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    Published on: August 13, 2019

    by Michael Sansolo

    Increasingly it can feel as if traditional businesses are no longer playing on anything resembling a level field.

    The onslaught of e-commerce has brought with it competition against companies that seems to operate outside the normal gravity of business. Companies post quarter after quarter of losses yet only watch their stock prices soar. The standard demands on businesses seem inconsequential with these new players.

    But in truth, this has all happened before. Think back to the early 1990s when Walmart Supercenters and Costco clubs were the disruptive forces in retail and many of the same complaints were made. So it’s instructive that we remember two things from that era: first, some of those complaints are completely unfounded and second, that some are not.

    Let’s start with the items that are unfounded…

    Back in the early 1990s, retailers were convinced the non-traditional retailers were somehow operating with a competitive advantage. The industry dutifully studied the situation, endeavoring to prove the point that the newcomers had unfair advantages especially in pricing from suppliers. Instead, the industry found the new players had built themselves for a new era, with unmatched efficiencies that permitted them a substantial cost advantage.

    That knowledge gave way to the industry’s Efficient Consumer Response initiative, which, while derided in some quarters, provided ideas that still fuel improved thinking and operations in many quarters. David Jenkins, the godfather of ECR and the former CEO of Shaw’s Supermarkets, is no longer on the scene sadly, but it would be wise to heed the challenges he gave the industry back then.

    Essentially, Jenkins forced the industry to recognize it no longer was the leader in efficiency and use of technology. Today we see companies including Walmart and Kroger seemingly recognizing the same reality and searching for ways to leapfrog their way back to the cutting edge on technology and consumer service. The simple truth is what was good enough for success just a few years ago, is no longer anything close.

    But then we have to recognize these new players are different and do have built-in, possibly unfair advantages. Back in the 1990s Walmart and Costco were praised for their creative approach to many problems in much the way that Amazon and others are today. These new competitors aren’t burdened with legacy systems and thinking. They seem to have a stunning willingness to experiment and an even better ability to stop a failed experiment and move on.

    Operating with, dare we say, Pirate Captain Jack Sparrow’s attitude of “break the rules, fight only where you can win and move on,” these new companies remind the rest of us that we need find a way to see the playing field differently.

    This was made vividly clear recently in a New York Times interview with Reed Hastings of Netflix. Hastings made clear how he sees his products and his consumers and did so in a way that suggests how big a picture he sees. Hastings says Netflix isn’t really competing with studios and other companies offering all manner of video streaming services.

    Instead, he said, “We actually compete with sleep. And we’re winning.”

    Given how Netflix has changed viewing habits, turning binge viewing into a common pastime, it’s obvious that Hastings went well beyond tilting the playing field. Rather he created an entirely new field. Anyone competing with Netflix has to do it on his field and likely will do so for a while until a new change agent comes along to threaten Netflix itself.

    Traditional businesses need recognize his attitude and his success are what everyone competes with these days. Old thinking didn’t beat past competitive challenges and certainly won’t beat this one. It’s essential to remember the playing field has changed and it’s clear who is winning and who isn’t.

    Michael Sansolo can be reached via email at . His book, “THE BIG PICTURE: Essential Business Lessons From The Movies,” co-authored with Kevin Coupe, is available on Amazon by clicking here. And, his book "Business Rules!" is available from Amazon by clicking here.
    KC's View:

    Published on: August 13, 2019

    by Kevin Coupe

    Nike is getting into the automatic replenishment business. And it is doing it with kids’ sneakers … which strike me as about as appropriate as I can imagine for such a program.

    Here’s how Fast Company frames three important parts of the innovation:

    • “Today, the retail giant launches the Nike Adventure Club, which will send a pair of Nike or Converse kicks at regular intervals. You can get them on a monthly, bimonthly, or quarterly basis. Each pair of shoes works out to between $50 and $60 a pair - which puts the service on higher end of the kids’ sneaker market (though Nike’s kids’ sneakers themselves vary considerably in price from $40 to $100, so many of the shoes within this program may actually be cheaper than buying directly from the store). Customers can choose what style they want, from performance shoes for sport to casual everyday sneakers, and they can also skip months and easily swap sneakers if they don’t fit or their kid doesn’t like them.”

    • “The online interface allows them to easily pick the style of the shoe they want in the box (their parents don’t have to worry about pricing differences, since the program charges a single monthly fee). And to make the unboxing experience more fun, Nike is customizing the box with the kid’s name. It is also collaborating with KaBoom, a national nonprofit focused on giving kids of all backgrounds the opportunity to play. Together, Nike and Kaboom will create content and activities, filling the box with things like stickers and booklets with ideas for fun outdoor activities.”

    • “When your child grows out of a pair or they get worn out, you can send shoes back—either in the Adventure Club box or by requesting a prepaid shoe bag—to the company, and even include non-Nike shoes you want to get rid of. If a shoe is in good condition, Nike will donate it to a nonprofit. But if it has reached the end of its life, Nike will recycle it through its Grind program, which breaks down athletic footwear to turn it into other products, including running tracks and playgrounds.”

    Readers of MNB know that I’m a big enthusiast about replenishment models … it has been spectacularly successful for Amazon’s Subscribe & Save. The Nike version makes a lot of sense, and has the potential of turning these kinds into lifetime Nike customers. Plus, Nike gets a lot of data about these young customers, and is able to act on that information with real insights in the future.

    That’s an Eye-Opener.
    KC's View:

    Published on: August 13, 2019

    The Wall Street Journal has a story about how “U.S. retailers large and small are pressing ahead with testing the use of artificial intelligence to track what products shoppers pick up and to automatically bill their accounts when they walk out the door, eliminating the need for checkout lines.”

    In other words, sort of like Amazon Go.

    The Journal writes that “recent AI adopters include Sam’s Club Inc., the warehouse retailer owned by Walmart Inc., and Giant Eagle Inc., a regional chain of grocery and convenience stores. Giant Eagle said last month that it would test a technology similar to Amazon Go’s at a convenience store in Pittsburgh, where it is based. Several companies that sell cashierless technology - including Standard Cognition Inc. and Vcognition Technologies Inc., which does business as Zippin - said they are working with U.S. customers but declined to give details.”

    And, it isn’t just big companies: ”Choice Market Holdings LLC, which operates a Denver convenience store focused on fresh food, plans to open another location next month and is developing three others. It plans to introduce a cashierless system, using in-store cameras and sensors, in two of the planned stores next year.”

    The story notes that “a global survey of about 400 retailers conducted in June by research and advisory firm International Data Corp. found that 28% are testing or piloting cashierless systems.”
    KC's View:
    I have argued from the moment I saw my first Amazon Go that technology of this kind will end of being as important to the retail business as scanning. I still feel that … maybe even more so.

    Published on: August 13, 2019

    CNBC has an interview with John Mackey, the founder and CEO of Whole Foods, in which he talks about the now two-year-old acquisition of the retailer by Amazon.


    “Mackey says the past two years under Amazon have been similar to his 29-year marriage to his wife, Deborah. ‘Do I absolutely love everything about my wife? The answer is that I love about 98%,’ he says. ‘There are little things that I wish were different, but you can’t really change people … Amazon is like a marriage. Do we love absolutely everything about Amazon? No. We probably love 98%.”

    “I have done this for 40 years, I am financially secure, I love Whole Foods,” he says. “I ultimately am not afraid to get fired so — not that I think they are going to fire me — but I’m not afraid of it, so that gives me a position of strength to speak truth to power when it’s necessary to do so, and I’ve done it many, many times.”
    KC's View:
    The truth to power that Mackey never seems to remember was that Whole Foods wasn’t exactly going great guns when Amazon acquired it. The company was in some degree of trouble, there was a lot of speculation about a number of companies being interested, and Whole Foods ought to be thrilled that it got bought by as disruptive an entity as Amazon.

    Has it been entirely smooth? Of course not. But the upside strikes me as being considerable.

    Published on: August 13, 2019

    Drugstore chain Rite Aid announced that it has hired Heyward Donigan, most recently CEO of Sapphire Digital, a website for analyzing health-care plans, as its new CEO. She succeeds John Standley, who stepped down last year after a planned merger with Albertsons was vetoed by shareholders.

    The Wall Street Journal reports that Donigan “said she would look for ways to make Rite Aid more efficient but hopes to avoid further job cuts … Rite Aid needs to work on online ordering and prescription delivery, but customers still will want to visit drugstores, and the chain has a strong brand in the areas where it is located, Ms. Donigan said. The company struck a deal with Inc. in June to allow customers to pick up online orders at Rite Aid stores, and Ms. Donigan said she hoped to find more such incentives to persuade customers to visit.”

    Donigan added, “It’s not just taking a hammer to the business.”
    KC's View:
    I’m thinking maybe a buzz-saw. Because while I can’t say I’ve been in every Rite Aid store, I can say that I’ve never been in one that really impressed me, or that is as good as a CVS or Walgreen.

    CVS, especially, is an example of a company that actually has taken a hammer to the business, investing in healthcare businesses and developing entirely new expertises that it believes will serve its customers better. If Donigan thinks she can just fiddle around the edges and tweak the model a bit, well, I think she’s kidding herself.

    Then again, her background seems to be insurance, so maybe she’ll bring fresh eyes and insights to Rite Aid, which could use both.

    Published on: August 13, 2019

    Glossy reports that outdoor clothing retailer North Face, with the opening of a new 8,000-square-foot store in New York City’s SoHo neighborhood, is heralding a new bricks-and-mortar retail strategy - it plans to redo most of its more than 100 stores in this new style.

    The rethinking of the company’s physical stores comes after customers told the retailer that it was not sufficiently communicating the fact that it is “a purpose- and values-led company.”

    According to the story, “Where old stores may have felt cramped and a little dark, and focused on selling products, the new stores are aimed to be more open, bright and encourage exploration. They’re also built with all sustainable materials … Scattered around the store, the brand has also included some of its products that have been used by the brand’s explorers (climbers, skiers and runners who serve as brand ambassadors) on past adventures. Paired with them are little bios about the explorer, and often handwritten notes about their trip or the North Face product they took with them.”

    Each new store “will have a specific area by the cash wrap set up for buy-online, pick-up in-store orders, as well as a meeting place for personal outfitting or styling sessions … There are also spaces to recycle old, worn products that the brand can then use as part of its Clothes the Loop partnership donating used clothes to non-profit partner Soles4Souls.”
    KC's View:
    I think that my favorite part of the new North Face look is a section at the rear of the store called “The Campfire,” which is exactly what it sounds like - a place where the company and its brand ambassadors can tell stories, and where, ideally, customers will be able tio share their stories.

    The lesson here, I believe, is that retailers need to pay more attention to telling their stories. So many stores still are just repositories for other company’s brands, and communicating the retailer’s singular and distinctive brand message isn’t a top priority. Of course, part of the problem is that some retailers haven’t really defined their own distinctive and differentiated messages.

    Published on: August 13, 2019

    The Grand Rapids Business Journal reports that Dave Staples has resigned from his job as president/CEO of retailer-wholesaler SpartanNash, effective immediately.

    He will be succeeded on an interim basis by company chairman and former CEO Dennis Eidson.

    The board of directors issued a statement saying that it “remains confident in the company’s strategic direction and its ability to generate top line growth; however, execution has fallen short of our expectations, and we believe that now is the time for a leadership change.”

    The story notes that SpartanNash “had 2018 revenue of $8.06 billion, down from $8.13 billion in 2017.”
    KC's View:

    Published on: August 13, 2019

    Michael Sansolo’s column this morning about how Netflix CEO Reed Hastings sees the world differently was interesting … especially in view of the fact that the Hollywood Reporter has a piece entitled, “Netflix Under Pressure: Can a Hollywood Disruptor Avoid Getting Disrupted?”

    To an extent, the story was prompted by the fact that just last month “the company reported its first subscriber loss in the U.S. in eight years.”

    Here’s the challenge, as described in the story:

    “Netflix's refusal to play by Hollywood's rules — dropping episodes all at once, not releasing ratings, overpaying up front for top creative talent in exchange for no backend profits — has been a source of external tension and envy. But the studios have gotten savvy to its ways and have started to fight back. With $71.3 billion in Fox assets now in its portfolio, Disney wields significant firepower in negotiations (it has also begun to eliminate many backend deals); and with the backing of AT&T, WarnerMedia doesn't have to think twice about shelling out $500 million to keep J.J. Abrams' Bad Robot in the family. With Apple in the mix, and Amazon and Hulu both upping their spending, in-demand creators have more options than ever.”

    The problem for Netflix is that it now is in danger of being disrupted: “Mounting expenses and an insatiable need for hits — if these problems sound familiar, well, that's because for most media executives, they are. As it matures, Netflix looks less like a high-flying tech interloper and more like the entertainment company it's come to think of itself as.”

    It is an excellent story, suggesting that it may not be enough to just be a disruptor that keeps people awake. There has to be a long game, too, that has to do with being continually innovative and keeping people engaged.

    You can read it here.
    KC's View:

    Published on: August 13, 2019

    Reuters reports that Sen. Richard Blumenthal (D-Connecticut) and Sen. Bob Menendez (D-New Jersey) have sent a letter to Amazon founder-CEO Jeff Bezos asking him to explain “how the ‘Amazon’s Choice’ badge on certain products is determined and whether the mark deceives consumers into purchasing ‘products of inferior quality’.”

    The letter added, “We are concerned the badge is assigned in an arbitrary manner, or worse, based on fraudulent product reviews.”

    According to the story, “The senators said the lack of information on how Amazon determines which products receive the badge has led them to question whether Amazon is using it to ‘promote its own products over competitors’ products, potentially disadvantaging smaller sellers on the platform’.”

    This is yet another example of how US government officials, ranging from members of the Congress to members of the federal regulatory apparatus, are looking at various components of Amazon’s business model to make sure that it is pro-consumer and not anti-competitive.

    GeekWire reports that “how Amazon’s Choice is awarded has always been something of a mystery but the company began disclosing some criteria last year. On product pages for some ‘Amazon’s Choice’ selections, the company lists three specific reasons for conferring the status. The criteria vary by product, but based on GeekWire’s observations, the formula gives weight to average customer ratings of at least 4 stars, low return rates compared to similar products, popularity in Amazon search results, and eligibility for Amazon Prime delivery.”

    Bloomberg reports that “ Inc.-backed food-delivery service Deliveroo announced an abrupt retreat from Germany after more than four years, a casualty of increasingly cut-throat competition tearing through the industry … Deliveroo’s German business is the latest victim in the European food-delivery industry, which has long suffered from expensive competition that has forced established players to consolidate or close shop.”

    The story says that Deliveroo plans to “refocus its resources first to grow its business in other parts of Europe and the Asia-Pacific region.”
    KC's View:

    Published on: August 13, 2019

    Forbes reports that “Tesco CFO Alan Stewart has set a letter to the C-suite leaders of rival bricks-and-mortar retailers, drumming up support for an online sales tax.” Stewart reportedly “sent the letter to the senior leadership of at least three major supermarket chains in the UK.”

    According to the story, Tesco CEO Dave Lewis “wants the Government to cut business rates – a UK tax on non-domestic property - by 20%. Stewart’s letter also suggests the government make up the shortfall with a 2% levy on all online retail sales.”
    KC's View:

    Published on: August 13, 2019

    Regarding the pilot program in Washington, DC, that subsidizes taxi rides from poor neighborhoods to places where there are more and better food retailing choices, MNB retailer Steve Rash wrote:

    A better approach that the officials in Washington, DC could take would be to subsidize grocery delivery to the residents of low income neighborhoods.  Said another way, bring the groceries to them and not them to the groceries.  It's obvious from the previous failed attempt that the transportation solution doesn't work.  Why?  My guess is that many of these residents are single parents and/or working multiple jobs and simply don't have the time to make the trip, even if it's subsidized.  A Pew Internet survey in June of this year showed that 81% of the population has a smart phone that could easily be used to order better quality groceries.

    I’ve written here about the need for retailers and other businesses to start thinking about the same kind of active shooter drills practiced at many schools, especially in the wake of the killing of 22 people at an El Paso Walmart by a man described as a white nationalist domestic terrorist. Which prompted one MNB reader to write:

    This article made me think, what are we doing at Shaw's or any other store to prevent a mass shooting? I haven't heard it even mentioned yet, and I think it's something that should be addressed sooner than later…


    We also took note yesterday of a Los Angeles Times report that while Walmart has so far resisted calls to stop selling guns in its stores, it is “removing displays of violent video games and movies in its stores.”

    Prompting MNB reader Scott S. Dissinger to write:

    Interesting take in the article I did not think of – combat videos. Wondering if the entertainment industry has a responsibility to tone down it’s glorification of violence?  They seem quiet on that front.

    Actually, Universal Pictures decided not to release a movie called The Hunt that was scheduled to come out this week because of the gun violence apparently portrayed in it. So that’s not a bad thing.

    Look, I talked about this in “OffBeat” last Friday - I’m exhausted by movies that engage in gratuitous violence and destruction, and I’ve seen enough movies this summer that did not traffic in such stuff to be feeling like I’m going to avoid the violent stuff for awhile. (Of course, in the interest of honesty, I have to admit that I saw and liked Quentin Tarantino’s Once Upon A Time…In Hollywood, so there may be exceptions.)
    KC's View:

    Published on: August 13, 2019

    Just want to say thanks to al the folks who attended our MNBConnect event last Thursday night in Portland. It is always great to put faces to names, to hear different stories from different people, and to get a sense of the breadth and depth of the MNB community. As always, it is my pleasure and privilege to be a part of it.

    And thanks to Portland State University’s Center for Retail Leadership for sponsoring us … the beer and wine were terrific. (We’re in Oregon … how could they be otherwise?)

    KC's View: