business news in context, analysis with attitude

Published on: November 17, 2022

When Buck Showalter of the New York Mets was named the National League Manager of the Year yesterday, my first thought (because I'm a little weird) was to compare his leadership style to Elon Musk's.  (I know who I'd rather play for.)

Published on: November 17, 2022

Reuters reports that a Washington State court has again delayed a planned $4 billion dividend that Albertsons wants to distribute to its shareholders, putting it off a scheduled hearing until December 9.

This is the third delay imposed by the court.  The original hearing was supposed to be on November 10, then on November 17.

The temporary injunction was requested by Washington Attorney General Bob Ferguson, after Kroger announced that it would be acquiring Albertsons for $24 billion.  When the merger was announced, it also was disclosed that Albertsons would be paying its shareholders a $4 billion dividend in advance of any deal being completed (which is likely to take 18-24 months).

Albertsons maintains that the dividend would have been distributed regardless of whether it had a deal with Kroger, and was part of an extended effort to increase shareholder value.  Ferguson, along with a number of other attorneys general who filed separate suits in federal court, argues that paying out the dividend would hurt Albertsons' ability to compete in the event that the acquisition is not allowed to take place by the Federal Trade Commission (FTC).  But Albertsons has disputed that notion.

There continue to be concerns raised by opponents of the deal, who argue that a merger of the second and fourth ranked grocery retailers would be deleterious to competition.

Combined, the new company would have a 15.5 percent market share, second to Walmart's 20.9 percent of national grocery market share.  (Costco would remain in third place.)

“Albertsons Cos. continues to believe that the claim brought by the State of Washington is meritless and provides no legal basis for canceling or postponing a dividend that has been duly and unanimously approved by Albertsons Cos.’ fully informed Board of Directors,” the company said in a statement.

Published on: November 17, 2022

From the Seattle Times:

"Amazon confirmed Wednesday it has begun laying off employees in its devices organization, the start of a string of job cuts that will likely impact around 10,000 workers in devices, retail and human resources … Amazon began making cuts in its devices division Tuesday, after news of the coming layoffs broke on Monday. The company confirmed the layoffs in a blog post on Wednesday.

"'After a deep set of reviews, we recently decided to consolidate some teams and programs,' Dave Limp, senior vice president of devices and services at Amazon, wrote in the post. 'One of the consequences of these decisions is that some roles will no longer be required.'

"'It pains me to have to deliver this news as we know we will lose talented Amazonians from the Devices and Service org as a result,' he continued.

"The devices organization includes Amazon’s voice assistant Alexa, as well as Kindle, smart home products, Echo speakers, its health device Halo and its home robot Astro."

From CNBC:

"'Voluntary severance' offers were sent out Tuesday and Wednesday to some divisions, including human resources and employee services, according to internal company documents viewed by CNBC.

"In exchange for leaving the company, Amazon will provide employees with a 'lump-sum' severance payment equal to three months of pay, plus one week of salary for every six months of tenure at the company, the documents said. Employees will also be given a weekly stipend for 12 weeks, which can be used to offset COBRA premiums, and their insurance will continue through the end of December.

"Employees have until Nov. 29 to resign, and they have until Dec. 5 to withdraw their application if they change their mind, the documents said. Amazon will inform employees next month that their resignation has been accepted, and their last day of employment will be Dec. 23.

"The volunteer severance program is a 'first step' to realign businesses within Amazon, the documents said, indicating that the divisions could undergo layoffs in the near future."

And from Fortune:

"Amazon Web Services, the cloud computing subsidiary of Amazon, is asking managers to weed out underperforming workers on teams that have grown too fast, and will extend a hiring freeze across the organization into the first quarter of 2023 as the business seeks to keep costs in check amid slowing growth.

"In a meeting this week, numerous AWS managers were informed that a hiring freeze that began earlier this month would continue into the first three months of the new year, but that layoffs were not currently planned at AWS, according to a person with knowledge of the matter. The lack of layoffs was greeted with relief by some AWS insiders, given the recent news that parent company Amazon was eliminating roughly 10,000 jobs across its retail and devices operations, as well as in human resources.

"Some AWS teams may still shrink however, as the business takes steps to reduce staffing levels in groups that are currently above their headcount targets for the year. Managers of such teams are expected to 'fix' the situation by the end of Q1 next year by managing out low performers through performance improvement plans, attrition, and other means, the person told Fortune."

Fortune also writes that "in an effort to cut back on costs, Amazon has already been axing some of its projects — including subsidiary fabric.com, Amazon Care, and the cooler-size home delivery robot Scout. Its also been scaling back its physical footprint by delaying — or canceling — plans to occupy some new warehouses across the country. And Amazon Chief Financial Officer Brian Olsavsky has said the company was preparing for what could be a slower growth period and would be careful about hiring in the near future."

KC's View"

Note:  Amazon has some 1.5 million employees globally, and Amazon increased its total labor headcount by five percent over the past year.  A 10,000-person layoff is considerable - and especially painful to those who are being cut (I'm very sensitive to this, having been laid off four times in my life) - but it would be a mistake to think this is eviscerating Amazon's workforce.

"Realign" is one word.  "Rightsize" would be another.  So much of this, it seems to me, is about getting the company back to early pandemic staffing levels, before Covid sent so much of the e-commerce business into overdrive to meet consumer demands and needs.

This was, let's remember, an article of faith at Amazon, which has built a business and culture on being customer-centric.  At a time of greater need, it would've been a violation of its core values not to build out.  It created pain of one kind, and now is creating pain of a different sort.  But, as they say, no pain, no gain.  That's an important thing to keep in mind - in the end, this will be all about positioning Amazon to continue to grow, to dominate, to become inextricably intertwined in every facet of our lives. Nothing about that vision has changed.

I'd recommend you check out this week's Innovation Conversation between Tom Furphy and me, in which we discuss this issue, among others.

By the way … one of the things I wrote when the Amazon layoffs first became public is that this is a great opportunity for companies to improve their bench strength - if you want to improve your technology offering, finding some smart former Amazon employees is hardly the worst ideas in the world.

Which made this story from The Information yesterday resonate:

"When Elon Musk bought Twitter and cut half its workforce earlier this month, TikTok’s in-house recruiters approached some of the laid-off software engineers about joining the viral video app’s Silicon Valley office. Then last week, the same recruiters contacted some of the engineers cut by Meta Platforms."

One would imagine that TikTok - which wants to improve its e-commerce footprint - will also be contacting some of the Amazonians suddenly looking for jobs.

Probably a good time to be a person with a) Amazon on your resume, and b) the right skills for e-commerce.  Also a good time to be an executive recruiter.

Published on: November 17, 2022

"Target Corp. said consumers pulled back on their spending in recent weeks, sapping sales and profits in the latest quarter and putting a cloud over its holiday season," the Wall Street Journal reports.

Target said that "total revenue of $26.5 billion grew 3.4 percent compared with last year, reflecting total sales growth of 3.3 percent and a 9.5 percent increase in other revenue. Operating income was $1.0 billion in third quarter 2022, down 49.2 percent from $2.0 billion in 2021, driven primarily by a decline in the Company's gross margin rate."

Same-store sales were up 2.7 percent.

E-commerce sales were up 0.3 percent.

The Associated Press offers this analysis:

"What has become clear is that spending by the American consumer is shifting, with many trading down to cheaper options, and to stores where they think they can save money. That was evident at Walmart, which reported better-than-expected earnings Tuesday. One factor: more than 50% of Walmart’s U.S. business comes from groceries; that number is 20% at Target. With inflation all around, households take care of needs like food and shelter first."

And, the Journal writes, "Target executives lowered their financial goals for the holiday quarter and said they are prepared to offer deep discounts in the coming months to clear out unwanted inventory and attract shoppers."

Target CEO Brain Cornell said that "it’s an environment where consumers have been stressed … We know they are spending more dollars on food and beverage and household essentials. And as they are shopping for discretionary categories ... they are looking for that great deal.”

Published on: November 17, 2022

The US Commerce Department said yesterday that retail sales rose a seasonally adjusted 1.3 percent in October, which the Wall Street Journal writes is "a sign of economic strength that leaves the Federal Reserve likely to keep raising interest rates as it tries to reduce persistently high inflation."

The Journal goes on:  "Shoppers spent more on increasingly expensive everyday staples such as gasoline and food, but they also shelled out more on discretionary items such as cars, furniture and restaurant meals. Some of the spending was due to purchases of building materials and home furnishings in the aftermath of Hurricane Ian, economists said."

The New York Times writes that the increase "was higher than expected and a promising reflection of consumer sentiment during the holiday shopping season, especially since the near-record-high inflation Americans have felt this year has moderated a bit.

But that spending was boosted by the earlier-than-usual holiday deals that enticed shoppers last month. For the first time, Amazon held a Prime Day in October, filling the site with discounts, in addition to its usual time in June. Target rolled out its Deal Days. And Kohl’s offered promotions on toys throughout the month. After last year’s holiday season, which featured few traditional doorbuster sales, many shoppers, it now seems, are looking for discounts before they buy."

Published on: November 17, 2022

Fast Company has a long and fascinating piece about how Starbucks has "cozied up" to China's Communist Party in its quest to build out an enormous store fleet and infrastructure there;  "It’s estimated that a new Starbucks café opens in China every nine hours. There are more Starbucks stores in Shanghai than in any other city in the world."  And Howard Schultz, the current CEO, has said that "China will overtake America as Starbucks’s biggest market by 2025."

The question is whether Starbucks, which always has positioned itself as an ethical beacon, is compromising its values as it looks to achieve growth."

"The Seattle-based coffee giant has been working quietly toward this goal for almost 30 years," Fast Company writes.  "It’s taken the usual steps necessary to operate successfully in China as a foreign enterprise, such as building rapport with Communist Party officials, setting up joint partnerships, and expanding slowly yet strategically. But Starbucks has gone much further in many ways than other U.S. companies have, even Tesla and Apple, whose CEOs have made headline-grabbing agreements with President Xi Jinping’s ruling party … Unlike companies that are merely building factories, hiring workers, and developing markets in the country, Starbucks is helping to cultivate the land itself—one of the few regions where it does so. It began testing beans and working with farmers in China’s coffee region of Yunnan in 2007. Since then, it has developed its own domestic supply chain and trained more than 30,000 farmers. It’s common for larger foreign entities to engage in charity and volunteer projects that include donating to Chinese nonprofits, but Starbucks’s support for Chinese initiatives goes well beyond the norm."

In early 2021, the story says, China's President Xi Jinping "sent Howard Schultz a letter encouraging him and Starbucks to 'continue to play an active role' in promoting China trade amid the intensifying tariff war between the U.S. and China. News that Xi had created a direct communication line with a foreign business leader was a shock to the West, particularly because the scoop came from Chinese state media, which made this more akin to an official press statement than a news story.

"China business consultant Stone Fish warned at the time that Schultz, who has long cast himself as a centrist unifier, was 'wading into dangerous territory,' that this was an authoritarian strongman asking an American business leader for help with Washington, a move with 'serious strategic, legal, and ethical implications'."

You can read the entire piece here.

Published on: November 17, 2022

Walmart-owned Sam's Club is initiating a hot dog war with Costco.

The Wall Street Journal reports that Sam's Club "is slashing the price of its hot dog combo to $1.38, down from $1.50, Walmart Chief Executive Doug McMillon said during an earnings call Tuesday after an upbeat quarterly report. 

"Mr. McMillon said the move was part of the company’s strategy to cut prices on some products even as many everyday items remained higher than usual. He added that the prices of racks of lamb and lobster tails at Sam’s Club are more than 40% lower than last year … Sam’s Club’s new hot dog price undercuts rival warehouse club Costco, which has offered a $1.50 hot dog and soda combo at its stores since 1985. Sam’s Club memberships currently start at $50 a year, whereas Costco’s annual memberships start at $60."

Published on: November 17, 2022

•  From the Washington Post:

"The Food and Drug Administration on Wednesday declared a lab-grown meat product developed by a California start-up to be safe for human consumption, paving the way for products derived from real animal cells — but that don’t require an animal to be slaughtered — to someday be available in U.S. grocery stores and restaurants.

"Dozens of major food companies are jostling to debut cultivated meat to the American public. As of now, Singapore is the only country in which these products are legally sold to consumers. The FDA’s announcement that cultivated chicken from Emeryville-based Upside Foods is safe to eat is likely to open the floodgates in the United States in the coming months."

The Post goes on:

"Whether consumers will embrace this form of meat remains a question. Despite the money and hopes invested in realistic simulated-meat products such as Beyond and Impossible, which are made with vegetable protein, the market for these alt-meat products has cooled. High prices, too, will be a challenge to widespread adoption, experts say.

"Still, boosters of cultivated meat say it has huge potential."

•  From the Oregonian:

"An update to Fred Meyer’s payroll software has left some employees’ paychecks short of what they’re owed, some for several weeks.

"Jeffery Temple, a spokesperson for Fred Meyer, said the parent company, Kroger Co., recently launched a new human resources platform that has caused the problems.

"'Through the conversion we have experienced a technical error in paycheck distribution,' the spokesperson said in a statement.  'Although a small percentage of our associates have been affected, we understand the impact. We are working quickly on resolving known issues.'

"Temple said about 1% of the roughly 40,000 Fred Meyer employees across Oregon, Washington, Idaho and Alaska have been affected. It’s unclear why around 400 employees were affected while others were not."

Published on: November 17, 2022

•  From the Los Angeles Times:

"Starbucks workers at more than 100 U.S. stores say they’re going on strike Thursday in what would be the largest labor action since a campaign to unionize the company’s stores began late last year.

"The walkouts are scheduled to coincide with Starbucks’ annual Red Cup Day, when the company gives free reusable cups to customers who order a holiday drink. Workers say it’s often one of the busiest days of the year. Starbucks declined to say how many red cups it plans to distribute.

"Workers say they’re seeking better pay, more consistent schedules and higher staffing levels in busy stores. Starbucks opposes the unionization effort, saying the company functions best when it works directly with employees. The Seattle coffee giant has more than 9,000 company-owned stores in the U.S.

"Outlets in 25 states planned to take part in the labor action, according to Starbucks Workers United, the group organizing the effort. Some workers planned to picket all day, while others planned shorter walkouts. The union said the goal is to shut the stores down during the walkouts."

Published on: November 17, 2022

…will return.