, most recently the vice president, global business services for Walmart, as its new senior vice president, supply chain engineering and activation.

Published on: July 30, 2018

Got several emails about the announcement that United Natural Foods Inc. (UNFI) will acquire Supervalu for approximately $2.9 billion.

MNB reader Tom Murphy wrote:

Couple of things would concern me about this deal:

$175 million ($58 million per year) is savings doesn’t seem like much against a base of $20 billion in annual sales. Might be some very high hidden costs to be covered that is diluting this.

Speaking of high costs, Supervalu has struggled with technology integration and costs going all the way back to it Albertson’s purchase. Frequently, technology synergies are more difficult that executives can comprehend and the divestiture of ... retail outlets could involve technology services contracts for several years of transition…which also are seldom cash positive.

Finally, I believe this is not a growth acquisition, but like you, believe this is a desperation play…probably by both parties. (Possibly driven by Wall Street types looking for a quick out) We will know in about 18 months when there are announcements of drastic measures by the new amalgamation, e.g., executive heads rolling, layoffs and more asset sales as missed financials become a Wall Street, thus a board, problem.

From another reader:

Kind of reminds me of Haggen buying the divested Safeway/Albertsons stores, although maybe not to that extreme - but I do agree KC, never like seeing a smaller company buying a larger one.

And from another:

Interesting that smaller buys larger.  I wonder if that makes it easier to exit leases and other service contracts?

And from MNB reader Robert Fawcett:

Every UNFI customer who doesn’t buy off of Supervalu will be looking for a new supplier.

And, from another reader:

I was at the Supervalu show when they announced. Visiting with those with boots on the ground were absolutely taken aback. We all knew something was shifting but this wasn’t on my radar...which means nothing.

As pricing from UNFI has been creeping up over the last months it makes sense now. After all the money has to come from somewhere and I don’t expect that change in the foreseeable future.

Specialty just got a lot less special and highlights what we’ve known for years, direct is now more important than ever. This will be I believe a good thing for the grocers out there that are more conventional.



Commenting the Amazon quarterly results story the other day, I commented, in part:

One other thing. I got a lot of email from MNB readers after the cost of a Prime membership went up, suggesting that this was going to have a swift and deleterious impact on Amazon. Guess not.

MNB reader Jim DeJohn wrote:

From my personal view – I had no problem with Amazon’s increase in membership, as I still see it as a great value.  They consistently add to and change up many of the areas such as videos and ebooks included with the membership.  Along with the shipping and other tools at your disposal, I feel I get great use for what I pay for.

Now take the opposite of this in what I just opened today from my cable provider – Spectrum.  They increased my rate for no reason, other than saying my “discounted rate” has ended.  They do this every 5-6 months and I must call, speak to a manager, to try and have my rate returned to what I was paying.  My bigger issue is every time they send these increases – I have received nothing new from them, if anything, they keep reducing the shows and programming they offer.  Their customer service is probably the worst around…
 
Maybe Amazon will find a way to deliver high speed internet to us and I (and probably a lot of folks) can say goodbye to Spectrum!

And, from another reader:

$119 a year is still a great deal, really $10 a month.  Most people, like me, pay $10.99 a month for Netflix so what's the big deal?  Must have been Amazon haters emailing you, KC, or Walmart minions.

I don’t doubt that there will be folks who will cancel their Prime memberships when their renewals come due. But I’ll be surprised if it is a sizable enough amount to make a difference, especially as Amazon continues to bring in new members.