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    Published on: February 15, 2019

    In the wake of yesterday’s announced decision that it was pulling out of its plans to build part of its HQ2 campus in New York, Amazon said yesterday that when it when it finishes building its Seattle campus - 14 million square feet consisting of both existing buildings and some under construction - it will be done expanding there.

    Amazon and Seattle have had a sometimes contentious relationship. While Amazon has been an important part of the city’s economic renaissance, there are those within the community who believe that the company’s growth has led to gentrification that has hurt the city’s character, and who decry the high cost of housing that has put the city out of reach for many people. At the same time, Amazon threatened to pull back on its Seattle expansion if the city went through with as “head tax” that would’ve charged big companies hundreds of dollars per employee that would be used to address the city’s homeless problem. (The City Council passed the tax, then repealed it.)

    Late yesterday, an Amazon spokesperson walked back the comments about ending the company’s Seattle expansion a bit, saying it is possible that Seattle could expand there yet again.

    As reported here on MNB yesterday in a breaking news alert, Amazon announced that due to local opposition, it is canceling its plans to build a headquarters campus in New York City, a move that would have created an estimated 25,000 jobs and brought a minimum investment in the city of $2 billion, in exchange from close to $3 billion city and state incentives.

    Amazon’s commitment, the company said in a statement, “requires positive, collaborative relationships with state and local elected officials who will be supportive over the long-term. While polls show that 70% of New Yorkers support our plans and investment, a number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward with the project we and many others envisioned in Long Island City.”

    Amazon announced late last year that after months of public consideration and speculation about where it would put a second North American headquarters (HQ2), it would be split the expansion between two of the finalists - New York’s Long Island City, just across the East River from Manhattan in the borough of Queens, and Arlington, Virginia, in the Crystal City neighborhood, adjacent to National Airport and just across the Potomac River from Washington, DC.

    The New York City backlash came from a number of quarters, with people questioning things like the size of the incentives, the impact on local neighborhoods and housing costs, the expected stresses on the city’s infrastructure, and the company’s long-held resistance to unionization, which is not the most welcomed attitude in a highly unionized city.

    In a final bit of irony, Fortune reported yesterday:

    “Those wondering how many zeros Amazon, which is valued at nearly $800 billion, has to pay in federal taxes might be surprised to learn that its check to the IRS will read exactly $0.00.

    “According to a report published by the Institute on Taxation and Economic (ITEP) policy Wednesday, the e-tail/retail/tech/entertainment/everything giant won’t have to pay a cent in federal taxes for the second year in a row.
    This tax-free break comes even though Amazon almost doubled its U.S. profits from $5.6 billion to $11.2 billion between 2017 and 2018.

    “To top it off, Amazon actually reported a $129 million 2018 federal income tax rebate—making its tax rate -1%.”
    KC's View:
    The tax story doesn’t make it easier to defend Amazon, but one of the things that was both most remarkable and disconcerting yesterday was the way in which certain politicians cheered the Amazon decision, saying that now the $3 billion in incentives could be spent on schools and infrastructure … which displayed a remarkable level of financial illiteracy. As I understand it - and my understanding of economics is fairly limited - there isn’t a pot with $3 billion in it. Those incentives are dependent on Amazon spending a certain amount of money and creating a certain number of jobs. Those jobs now won’t be created, nor will the ancillary businesses be created that would’ve served Amazon and its workers. That’s an enormous loss.

    Some seem to be equating the incentives being offered to Amazon with the decisions by some cities to spend public money to build stadiums for privately owned sports teams … but they’re wrong about that.

    The Wall Street Journal writes that the Amazon decision “stunned real-estate speculators, developers and renters who had rushed into the Long Island City neighborhood to be near the new HQ2.

    Only three months ago, the prospect that the giant retailer would locate a headquarters in New York City and create 25,000 new jobs set off a real-estate frenzy that the borough of Queens had never experienced. Open houses for Long Island City condos were overflowing. Brokers said customers made offers via text messages on units, site unseen. Developers with office space in Long Island jockeyed to attract the thousands of workers that were expected, and local residents cheered the promise that new restaurants, fashion boutiques and other new stores would flood the retail-starved neighborhood … Now, suddenly, much of the euphoria is evaporating.”

    By the way … Amazon took a year to make its HQ2 decisions, so how come it didn’t see this problem on the horizon? It’s possible that Amazon did, but thought that it could get past it, and just ran into a bigger series of obstacles than expected.

    The Journal does echo something I wrote yesterday - that this setback doesn’t change the fact that Amazon “still has an enormous amount of information about hundreds of places were, to varying degrees, willing to move heaven and earth to get the HQ2 project. And, let’s be clear … those communities also know what it will take to land a 21st century company such as Amazon, and if I were them, I’d be making a lot of infrastructure decisions based on that information. It doesn’t make sense, after all, to be trying to attract 20th century companies with 20th century infrastructure. (In fact, I’d be thinking right now about 2050 and beyond, and creating community cultures that are designed to meet projected future needs.”

    The Journal put it this way: “This stockpile of logistical, planning and demographic data—expansive dossiers on cities such as Atlanta, Boston and Denver—could inform Amazon’s decisions about where to place warehouses and data centers, invest in facilities, and develop regional hubs of employees, according to experts and analysts.”

    At the very least, all this data makes it possible for Amazon to spread its bets around. That might be politically wise, and maybe even more economically advantageous.

    It seems likely to me that yesterday’s HQ2 decision could send a signal to other major tech companies thinking about expanding in New York, and that won’t be good for metropolis that always has been the greatest city in the world.

    In its analysis, the New York Times writes:

    “For some, Amazon’s decision will represent a political failure, in which officials and local labor leaders blew a once-in-a-decade chance to bring thousands of high-paying jobs to New York.

    “For others, it reflects the hubris of one of the world’s most valuable companies, which sought billions of dollars in tax incentives it didn’t need, and then got cold feet when local organizers and officials objected to that largess.

    “But more than anything, the battle poses a challenge to one of Amazon’s bedrock beliefs: that being loved by customers is all that matters.”

    One lesson: “Happy customers don’t necessarily translate to political power … For years, the company succeeded wildly by catering to shoppers, and betting — mostly correctly — that its sterling customer reputation would insulate it from criticism over its labor practices, anti-union resistance and other corporate shortcomings.

    “But that era may be over. In New York, at least, there are some problems that low prices and two-day shipping can’t fix.”

    One other points, if I may. There was a story that popped up yesterday that struck me as relevant to this discussion, even if technically unrelated.

    The Associated Press reported that General Electric, which had been lured to Boston from its longtime Connecticut corporate headquarters with a series of incentives, announced yesterday that it is downsizing its plans for Boston, and now will have just 250 employees there, not the originally planned 800. It is selling the property on which it was going to build an office tower, and - this is where it gets interesting - will return $87 million in incentives to the state for which it no longer qualifies.

    Ironic, huh?

    Published on: February 15, 2019

    Business Insider reports on how Walmart, once viewed as the “archvillain of capitalism,” now is embracing a new and improved role, as “the anti-Amazon.”

    Here’s how it frames the transformation:

    “Amid a decade-long era of heady corporate profits, vast numbers of workers feel untethered, distrustful and without a sense of belonging and dignity. Amazon, like the rest of Big Tech, is being swept up in this crisis of faith, villainized for its very bigness.

    “In many ways, Amazon is quickly becoming the new Walmart — demonized for killing malls, bookstores and toy shops, and feared by industry after industry for the off chance it may decide to swallow up yet another business … Walmart - at least in rhetoric - is attempting to move into the breach. Out of sheer necessity to survive the Amazon juggernaut's retail onslaught, it is casting itself as the foil … With a network of some 4,700 stores that are within 10 miles of 90% of Americans, Walmart is perhaps better positioned than any government agency, think tank or company to take the economic pulse of the U.S. It is using that on-the-ground presence to position itself as a champion of distressed and alienated America.”
    KC's View:
    Go figure.

    The argument here always has been that bricks-and-mortar retailers are completely capable of competing with technology companies, just as small companies are capable of competing with big retailers. They’re capable … which is not the same thing as being willing and committed to what needs to done to achieve competitive advantages.

    Walmart seems to have this figured out; ironically, its path to nimble consciousness along these lines seems to have started around the time it acquired Jet.

    Published on: February 15, 2019

    Western New York-based Tops Friendly Markets said yesterday that it will expand its grocery delivery service from 119 stores to 129, which it says means that more than 90 percent of its customers now will have access to it.

    Jillian Sirica, manager, digital marketing for Tops, says that this is the company’s ninth expansion of delivery services since it launched the offering in 2017.

    Tops’ delivery services are powered by Instacart.
    KC's View:
    I hope this is just a short-term solution … because Instacart is no way for as company to create a sustainable differentiation strategy. It is just a temporary solution to a permanent challenge.

    Published on: February 15, 2019

    Reuters reports this morning that hedge funder Eddie Lampert, who just bought Sears Holdings out of bankruptcy for $5.2 billion, has stepped down from his role as the company’s chairman.

    According to the story, “Lampert's resignation relates to the completion of the ‘going concern’ transaction and is ‘not the result of any disagreement with the company on any matter relating to the company's operations, policies or practices’.”
    KC's View:
    Considering Lampert’s record, it would be fair to call this addition by subtraction.

    The problem for Sears is, it seems to be almost incapable of addition by addition … at a time when it needs to be really good at multiplication.

    Published on: February 15, 2019

    Fortune is out with its annual “100 Best Companies To Work For” list, and once again, Wegmans is near the top, ranked number three in its 22nd straight year on the list, down a bit from last year’s number two ranking.

    Other retailers on the list include Publix (#12), REI (#46), Nuggett Market (#81), Sheetz (#85) and Patagonia (#100).

    The other companies that made the top 10 include Hilton, Salesforce, Workday, Kimpton, Cisco, Edward Jones, Ultimate Software, Texas health Resources, and Boston Consulting Group.
    KC's View:

    Published on: February 15, 2019

    CNBC has a story about Imran Khan, former chief strategy officer at Snap, and his wife Cate Khan, who spent eight years at Amazon, who are launching a new company called Verishop, described as “an e-commerce platform for vetted brands that brings back to customers the ‘joy of discovering something new that you truly love’ on the internet.”

    Verishop says that it has “been communicating with up-and-coming brands that share frustrations over existing online retail platforms that have counterfeit products or that hurt brand integrity … Businesses that have already agreed to sell on Verishop include beauty retailers Ursa Major and Indie Lee, bedding maker Primary Goods, and apparel brands J.O.A., Finders Keepers and N:Philanthropy.”
    KC's View:

    Published on: February 15, 2019

    TechCrunch reports that Walmart’s tech incubator Store N°8 has launched a new startup, “a VR merchandising company called Spatial&. The company offers VR experiences that enable customers to connect with merchandise, and is kicking things off by collaborating with DreamWorks Animation VR tour. At select Walmart locations across the U.S., Spatial& will set up a VR experience in the parking lot, allowing customers to visit DreamWorks’ How to Train Your Dragon: The Hidden World through VR. Afterwards, customers are directed to a branded, physical gift shop where they can make purchases.”
    KC's View:

    Published on: February 15, 2019

    • In North Carolina, the News & Observer reports that the first of five Wegmans stores in the Raleigh area isn’t scheduled to open until this fall, but the company already has started the hiring process and has gotten more than 3,000 applications for a total of 475 full-time and part-time positions.

    • The Associated Press reports that “the owner of four Pittsburgh-area grocery stores is accused of illegally pocketing hundreds of thousands of dollars by claiming customers used coupons he had employees take out of unsold newspapers.”

    Michael John Mihelic, the owner of four Shop 'n Save supermarkets, “was arraigned Wednesday on charges of theft by deception, receiving stolen property, conspiracy and dealing in the proceeds of illegal activity.”
    KC's View:

    Published on: February 15, 2019

    Regarding Kroger’s decision to launch a proprietary mobile payments program, MNB reader Tom Murphy wrote:

    This is likely more of a cost reduction play, e.g., reduced card interchange fees, as opposed to a customer experience play. Over the years, following Apple Pay announcements, most of the big retailers, including grocers, have tried to implement proprietary or joint-proprietary payment solutions…all with the same goal of cost reduction.

    I don’t think you will get trampled in a line of Kroger shoppers signing up for or using it. Most Millennials are probably giggling.

    Regarding yesterday’s Amazon decision to pull out of its NYC HQ2 plans, one MNB reader wrote:

    I was as excited to have Amazon here as the other 69.9% of New Yorkers, but I think the incentives offered to the most valuable company in the world were the wrong way to go about it.  Why should Amazon get $3B in incentives for 25K jobs…

    Other large employers were not given anywhere near this level of municipal munificence, notably Google.  I think it was actually a major political miscalculation on de Blasio and Cuomo’s behalf to have thought such an egregiously large incentive package in a city of wild income inequality was going to go over well.  As to our lack of a 21st century infrastructure goes, I really have a hard time believing that Amazon was going to change any of that….

    Again, Amazon wasn’t getting a $3 billion check. It was getting incentives based on investment and job creation. Not to say that we can’t have a legitimate and nuanced discussion about whether this is good public policy, but it isn’t the same thing.

    From MNB reader Lisa Malmarowski:

    As a citizen of Wisconsin where our past governor sold the soul of our state to Foxconn (and now they’re backing out), I applaud NYC for sticking to their guns. It’s time corporations realize that they don’t get to own a city or a state.

    I’m not sure the Amazon and Foxconn situations are strictly analogous, but I take your point.
    KC's View:

    Published on: February 15, 2019

    Fred Rogers, who brought us “Mr. Rogers’ Neighborhood” for so many years, is suddenly the subject of a great deal of cultural attention. Tom Hanks is playing the children’s television icon in a new biopic, A Beautiful Day in the Neighborhood, scheduled to be released later this year. And last year, there was a terrific documentary, Won’t You Be My Neighbor?, a lovely piece of work that looked at his life and work that I caught up with this week.

    I must admit that I found myself enormously and unexpectedly touched by the film, even though I’m too old to have watched Fred Rogers when I was growing up (I was more a “Captain Kangaroo” guy - one of the highlights of my life was meeting Bob Keeshan) and I don’t really remember my kids having much of an affinity for “Mr. Rogers’ Neighborhood.”

    Fred Rogers was a force of nature in how he served as a passionate advocate for children and what he fervently believed was their best interests. Some of this was rooted in his faith - he was an ordained minister and some of it a simple conviction that too much of kids’ television was noisy and cluttered and filled with tumult, when he felt that they would best respond to gentility, quiet and a nurturing soul.

    It is a terrific piece of work, and never more so than when Fred Rogers goes before a Senate committee during the Nixon administration that is resolute about ending all financing of the Public Broadcasting Service (PBS). Facing off against some pretty rigid politicians, Fred Rogers - with a quiet, gentle voice that belied his deep concern for children - manages to turn the senators into jello … and PBS’s financing remained intact.

    Great film. Totally worth watching.

    Netflix has a three-part series, “The ABC Murders,” which is based on an Agatha Christie novel about her most famous creation, Hercule Poirot, in this case played by John Malkovich.

    Unlike previous incarnations - Poirot has been played by Albert Finney (my favorite), David Suchet, Peter Ustinov and Kenneth Branagh (my least favorite) - the Malkovich version lacks the extravagant facial hair and the highly affected attitude; it is low key and almost anti-theatrical. Oddly enough, his portrayal of the Belgian detective reminded me of John Wayne in The Shootist - an elegiac movie about an iconic character type nearing the end of his run, trying to surmount various indignities and remain vital and relevant. For me, the portrayal works - the TV series, unlike the source novel, puts Poirot at the end of his career in 1930s London, out of sorts and increasingly out of place in a culture suspicious of anyone seen as foreign.

    The mystery is not so great, and a lot kinkier than Christie envisioned. But I think it works, fueled by a terrific Malkovich, ably aided by Rupert Grint as a skeptical Scotland Yard detective.
    KC's View:

    Published on: February 15, 2019

    Next Monday, February 18, is a federal holiday here in the US – Presidents Day, which is sort of a combination of George Washington’s birthday, Abraham Lincoln’s birthday, and a time when a lot of mattresses and cars seem to be on sale.

    Still, it is a federal holiday and a school holiday … which means that I’m going to take advantage of the calendar and take the day off.

    See you Tuesday…have a great weekend.

    KC's View: