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    Published on: October 8, 2018

    by Kevin Coupe

    Another week, another bricks-and-mortar innovation.

    Go figure.

    Amazon and Good Housekeeping have launched a three-month pop-up retail store at Minnesota’s Mall of America, called the GH Lab, a 2,800-square-foot store in which, it says, “every product in the store has been tested in the GH Institute’s state-of-the-art labs by top scientists, chemists, engineers and tech experts—presenting only the best, most innovative products across wellness, beauty, lifestyle, smart home, kitchen, toys and more.” The selection is highly edited - only one item in each category is on display.

    Every item in the store, the companies say, is “shoppable through Amazon SmileCodes. To purchase or learn more, customers will simply open the Amazon App, tap the camera icon and select the SmileCode Scanner, aim the camera on the visual pattern of the SmileCode and center it in the frame. The product detail page associated with that SmileCode will appear on the screen and the customer can then add it to their Amazon cart and check out as they normally would.” Purchases are then delivered via Amazon; nobody walks out of the store with the products they have bought.

    The companies note that the store is designed with different “rooms,” helping shoppers “visualize the products within their own homes.”

    The store will be open through the end of the year.

    In his Forbes analysis of the store, XXXXXXXXXXXX Chris Walton says he was totally “geeked out” by the store - and that’s a good thing. Among his comments:

    • “All it takes to start up a retail operation like GH Lab is a dream. Amazon can license the tech and the SmileCode tags, and any mom-and-pop with an entrepreneurial itch can stand up a ‘powered by Amazon’ (my quotes) shop, likely with a few quick presses of a button, similar to how companies use Amazon to stand up web commerce today.”

    • “We have seen this build-a-better mousetrap model from Amazon before. It is how Amazon licensed its website to other retailers back at the turn of the century … Pop-up retail is all the rage right now. But, for the most part, the pop-ups to date within the industry have been just old retail business models on shorter-term leases. Amazon's platform changes the game.”

    • “What I love most about GH Labs is that Amazon's platform puts the art back into brick-and-mortar retail. When buying and shopping are no longer one and the same, it is a liberating feast for the senses. ‘Stores’ of inventory no longer need to be kept on hand for stock, and retailers can instead set floor pads however they desire in their efforts to capture the imaginations of their customers.”

    I haven’t seen the store, but I am intrigued.

    First of all, it is fascinating to see how many moves Amazon has made in bricks-and-mortar retailing just in the past few weeks. There are a bunch of additional Amazon Go stores that have been opened, there is the new Amazon 4 Star format, and now the GH Lab, which isn’t Amazon-branded but still clearly has a lot of Amazon DNA.

    At the same time, each of these formats has been developed with some level of editing based on data. Amazon has so much information about customers and products that it can create a highly selective experience that is designed to reflect specific needs of local neighborhoods … it has the online data, and it has supplement it was continuing data that it gets from the stores.

    This is just one vision of future retailing … not the only one, but a compelling vision to be sure. And it is ironic - though hardly unexpected - that a company that created an online retailing experience best described as “the everything store” is creating such targeted experiences.

    Competitors need to think very hard about this. There are different ways to compete with this, but it seems to me that to try and do battle in this environment without data being a core weapon is like bringing a knife to a gunfight.

    Fascinating. And the very definition of an Eye-Opener.
    KC's View:

    Published on: October 8, 2018

    The Seattle Times has a piece about Costco in which a number of salient points were made; CFO Richard Galanti emphasized that the company is in no hurry to make a major shift into e-commerce.

    “Apart from competition for workers, Costco, like every retailer, is vying with Amazon for consumer spending in virtually every merchandise category,” the Times writes. “And while Costco continues to grow its e-commerce business, up 32.2 percent in the last fiscal year, Galanti doesn’t seem eager to do so at the expense of its traditional model. E-commerce represents just 4 percent of Costco’s sales, compared to gasoline, which accounted for 12 percent.”

    “We don’t see e-commerce taking over our brick and mortar,” Galanti says, adding, “We don’t want you to get comfortable with just shopping at Costco online unless there’s not a Costco within 100 miles.” Galanti also notes that “store visits increased 4.9 percent during the company’s latest quarter.”

    The Times also writes that Galanti, reacting to Amazon’s announcement that it is instituting a $15/hour minimum wage for all its US employees, said that “starting pay across the company increased in June to $14 an hour, and in some markets, such as the San Francisco Bay Area, starting pay is higher still. Those increases were tied to the Trump administration tax cuts that reduced Costco’s effective federal tax rate in the fourth quarter to 27.4 percent compared to 34.3 percent a year earlier. Galanti said the company regularly increases pay rates at the top of its wage scale, and that its average hourly pay is around $22.50 an hour, ‘which we believe dwarfs any other retail’.”
    KC's View:
    I continue to believe that Costco has two long-term issues with which it must deal, though I hasten to add that I would never underestimate Costco’s ability to rise to the challenges it faces.

    For one thing, there are some basic shifts taking place that it must grapple with - people are getting married later, having fewer children, occupying smaller dwellings (no basements in which to store big packages!) in more urban environments and maybe not even owning cars, much less minivans or SUVs that they would use to shop places like Costco, which have been designed to appeal to a different demographic. Costco needs to figure out howe to adapt to this shift, though the good news is that it is happening slowly, not overnight.

    The other thing may be its whole “we don’t want you to get comfortable with just shopping at Costco online unless there’s not a Costco within 100 miles” attitude. I’m just not sure that any retailer is in a position to dictate to shoppers what should or should not make them comfortable. I hesitate to use this word - because this is, after all, freakin’ Costco - but I think I may detect just a wee bit of hubris in that statement.

    Published on: October 8, 2018

    In the UK, the Guardian reports that Tesco CEO Dave Lewis has called for what is being described as an “Amazon tax” on products sold online.

    According to the story, “The boss of the UK’s largest retailer said the chancellor, Philip Hammond, should impose a 2% charge on goods sold online and said the failure to tax digital firms properly was now an ‘industry’ issue.”

    Lewis, the story says, “said traditional retailers are caught in a stranglehold of rising costs, taxes, higher wages and competition from aggressive online firms.”
    KC's View:
    Really? Give me a break.

    Good thing for Tesco that nobody called for a “Tesco tax” when it was building all those supercenters that were having an enormous impact on High Street businesses all over the UK.

    Isn’t it Tesco’s job to compete, not call for targeted taxes on companies that are having a negative impact on it?

    I have no problem with online businesses being taxed the same way as bricks-and-mortar businesses. But this strikes me as a crock.

    They get this, and the next thing Tesco will be looking for is an “Aldi/Lidl tax.”

    Published on: October 8, 2018

    The Wall Street Journal reports that Toys R Us’s demise “has left billions of dollars in holiday toy sales up for grabs,” which means that Walmart, Target, Party City and, of course, Amazon, all are pulling out the stops to try to claim some of that business. Amazon, in fact, will be distributing toy catalogs at its Whole Foods stores, hoping this will give it a leg up on the competition.

    However, the story notes that this competition also could create a structural shift in the toy business. It seems likely that these competitors will stock “a selection focused on the most popular items and the best-known brands, with supplies dwindling during the final week.” If this happens, it is likely to create some consumer discontent, because “that is when shoppers flock to buy toys, despite efforts by retailers to promote shopping earlier by offering discounts.”

    When Toys R Us was in business, the Journal writes, it could afford to stock up on a broad range of toys and games for the last few weeks of the end-of-year holiday shopping season, knowing that whatever it didn’t sell could remain on its shelves and be sold in subsequent months.
    KC's View:
    On the other hand, based on the fact that Toys R Us had enormous debt and went bankrupt, maybe it couldn’t afford to take that approach. It thought it could, but missed the signals that should have told it that a consumer behavior shift was taking place.

    I mean, think about it for a minute. Toys R Us did $2 billion in sales during the last two months of 2017, and its cost structure was so out of whack that it still couldn’t stay in business.

    It may be painful in 2018, but maybe this new structure will educate people that they ought to do their holiday shopping early and not procrastinate. (Yeah, I know. Not likely.)

    Published on: October 8, 2018

    The Wall Street Journal has a story about how Target, looking to differentiate itself from discounters with brands that others don’t have at prices low enough to make a difference, “s planning to launch a new brand for consumer staples called Smartly with more than 70 products, including razors, toilet paper and dish soap, mostly priced under $2. The products will be offered at stores and online in mid-October.”

    Mark Tritton, Target’s chief merchandising officer, says that “it’s about showing people that I don’t have to go to Aldi or I don’t have to go to Dollar General to find what I’m looking for.”

    The story notes that this continues a strategic direction for Target: “In the past two years, Target has created 20 brands, mostly in the apparel and home categories. Over the summer, it launched its first electronics brand called Heyday with items like headphones and speakers, all priced under $60.

    “Target said Smartly is priced, on average, about 70% less than traditional brands, such as Procter & Gamble Co. labels like Tide, Gillette and Charmin. The new line will be Target’s second generic brand for toiletries, undercutting prices on its Up & Up brand by about 50%.”

    However, Tritton is quick to tell the Journal that he’s not looking to go to war with the national brands that still take up so much of Target’s shelf space: “Am I saying we’re looking to replace a key brand like Tide with Smartly? Absolutely not.”
    KC's View:
    Well, maybe not absolutely not. Maybe Tritton just wants to get the national brands’ attention, to let them know that they need to keep their prices low so that Target can compete effectively with the likes of Aldi and Dollar General. Maybe he just wants them to know that Target has options, especially since the much-desired millennial generation is both cost-conscious and willing to try new products that they perceive as relevant to their needs.

    And maybe this is just another example of Target being willing to try new things, whether it is an extension of its own-label program or the embrace of disruptive entrepreneurial brands like Harry’s and Quip that have successfully challenged national brands. Maybe Target wants to be seen as being in that league, because that’s where it thinks the action is.

    Maybe.

    Published on: October 8, 2018

    The Washington Post reports on the opening of a new retail store in Dublin, Ireland:

    “It looked like closing time at the county fair or the week before Christmas at the mall: cars just sitting there, bumper to bumper, waiting their turn to inch along.

    “Dozens of vehicles lined up and down the aisles of the parking lot, honking as if every single driver in front of them was staring at their cellphone while stopped at a green light. It sounded like the traffic jam of the century.”

    The occasion? The first Krispy Kreme doughnut shop to open in Ireland.

    Irish writer Carl Kinsella assessed the situation this way: “For some reason, introducing any stimulant like this one into Irish society is like introducing a packet of Mentos into a recently shaken up bottle of Diet Coke. We shake violently. We rupture. We convulse, as a people. It’s a mess.”

    The story notes that “as of Friday morning, the Irish Times reported a wait time of 30 minutes for the doughnuts, with metal barriers set up to control the queue like those found at a theme park.” While neighbors have complained about the traffic and the noise, Krispy Kreme management has tried to get customers to be quieter and perhaps a little less rhapsodic about the brand. But it doesn’t seem to be working, as Dublin residents continue to act as if they’ve never seen a doughnut before.
    KC's View:
    Jeez. Imagine what would happen if they got an In-N-Out.

    But seriously … there’s a lot to be said here for then power of a brand.

    Published on: October 8, 2018

    National Public Radio’s The Salt reports that the US Food and Drug Administration (FDA) has banned the use of Synthetically-derived benzophenone, ethyl acrylate, methyl eugenol, myrcene, pulegone, and pyridine as food additives, ruling in favor of a petition by the the Natural Resources Defense Council, the Center for Food Safety, and the Center for Science in the Public Interest that said that these compounds had been linked to cancer in animals.

    If you’ve never heard of any of these chemicals, The Salt reports, it is because manufacturers never had to list them on ingredient labels. Instead, they could just call them “artificial flavors.”

    The move is a reversal - albeit with lots of caveats - of a previously held FDA position. In its ruling, the FDA said, “The synthetic flavoring substances that are the subject of this petition are typically used in foods available in the U.S. marketplace in very small amounts and their use results in very low levels of exposures and low risk … While the FDA's recent exposure assessment of these substances does not indicate that they pose a risk to public health under the conditions of their intended use, the petitioners provided evidence that these substances caused cancer in animals who were exposed to much higher doses.”

    The FDA is giving manufacturers 24 months to rid their products of the banned substances.
    KC's View:
    The thing that makes me nuts here is the fact that manufacturers have been able to mask the identity of these substances … it flies in the face of what ought to be a national policy requiring transparency from these companies.

    Published on: October 8, 2018

    The Washington Post reports that “Mattress Firm Holding Corp., the country’s largest mattress chain, filed for bankruptcy protection … The Houston-based company, which has 3,400 locations nationwide, plans to close 200 stores in the coming days and as many as 700 by year’s end, according to its Chapter 11 bankruptcy filing.”

    The story goes on: “Mattress Firm is the latest in a string of national retailers, including Brookstone and Nine West, to file for bankruptcy as consumers flock online. The company, which was founded in 1986, has long had a stronghold on the mattress industry. In 2015, it bought rival Sleepy’s for $780 million and announced plans to expand throughout the Northeast and Mid-Atlantic regions.

    “But analysts say the company had too many locations — and did too little to keep up with the crush of online competitors that are winning over shoppers with convenience and more transparent pricing. Sales fell 11.2 percent last year to $3.29 billion, Mattress Firm said in an investor presentation.”
    KC's View:
    The irony here is that over the weekend I got the following press release:

    “Nectar Sleep, one of the fastest-growing e-commerce companies in the world, today announces its expansion into the U.S. Hispanic Market. The company's growth is marked by the unveiling of a custom-made consumer journey including a Spanish-language website, dedicated social media, and Spanish language servicing.”

    The press release went on to claim that “Nectar Sleep is one of the top online memory foam mattresses available to consumers searching for a better night's sleep.” It described the product as “a better mattress at a better price,” and says that Nectar arrives conveniently in the mail via an easy to open bag and is backed by Nectar's 365 Night Home Trial Comfort Guarantee plus Forever Warranty.”


    You just get the feeling in reading about companies like these that, when times got tough, traditional-laden companies like Mattress Firm were not willing, able, or equipped to go to the mattresses.

    I’m sure the next thing we’ll see is that senior executives will be asking for retention bonuses so that they’re properly motivated to stay and fix the mess they didn’t prevent from happening.

    Published on: October 8, 2018

    Good piece in USA Today about the sexual harassment epidemic, and how it can be found in corners of business that may not be getting enough attention.

    An excerpt:

    “It has been a year since #MeToo burst into the national consciousness, bringing to light the pervasiveness of sexual harassment in work sites across the country.

    “But some critics say that women of color and those in lower-wage jobs have been largely left out of the conversation. Though the #MeToo hashtag was created by a black woman more than a decade ago, the faces of the cause have often been white and affluent, while the industries receiving the most media scrutiny have been the rarefied worlds of Hollywood and TV journalism.

    “And yet it is black women in particular, and the female employees of restaurants, factories and other blue collar workplaces who bear the brunt of sexual harassment and abuse.”

    You can read the entire, sickening story here.
    KC's View:
    This is sickening, in so many ways.

    I am sickened by the idea that so many men think they can get away with this crap, and behave with impunity, believing that they are entitled and, ironically enough, untouchable simply because of their gender and their positions of power.

    I’m sickened by the idea that in so many hotel rooms these days, management has been forced by reality to post signs warning guests that they’re not allowed to sexually harass the help. Really? Who taught these cretins that this is a thing they’re allowed to do?

    This cannot be a case of women fighting the battle on their own. Bad behavior by men is an affront to everybody who believes in the idea of basic human dignity. I think the men who behave this way ought to lose their jobs, be prosecuted, and, quite frankly, be shamed in the public square. Is it too late to bring back the stocks and pillory?

    Published on: October 8, 2018

    CNBC writes that “as Amazon revs up its private label business with new household goods and clothing brands, the company is quietly rolling out another way to get more exclusive products onto the site.

    “Amazon is inviting outside companies to ‘join the Amazon family of brands,’ according to a web page for ‘Our Brands.’ At the bottom of the page is a link where manufacturers can sign up to make products that become part of Amazon's own collection of private brands.

    “Meanwhile, Amazon has a job posting up that promotes the ‘Amazon Accelerator Program,’ which is luring manufacturers who want to create made-for-Amazon products. Another job listing from this week says the Private Brands team is seeking a leader to ‘help build a new program to rapidly expand our selection’.”

    Same story as Target, above.


    • The Wall Street Journal reports that Amazon has “notified some customers that their email addresses were shared with an outside seller on its platform in violation of the company’s policy. Amazon said it had identified and fired the employee responsible for sharing the information. No other customer information was disclosed, and the seller who received it was blocked from selling on Amazon, the company said.”

    The employee, Amazon said, has been terminated and will be prosecuted.
    KC's View:

    Published on: October 8, 2018

    Eater Seattle reports that when the new Shake Shack opens there - the first in the city - it will include “several just-for-Seattle menu items with local ingredients — like a concrete with crispy croissant brittle from Sea Wolf Bakers and Theo Chocolate.” In addition, “there’s a slew of local partnerships hitting the menu, including a Seattle special called the Montlake Double Cut, with Washington beef sourced in partnership with local startup Crowd Cow, Beecher’s Just Jack cheese, caramelized onions, whole-grain mustard mayo, and a Macrina Bakery bun. It’s the first time the chain is using meat, cheese, and bread from only local sources.”


    • The Charlotte Observer reports that a newly opened Fresh Market store there is designed to get “back to our roots as a European market and as a specialty market,” according to CEO Larry Appel.

    An excerpt from the story:

    “The Fresh Market that Appel envisions isn’t necessarily a place where customers would go for their everyday grocery staples like toilet paper, white bread and milk (although they could). Rather, the store is meant to be a destination for unique international foods, gourmet charcuterie, freshly prepared meals and a large assortment of produce. (Fresh Market says its new Strawberry Hill store, for instance, has a fruits and vegetables section that’s about three times the size of one at a traditional grocery store.)”

    The store will be the only new one opened by Fresh Market this year, as it also closes 15 underperforming units around the country and works “to improve its financial health.”


    USA Today reports that a “lawsuit filed against LaCroix's parent company alleges the sparkling water advertised as ‘all natural’ includes an ingredient used in cockroach insecticide as well as other artificial ingredients … The lawsuit also states LaCroix makers are aware of the alleged unnatural ingredients.

    “National Beverage Corp. denies the allegations, saying all essences in LaCroix sparkling waters are all 100 percent natural.”
    KC's View:

    Published on: October 8, 2018

    MNB reported last week that Sedano’s, the 34-store, Florida-based Hispanic grocery store chain, has signed a deal with a company called Takeoff Technologies to build “the world's first robotic supermarket.” Essentially, the ”robotic supermarket” is a dedicated fulfillment center that will serve the online needs of 14 Sedano’s stores in the Miami market, and offer pickup services at those stores.

    This prompted MNB reader Tom Murphy to write:

    For years I have believed that piece picking grocery orders in stores would never work. The product on the store shelves (save a little checkout labor) is already fully burdened with operating costs…therefore, any labor from wandering the aisle (much greater than checkout labor) would kill margins. Kroger has undertaken an approach for regional, automated fulfillment centers that I expect will handle both “commissary like” order selection for either home delivery or local store pickup.

    With all of the vacant space in malls and in various city venues across the country, Sedano’s model will likely get closer to a sustainable model for order assembly, store pickup and possibly home delivery. They are thinking outside the box (and inside there own shuttered store box)…kudos to them!

    KC's View:

    Published on: October 8, 2018

    A quick recap of the Major League Baseball playoff news…

    The Milwaukee Brewers defeated the Colorado Rockies 6-0 yesterday to complete a 3-0 sweep of their best-of five National League Divisional Series.

    The Atlanta Braves yesterday beat the Los Angeles Dodgers 6-5; the Dodgers hold a 2-1 game lead in their best-of-five NLDS.

    Meanwhile, the Boston Red Sox and New York Yankees are tied 1-1 in their best-of-five ALDS, while the Houston Astros hold a 2-0 series lead over the Cleveland Indians in their best-of-five ALDS.



    And in week five of the National Football League:

    Denver 16
    NY Jets 34

    Green Bay 23
    Detroit 31

    NY Giants 31
    Carolina 33

    Tennessee 12
    Buffalo 13

    Atlanta 17
    Pittsburgh 41

    Baltimore 9
    Cleveland 12

    Miami 17
    Cincinnati 27

    Jacksonville 14
    Kansas City 30

    Oakland Raiders 10
    LA Chargers 26

    Minnesota 23
    Philadelphia 21

    LA Rams 33
    Seattle 31

    Arizona 28
    San Francisco 18

    Dallas 16
    Houston 19
    KC's View: