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    Published on: October 17, 2018



    Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

    This week, Rethinking roles and values, formats and business models.

    And now, the Conversation continues…


    KC: Since last we talked, there has been news of yet another bricks-and-mortar store with which Amazon is involved. (At this point, such stories are becoming an almost weekly occurrence, which maybe shouldn’t be surprising in view of the study that came out last week predicting that 850 bricks-and-mortar stores will be opened by e-commerce companies over the next five years.) In this case, the store is a partnership with Good Housekeeping called GH Lab, in which every product in the store has been tested in the GH Institute’s labs and designated as best-in-class across numerous categories.

    Tom Furphy:
    This is a fantastic way for Good Housekeeping to amplify their brand and another great example of Amazon helping people buy things while most other retailers focus on selling things. Amazon has committed to being this, and they are consistently backing it up with their actions.

    KC: I’m fascinated by this, because it shows yet again how e-commerce companies - Amazon, certainly, but pretty much any e-commerce company worth its salt - can slice the loaf any way it wants, and then use data to target the most appropriate customers. This was a best-in-class store, and Amazon also has opened its four-star store, but it could’ve been a store only with Made in the USA products, or with product designed for under-25 consumers, or virtually any other subset. Do you think we’re going to see more of this, and how would you advise competing retailers to effectively respond?

    TF:
    I do think we’ll see more of it. I’m not sure that you’ll necessarily be overwhelmed by niche storefronts. But you’ll see a lot more of them. Technology allows us to completely rethink the role and value of a store. In the recent past, stores have been about aggregating inventory in one place, with the best stores also offering a range of solutions under the same roof. Now customers have digital access to virtually limitless products, so stores can become less about inventory access and more about information and inspiration.

    There will always be value in stores providing access to products and services for many occasions. However, we will absolutely see new formats and more existing locations focus on providing expertise, information and demos. It can result in a richer shopping experience.

    Think about all the opportunities at hand for grocery retailers – nutrition counseling, wellness management, Rx and healthcare, culinary exploration, home menu management, wine exploration, packaged good demos, new item showcases – so many ways that retailers can intimately connect with shoppers, solve their problems and truly help them buy things. This solidifies the retailer-customer relationship and makes it less vulnerable to disruption. Frankly, retailers already can and should be doing much of this in their current stores. These new formats give them even more options.

    KC: We had a story on MNB the other day about the whole notion of building computers into everything and anything, and how while this may seem enormously desirable in some ways, it also creates a potential nightmare in terms of security and privacy vulnerabilities to which nobody really is paying attention. The only problem I have with that observation is the idea that nobody is paying attention … I’m wondering how you feel about where the tech industry is on this, and what consumers really want.

    TF:
    The tech industry is absolutely paying attention. Across the board, companies are investing heavily in technologies and teams to secure customer and company data, and to ensure privacy. I have several contacts at Amazon and elsewhere in information security roles. I see that they are obsessing over this.

    It’s important for companies to strike the right balance between information sharing and utility. Good tech companies will push the boundaries. That’s progress. Doing so allows them to provide increasingly valuable capabilities to their users. However, as the amounts and sensitivity of information increases, the security around that information must strengthen.

    The internet is a dangerous place. The number and sophistication of cyber criminals is mind-numbing. Every interaction that a human has with the internet is subject to hacking. Criminals, armed with robust capabilities, constantly search for any crack in protection.

    I think consumers love many of the new capabilities that the internet, mobile devices and IoT devices are bringing to them. They are willing to share information to the extent that the trade is beneficial to them. However, they absolutely demand their information to be protected. They expect companies that are profiting from these new capabilities to invest heavily in data protection and treat their information with extreme care. Although not infallible, I think that most do.

    KC: What did you think about the announcement that Sedano’s is creating what it is calling a ”robotic supermarket,” but that actually 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. I know it was meant to sound revolutionary, but when I heard it, my first reaction was that this is exactly where retailing is going, and what took so long? Thoughts?

    TF:
    I’m a big believer that local, efficient, fulfillment centers that serve the ecommerce needs of shoppers and stores in the market are a good idea. Store picking in ecommerce works for a while. But once the ecommerce volume reaches about 15-20% of store sales, it becomes detrimental to store operations and customer experience. Pickers get in the way, inventory is driven out of stock, and most of the best produce and other fresh foods go to the ecommerce customers.

    Moving the storage, pick and pack processes to an efficient local facility allows the retailer to lower the costs of these functions, then spread them throughout the local market. However, automated facilities come at a relatively high cost. It’s imperative that they drive high volumes and that they’re able to achieve good order, delivery and pickup densities in the market. There are still costs to be born there in staging and servicing these orders. All of these costs must ultimately be covered.

    I think it’s taken a while for us to get here because ecommerce volumes have generally not yet hit the tipping point of high customer adoption and negative impact on the store. But we’re getting closer as retailers scale their ecommerce efforts. Also, the capabilities of these warehouse and inventory handling systems are improving tremendously and worthy of adoption. Sedano’s move, plus others like Kroger’s partnership with Ocado, should become much more commonplace going forward.

    KC: What did you think of Kroger's decision, announced on Monday, to get into the wine delivery business?

    TF:
    I think it makes good sense. The wine delivery business is quite complex, with players having to navigate the multi-tier regulatory systems with different rules across states. Partnering with a company like Drinks Holdings should help Kroger handle the complexity. Looking at the totality of their ecommerce moves over the past year or so, it seems clear that they want to serve shoppers needs for any product across their assortment, while allowing the shopper to buy however they’d like – pickup, delivery or parcel.

    The Conversation will continue…

    KC's View:

    Published on: October 17, 2018

    Content Guy’s Note: I recently had the opportunity to moderate a podcast on the subject of “Commerce in the Smart City,” as part of the GMDC Retail Tomorrow conference in Toronto … several days of terrific conversation, presentations, store visits, and a focus on where the world of retail is going and how it is going to get there.

    A retail executive told me not that long ago that “too many companies are not innovating for tomorrow. Instead, they are defending yesterday.” The goal of the Toronto Retail Tomorrow conference, as well as the past ones (in Silicon Valley, New York and Seattle) and the next one (scheduled for Los Angeles), is to have our eyes trained firmly on the future … with all its promises, implications and challenges.

    Our guests for the podcast were Chris Lydle, Retail Innovation, Google; Darryl Jullott, Senior Manager, Digital Main Street in Toronto; and Pano Anthos, Managing Director of XRC Labs. (Pictured below.)

    I hope you’ll find it to be as fascinating as I did.




    KC's View:

    Published on: October 17, 2018

    Walmart yesterday said that its annual earnings would decline in the coming year, that its e-commerce growth is likely to level off a bit, and that its various investments in new businesses and acquisitions would be likely to have an extended performance on its financial performance. At the same time, CEO Doug McMillon told investors, “I want to challenge your thinking about Walmart … There is a change within the company that is related to mindset, culture behaviour, and we are inventing again … expect us to test a lot and fail a lot.”

    CNBC reports that Walmart cited “the impact of its acquisition of Indian e-commerce company Flipkart” as hurting its earnings outlook. In addition, the story notes, “Walmart has been investing heavily in recent months to compete with other retailers including Amazon and Target … It recently bought the lingerie company Bare Necessities. Earlier this month, it acquired Eloquii — a retailer that sells plus-sized clothes — for $100 million. Walmart also announced a partnership with U.S. movie studio Metro Goldwyn Mayer to create content with its video-on-demand service Vudu.”

    Marc Lore, the founder of Jet (which Walmart also bought) and now the head of US e-commerce for Walmart, told the investors that “Walmart also expects to acquire more digital brands (like it did with Bonobos and ModCloth) to have ‘proprietary content’ on its website that shoppers can't find elsewhere. ‘Just four brands aren't going to do it, but imagine 40,’ Lore said during Tuesday's meeting with investors. ‘The idea is to buy and build’.”

    In a statement, McMillon said, "We're adapting and transforming with speed to better serve our existing customers and reach new ones. We’re operating with discipline, balancing our short and long-term opportunities. While we're excited about what we've done so far, we aren't satisfied. As we execute today and build for tomorrow, our associates and unique omni-channel assets position us for success.”

    Walmart also said that it expects fiscal 2020 total sales growth to be 3 percent or greater, and online sales growth to be as much as 35 percent. But that growth won’t be enough to compensate for the higher costs.

    In related news, Yahoo Finance reports that Walmart “continues to kill off the American shopping creation it’s most known for, the massive supercenter that sells everything under one roof. With the U.S. market already having more than 3,500 Walmart supercenters and a focus by CEO Doug McMillon to increase spending on eCommerce and India, Walmart said Tuesday it will open a mere 10 supercenters in 2019. Capital expenditures are seen at $11 billion next year, unchanged on a year over year basis.”
    KC's View:
    I agree with the approach that Walmart is taking, but I do have to point out that the whole “test a lot and fail a lot” thing to be vaguely familiar. Where I have I heard that before? There’s a guy …I cannot remember his name … who once said, ““As the company grows, the size of the mistakes has to grow as well.”

    I’m also intrigued by the idea that Marc Lore seems to see a time when the company has acquired as many as 40 digital-only brands, creating a suite of products and a source of proprietary items that Walmart can use to build beyond its core.

    Clearly, Walmart has embraced the idea that it has to remake itself, accept new realities, and invest in a future where the long-term benefits are more important than the short-term impact.

    Published on: October 17, 2018

    Business Insider reports on a new report from Consumer Intelligence Research Partners about spending on Amazon. “While Prime members buy an average of $1,400 a year worth of stuff on Amazon,”the story says, “regular customers only spend $600, the study found … that's a wider gulf than was reported by CIRP last year, when Prime customers spent an average of $1,300 and other customers spent $700.”

    That means that “Prime members are spending $100 more than a year ago on average, while others are spending $100 less on average.”

    There also is the suspicion that Prime membership growth actually has slowed: “At the same time, however, Prime's membership growth appears to be slowing in US, according to CIRP. The firm estimates that there are a total of 97 million Prime subscribers in the United States. Over the past 12 months, that number only grew 8%, which is the slowest rate recorded since CIRP started tracking Amazon Prime subscriptions in 2012.”
    KC's View:
    I wouldn’t be particularly surprised if Prime growth is slowing, if only because there have to be ebbs and flows … but it also explains one of the reasons why Amazon keeps adding value to Prime, especially through Whole Foods discounts and benefits.

    Published on: October 17, 2018

    Delivery company Instacart yesterday said that it has raised $600 million as part of a new financing round, which it said raises the company’s valuation to $7.6 billion.

    The company said that it “expects to deploy the new capital … in a number of ways, including further expansion in North America, marketing investments to increase awareness of Instacart at our retail partners' stores, and recruiting world-class engineering and product development talent.”

    In another company-related announcement yesterday, Minnesota-based Lunds and Byerlys said that it will use Instacart for one-hour deliveries, while continuing to use its own in-house service for deliveries with a four-hour leads time.
    KC's View:
    MNB readers won’t be surprised that I rolled my eyes a little bit when I read about the new financing round. Sure, that’s a lot of money, and Instacart has done a good job of driving up its valuation while providing retailers with an easy solution to their e-commerce problems. But easy solutions rarely are the best ones, and Instacart’s service is not a wise long-term solution for any retailer.

    I get why Lunds and Byerlys made this move … but I just hope it is a stopgap measure.

    There was a passage from the Star Tribune story about the Lunds and Byerlys deal that made my point for me … after explaining that the iconic supermarket chain would now be working with Instacart on a limited basis, the paper wrote, “Consumers can also order Instacart delivery locally from Aldi, Costco, Cub, CVS, Lakewinds Co-op, Liquor Boy, Petco, Sur La Table, United Noodles, Wedge Co-op and Whole Foods.”

    My question is simple: Does this sound like differentiation to you? I love Lunds and Byerlys, and I have friends there, but I am dubious.

    Published on: October 17, 2018

    Albertsons said yesterday that it has launched its digital marketplace, which “will offer customers the ability to discover more specialty food items alongside beauty and wellness products from a vast network of third-party sellers. With a focus on natural, organic, ethnic, and alternative products, Albertsons Cos. aims to provide a unique experience that showcases hard-to-find products.”

    Plans for the online marketplace were first revealed last March. The platform is being powered by solutions provider Mirakl.

    The announcement goes on: “The launch of the online marketplace is a central part of Albertsons Cos.’ initiative to accelerate its ability to address trending markets and offer hot new products. The data collected from the marketplace will help identify shifting consumer interests, regionally-specific shopping needs and new food trends. Albertsons Cos. now has the agility to identify new customer needs and rapidly respond by adding assortment from its network of sellers.

    “For its network of third-party sellers, this new platform introduces an easy digital on-boarding experience which gives fast access to Albertsons Cos.' large customer base. This allows smaller businesses to showcase their products on a much wider scale than they could have achieved alone.”

    The launch comes as Albertsons announced Q2 revenue of $14.2 billion, up1.4 percent from the same period a year earlier, on same-store sales that were up one percent and e-commerce sales that were up 113 percent.
    KC's View:
    Albertsons has been getting more aggressive in the e-commerce arena, with this initiative as well as its move to launch of a virtual store, O organics Market, that will allow customers in those two markets to more easily access those kinds of products.

    This is all part of CEO Jim Donald’s goal,I think, to look beyond the “four wall” experience and think of the retailer as having “no walls.” I suspect that he would agree, though, that there is much work left to do.

    Published on: October 17, 2018

    CNBC reports that in a speech yesterday to 1,000 employees at Sears headquarters in Hoffman Estates, Illinois, former CEO/current chairman Eddie Lampert gave a speech that was meant to serve as a rallying cry.

    "We need to show material progress over the next few months to establish to our senior lenders that a reorganization of the company is realistic and to avoid a shutdown and liquidation,” he said.

    And, he added, "When Sears and Kmart merged in 2005, I envisioned a company that would be different and relevant for the 21st century. ... These were two, iconic companies that had lost their way … As we all know, we haven't capitalized on this opportunity the way I would have liked … Instead of growth and investment we have faced retrenchment and restructuring.”

    Sears filed for bankruptcy on Monday morning, having not turned a profit since 2010. The company reportedly plans to close unprofitable stores and sell another 400 locations as it searches for a key to survival.
    KC's View:
    Winston Churchill, he ain’t.

    The story says that Lampert said it was the second hardest speech he’s ever given (the first being his dad’s eulogy); I’m inclined to believe that. He also said that he’s always held the company’s and employees’ interests as being of paramount importance; I’m not sure I’m buying that. I think that Lampert’s first priority has always been his own interests, though, to be fair, it wasn’t like he has been competent in achieving his goals.

    I have to wonder if there was anyone at Sears HQ who was buying anything that Lampert was selling. I remember that earlier in my career, there was a guy, when he walked into a meeting to say that the company had turned the corner and that there would be no more layoffs, that we all knew was lying. We’d all go back to our offices and work on our résumés. It had to be the same at Sears HQ,, except that I hope that these folks have been circulating their résumés for months, if not years.

    Published on: October 17, 2018

    The Associated Press reports that Harry’s, the disruptive men’s shaving company, is launching Flamingo, described as “a direct-to-consumer hair removal and body-care brand for women.” The company says that the new brand is a response to the fact that many women used the men’s line.

    According to the story, “Flamingo is the first brand to emerge from Harry’s Labs, an offshoot of the company that has chipped away at the market share of industry giant Gillette, capitalizing on consumer frustration with pricey razors. Harry’s received $112 million in new funding earlier this year to develop new brands, with a vision to becoming a major consumer-products company to compete with the likes of Gillette parent Proctor & Gamble.

    “Flamingo offers a five-blade razor, waxing kits, shaving gel and body lotion for women.”and will be sold on a dedicated direct-to-consumer site.

    The story notes that “Harry’s remains a relatively small player, with 2 percent of the market … But its direct-to-consumer model has helped create a sense of intimacy with its customer base that bigger brands find hard to replicate.” The company is hoping to replicate that sense of intimacy with Flamingo, and “make women more comfortable talking about shaving and waxing.” One difference with the new brand, is that products won’t be delivered on a scheduled subscription basis … apparently because women’s shaving schedules tend not to be as consistent as men’s.
    KC's View:

    Published on: October 17, 2018

    Variety reports that Netflix reported Q3 results that included an increase of “1.09 million new streaming subs in the U.S. and 5.87 million internationally. That’s compared with Netflix’s forecast of 650,000 domestic net adds and 4.35 million overseas for the September quarter … The company reported Q3 revenue of $4.0 billion, up 36% year over year.”
    KC's View:

    Published on: October 17, 2018

    • Walmart yesterday announced a new partnership with Advance Auto Parts that will have it opening “an auto parts specialty store on Walmart.com, according to USA Today.

    According to the story, Walmart “expects the new specialty store will open in the first half of 2019 and plans to provide home delivery and same-day pickup of orders, as well as installation of some parts at Advance locations.

    “Walmart's partnership with Advance could be a strategic one to counter Amazon's move last year into the automotive aftermarket auto parts sales, which amounts to $48 billion in annual sales in the U.S.”
    KC's View:

    Published on: October 17, 2018

    • The BBC reports that in the UK, the Competition and Markets Authority has said that it will take into consideration the steady growth in market share achieved by discounters Aldi and Lidl, as well as the impact of online retailers such as Amazon, when it evaluates the advisability of Sainsbury’s planned merger with Asda.

    The Sainsbury-Asda deal would create the UK’s largest grocer.

    The BBC also points to the rationale behind the merger: In the most recent quarter, the story says, “Aldi and Lidl increased sales by 15.1% and 10% respectively compared with the same quarter last year. Aldi's growth was its fastest since January last year and helped it to a market share gain of 0.8 percentage points to 7.6%, while Lidl's share was slightly up at 5.6%.

    “Tesco, the UK's biggest supermarket, saw its market share fall 0.6 percentage points to 27.4% despite sales rising by 0.9%. Sainsbury's was down 0.4 points compared with the three months last year at 15.4%, while Asda dropped 0.2 points.”
    KC's View:

    Published on: October 17, 2018

    …will return.
    KC's View:

    Published on: October 17, 2018

    In the National League Championship Series, the Los Angeles Dodgers beat the Milwaukee Brewers, evening out the best-of-seven series at two games apiece.

    And, in the American League Championship Series, the Boston Red Sox defeated the Houston Astros 8-2, to take a 2-1 series lead.
    KC's View: