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    Published on: June 3, 2019

    by Kevin Coupe

    Over the years, there have been few words as associated with Amazon’s broad strategy as “ecosystem.” Almost from conception, as Amazon expanded beyond its original focus on books, the idea was to create a structure that wouldn’t just make it easy for people to buy stuff, but would be integrated into their everyday lives.

    Which is what makes this story from the Wall Street Journal so Eye-Opening:

    “While Amazon’s smart-speaker competitors, Alphabet Inc.’s Google and Apple Inc., are striving to grow their user base by luring individual buyers with more elegant or higher-quality products, Amazon has figured out a way to get into millions of homes without consumers ever having to choose its hardware and services in the first place. Amazon’s Alexa Smart Properties team, a little known part of its Alexa division, is working on partnerships with homebuilders, property managers and hoteliers to push millions of Alexa smart speakers into domiciles all across the U.S.

    “Amazon is hoping to find a new way to build market share by offering discounted hardware, customized software and new ways for property managers to harvest and use data.

    “For Amazon, the appeal is obvious: Adding millions of new users to its services and gaining access to data like their voice-based wish lists and Alexa-powered shopping habits will put it further ahead of the competition which, at the moment, doesn’t have a significant presence in rental properties and new-home construction.”

    The idea is that over the long term, people won’t just be able to control their homes via Amazon-powered devices - they may also be able to request repairs and even pay their rents.

    It isn’t just about making life easier for residents. It also is about Amazon being able to gather data that will make it more effective and efficient … which will, of course, expand and deepen its ecosystem.

    And, it isn’t just about residences. Marriott, the Journal writes, “is the launch partner for Amazon’s Alexa for Hospitality service. Amazon is building out dashboards for Marriott and any other hotelier that wants to use its service. These hubs for data and insight will allow Amazon to measure and pass on information about ‘guest engagement’ with the in-room Alexa devices, which will be capable of doing everything from making restaurant recommendations to adjusting the thermostat and ordering fresh towels.”

    And again, the Eye-Opener, courtesy of the Journal:

    “All of these partnerships are consistent with Amazon’s larger strategy, which is to get more people using its services and locked into its Alexa ecosystem. Ultimately, even the presence of Echo speakers might not be necessary to continue the expansion. Amazon offers Alexa to any manufacturer who would like to integrate the service into its products.”

    The ecosystem expands and deepens, and competitors to Amazon have to figure out how to traverse it, challenge it, short-circuit it, or take advantage of it.
    KC's View:

    Published on: June 3, 2019

    Business Insider has a story about Walmart’s Jetblack personal shopping service, which for $50 a month “offers next-day delivery of whatever customers want - apart from food, alcohol, or drugs - via couriers or expedited shipping. Returns are also handled by Jetblack couriers.”

    According to the story, “Customers can simply text ‘J’ - the service's sometimes real human, sometimes artificial-intelligence number - what they want, or they can ask for gift recommendations. Simple commands like reordering consumable supplies or asking for a specific item are handled solely by the AI. But as the company's AI gets smarter and better at responding to customers, the goal is to let it offer more recommendations, too, using information about what other customers have had suggested to them and what they ultimately bought.”

    The story says that since launching in 2018, Jetblack has expanded its membership list, though it continues to be selective and only operates for the moment in New York (a place where, as it happens, Walmart has met considerable political resistance to the opening of its traditional stores).

    Jetblack also is serving as a method through which Walmart can learn things that can be applied to other segments of its business.

    “As Jetblack is able to gain more information on this customer — what they buy, who they buy for, how often they buy, and how much they spend — it can be fed back into Walmart at large, helping the retail giant to better target its e-commerce offerings and combat the threat of Amazon,” the story says, adding that “some of these learnings are already being relayed.” For example, because of requests made by jetblack shoppers, Walmart added a filter to its mainstream site allowing people to shop for baby strollers based on whether or not they have sun shields.
    KC's View:
    It is interesting how Walmart is willing to go so far outside its traditional lane to develop a business that serves an entirely different consumer base. This may not work everywhere, but it certainly may be applicable to high-density, high-income urban markets where Walmart is looking to expand its penetration.

    It is doing the same thing with businesses such as Bonobos and Moosejaw, which it has acquired … understanding that traditional lanes may get you from one place to another, but they also can be limiting at a time when it may not make sense.

    Walmart continues to impress and, at times, confound … but in a good way.

    Published on: June 3, 2019

    The Wall Street Journal has a story about how since “more Americans than ever are living alone these days,” CPG companies “are taking note, catering to what they see as a lucrative market for single-person households by upending generations of family-focused product development and marketing. Appliance makers are shrinking refrigerators and ovens. Food companies are producing more single-serving options. Household-product makers are revamping packaging.”

    The story says that “product makers see opportunities across this market, especially young, affluent city dwellers and aging consumers who want right-sized products.

    “Companies are furiously researching how singles buy differently. The findings aren’t that they simply want things to be smaller.

    “Researchers have found many affluent, single-person households in urban areas tend to spend more per person than larger ones. They are often willing to spend more for a unit of something - twice as much, say, for chopped romaine as a whole head. Some want smaller appliances but bigger closets, or prefer one huge roll of toilet paper over multiple backup rolls they must store somewhere. Many marketers approach single-person households with urban consumers in mind.”

    To be clear, this isn’t just perception. It is a real demographic shift: “Today, 35.7 million Americans live alone, 28% of households. That is up from 13% of households in 1960 and 23% in 1980, according to the U.S. Census Bureau … Delayed or foregone marriage, longer life expectancy, increased urbanization and rising wealth are prompting more Americans to go solo.”
    KC's View:
    Fascinating. So much of mainstream American retail has been constructed around appealing to the traditional family - suburban with a bunch of kids, a house and a basement and a minivan or SUV. But this points out yet again how this traditional view may no longer be as operative as it once was.

    Traditional families don’t exist the way they once did … plus, people are waiting loner to get married (if they do at all), are moving to more urban environments, with smaller domiciles with no basements, and they may not even own a car.

    By the way … it cannot just be suppliers that address these shifts. It also has to be retailers.

    Published on: June 3, 2019

    The Washington Post reports that Dollar Tree, after three decades promising that “Everything’s $1,” now has “begun testing higher prices at some of its stores. Soon, more than 100 Dollar Tree stores around the country will sell items that cost up to $5.”

    There are two reasons. First, there are activist inventors that have been pushing the company to test a higher ceiling on prices. And second, there are the Trump administration’s tariffs on China and Mexico, two countries from which Dollar Tree imports a lot of merchandise. (It gets 40 percent of its product mix from China.)

    It isn’t just Dollar Tree. The chain’s main rival, Dollar General, also has said it is raising prices because of tariffs.
    KC's View:
    The activist investors pushing for a higher price ceiling are doing so because they want the company to compensate for the company’s $8.5 billion acquisition of the Family Dollar chain, which has not had the kind of impact that it hoped for; the company is bigger, but not better … which happens so often when acquisitions take place. But it remains to be seen whether going against what one would think of as a core company value is going to have the desired effect.

    As for the tariffs … this seems to reinforce the argument that tariffs hurt US consumers more than foreign countries against which they are levied, and in this case, they seem to hurt people who can ill afford it.

    Potential bad news all around.

    Published on: June 3, 2019

    The Washington Post this morning reports that the US Department of Justice is preparing to launch an antitrust probe of Google, which would, the story says, “could present a major new layer of regulatory scrutiny for the search giant … the department is preparing to closely examine Google’s business practices related to its search and other businesses.”

    At the same time, the Post reports that the US Federal Trade Commission (FTC) is getting ready to conduct tougher oversight of Amazon, noting that “politicians have long raised concerns that Amazon’s dominance in online retail — as well as its growing reach across a variety of business fields — has given it too much power. It holds sway over third-party sellers on its site, who pay for advertising to compete against first-party and private-label sales by Amazon. Its low prices also have helped it draw customer spending at the expense of brick-and-mortar competitors.”

    Some context from the Post:

    “The rise of big tech has seen three corporate titans that didn’t exist 30 years ago—Amazon, Google, and Facebook—suddenly amassing the power to sway large parts of the U.S. economy and society, from the stock market to political discourse, from personal shopping habits to how small businesses sell their wares.
    With their enormous size and dominance have come network advantages, data caches and economies of scale that can make it challenging for new rivals to succeed. Many firms that compete with those giants in one sector also depend on their platforms to reach customers, and they complain of being unfairly squeezed.

    “Supporters of the big tech companies say there is so much dynamism in the sector that the giants are sure to be knocked off soon. However, their power and reach keep growing.

    “Antitrust leaders at the Justice Department and the FTC have publicly acknowledged the competition concerns and said those issues merit close attention.”
    KC's View:
    The Post makes the point that investigating the big tech companies may be one of those rare issues on which there is bipartisan support, even if there are differing motivations. Some Republicans believe that big tech has a liberal bias, while some Democrats think that big tech is just another, insidious version of big business interests against which they traditionally have inveighed.

    I have no problem with oversight and regulation - if they are nuanced and rooted in what is best for the American citizenry, not knee-jerk political responses from either side that feed their individual beasts rather than raise the level of discourse.

    Published on: June 3, 2019

    Bloomberg has a fascinating story about how DNA testing has come to the cattle business, transforming it so that high-end beef has become “the vast majority of U.S. herds in recent years. Lower-quality beef is forecast to all but vanish from the U.S. market, while the highest-quality, once a rarity, is common enough that retailers like Costco Wholesale Corp. stock it.”

    Essentially, “cattlemen can pick out superior calves better than they ever have, as DNA testing gets cheaper and projections get more accurate.” Bloomberg suggests that this use of statistics is doing for the beef business what “Moneyball” did for baseball.

    You can read the story here.
    KC's View:

    Published on: June 3, 2019

    Glossy has a story about how cosmetics retailer Sephora, in its Madrid flagship store, has partnered “with experiential innovation agency Wildbytes to offer customers personalized recommendations bridging the gap between fashion and beauty. Shoppers can now walk up to said mirrors and are suggested personalized makeup, skin-care products and fragrances, based on what they are wearing, their gender and their age. Seasonal and contextual elements, such as climate, time of day and trends are also taken into account. The products referred are meant to enforce that beauty items are the ultimate accessory for whatever a consumer might be wearing.”

    The goal, according to the story, is to take a page from Amazon’s recommendation engine, except in a bricks-and-mortar environment.
    KC's View:
    Yet another example of how smart technology that learns and matures and responds to consumers’ needs can make a real difference and can differentiate a retailer.

    This is what retail will look like tomorrow. Deal with it.

    Published on: June 3, 2019

    • The Puget Sound Business Journal reports that “millions of dollars are being spent to upgrade Amazon's Prime Now fulfillment centers in Seattle as the company tries to cut to shipping speeds and may be planning an expansion of its grocery business.

    “Building permits dated May 22 show Amazon is planning renovations to its Prime Now warehouses in North Seattle and at Starbucks' headquarters in Sodo.

    “Amazon has had a Prime Now fulfillment center in Starbucks' headquarters building since at least 2016. A document filed with the Seattle Department of Construction and Inspections shows the warehouse is nearly 42,000 square feet and has room for 163 employees. The planned renovations include removing existing shelving units in the space, create about 6,400 square feet of walk-in cooler and freezer space and add a ‘transformation room’.”

    "We’re always looking for ways to make our operations more efficient and effective to provide ultrafast, same-day delivery for customers with an increased product selection," the company said in a statement.

    • The Wall Street Journal reports that while Bed Bath & Beyond tends to blame the likes of Amazon for its diminishing reputation, sales, profits and fortunes, it really only has itself to blame.

    “Its leaders built a superstore for housewares, with more than 1,500 locations that had so much merchandise that products hung from the ceiling,” the story says. “But they were ill-equipped, former employees say, to transition to a world where consumers can access thousands of items by tapping a smartphone screen … Bed Bath & Beyond was stuck in the past, relying on coupons to draw shoppers and a ‘pile it high’ mentality for stores that made them cluttered and hard to shop at.”

    While the company had a frugal corporate culture that served it well when it came to controlling expenses, that also meant Bed Bath & Beyond was unwilling to make the kind of technology investments necessary to remain relevant.
    KC's View:

    Published on: June 3, 2019

    • The Buffalo News reports on how Wegmans has closed down its Wkids service in the stores that offered it which allowed parents to “shop without interruption after dropping off their children at Wkids … Wegmans officials say the service, offered for decades, isn't as popular as it used to be, so the chain will put the former Wkids space in its stores to other uses.”

    The story says that “Wegmans will encourage families to shop together and focus on programs that parents can do with their kids, such as in-store yoga, cooking classes and movie nights.”

    The News writes that “an industry expert isn't surprised by the shift in direction at Wegmans and Tops, saying grocery chains in the United States and around the globe are moving away from offering in-store child care services and children's play areas.

    “Stores want to get children out into the aisles with their families, where they can learn lessons about healthy eating and actively participate in the ritual of food shopping, said Burt P. Flickinger III, a Buffalo native and managing director at retail consultant Strategic Resource Group in New York City.”

    CNBC has a piece about Best Buy, writing that its turnaround has largely been because of its response to watching “customers walk its floors and test out products they would then buy online for lower prices, often from Amazon.” Best Buy “figured it could offer service and convenience that its online competition could not, and (moved) to work closely with vendors and train employees drew shoppers back into stores again.”

    The CNBC story suggests that while the strategy has worked to this point, there are two immediate problems with which it will have to deal.

    One is long-term - Amazon’s clear ambitions to be a bigger bricks-and-mortar player. And the other is short-term - “a long list of tariffs could hit Best Buy harder than other retailers, since so much of its inventory is consumer electronics manufactured in Asia.”
    KC's View:

    Published on: June 3, 2019

    We reported last week about comments submitted by the Food Marketing Institute (FMI) at a hearing held by the US Food and Drug Administration (FDA) into the sale of CBD, or cannabidiol, derived from hemp.

    Leslie G. Sarasin, president/CEO of the Food Marketing Institute (FMI), said that “a challenge for us is that the Agricultural Improvement Act of 2018, or Farm Bill, contains several provisions that allow for the cultivation, production, and commercialization of industrial hemp and hemp-derivatives like CBD. However, the new law did not alter FDA’s authority over the use of such ingredients in FDA-regulated products; not to mention the role of other regulatory agencies and the states. Food retailers recognize the confusion among the public, suppliers and retailers, and state regulators as a result of the Farm Bill language.

    “It remains our intention to be in full compliance with all FDA requirements. As such, we seek appropriate assurances regarding the safety of these products and the legality of how – and where – they are merchandised.”

    This prompted MNB reader Dr. Russell J. Zwanka - who has written two books on the subject, both available on Amazon - to write:

    With all due respect to FMI, that's not much of a stance.  If a retailer is looking for guidance, this says "stay out of CBD until we hear from the FDA".  Meanwhile, you can go into any vape shop, natural market, farmer's market, food co-op, or that little guy named amazon, and get pretty much anything hemp-derived you'd like.  These shops are taking your customers!

    The "traditional" retailers are falling way behind in what is an unstoppable consumer demand for CBD.  If a retailer wants to play it safe, fine, go for anything not ingestible, like lotions and salves and anything applied topically- like CVS and Walgreens are doing.  If you want to be a little more edgy, carry the tinctures, but do your homework.  The customers are counting on you to verify the supplier has been third party tested, uses a CO2 or MCT Oil extraction method, and uses organically farmed hemp.  Strangely enough, the items mostly in potential non-compliance with the FDA are the infused-foods.  If you're going to wait for the FDA, you'll soon join the dairy farmers waiting for the FDA to enforce the fact that "milk" is supposed to be solely from "lacteal secretion of cows, goats, sheep, or water buffalo", which seems like it left out almonds and rice and soy….

    We reported the other day that Amazon CEO Jeff Bezos has added a new member to the company’s so-called “S-team,” which is an elite group of top executives that consult on major business decisions, though I expressed surprise that only one member of that group is a woman, and that Bezos has only said that the reason for the lack of gender diversity is due to low turnover in the group, and that change will “happen very incrementally over a long period of time.”

    One MNB reader responded:

    You’re only surprised because you’re not a woman.

    Fair point.

    We had a story the other day that took note of a Gizmodo piece saying that Amazon’s “terms of use” agreement for its Alexa-based system severely limits its users’ options - you waive your right to sue Amazon, and can only go to arbitration to resolve disputes.

    This prompted MNB reader Jill LeBrasseur to write:

    I don’t know if you follow the TV show DC’s “Legends of Tomorrow,” but as a plot point in their most recently concluded season a demon releases an app that has in its user agreement the statement that upon downloading the app your soul now belongs to the demon Neron. Couldn’t help but see the parallel to the end of your comments on this story.
    KC's View:

    Published on: June 3, 2019

    In the Stanley Cup finals over the weekend, the Boston Bruins defeated the St. Louis Blues 7-2 to take a 2-1 lead in the best-of-seven series.
    KC's View: