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    Published on: February 3, 2023

    The retirement - this time, apparently, for real - of Tom Brady has generated a ton of coverage.  But one column, by Sally Jenkins of the Washington Post - offers a business lesson from Brady that applies to a wide range of leaders and businesses.

    Published on: February 3, 2023

    Amazon released its Q4 and 2022 financial results late yesterday …. and here are the numbers as stated by the company:

    •  "Net sales increased 9% to $149.2 billion in the fourth quarter, compared with $137.4 billion in fourth quarter 2021. Excluding the $5.0 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 12% compared with fourth quarter 2021 … Net sales increased 9% to $514.0 billion in 2022, compared with $469.8 billion in 2021. Excluding the $15.5 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the year, net sales increased 13% compared with 2021."

    •  "Net income decreased to $0.3 billion in the fourth quarter, or $0.03 per diluted share, compared with $14.3 billion, or $1.39 per diluted share, in fourth quarter 2021. All share and per share information for comparable prior year periods throughout this release have been retroactively adjusted to reflect the 20-for-1 stock split effected on May 27, 2022 … Net loss was $2.7 billion in 2022, or $0.27 per diluted share, compared with net income of $33.4 billion, or $3.24 per diluted share, in 2021."

    Now, the analysis…

    •  The Wall Street Journal writes that "the company’s e-commerce services and cloud-computing business moderated their pace of growth in the face of recession concerns that are denting consumer and enterprise spending."  The Journal notes that "Amazon is enduring one of its most difficult stretches in its history as it resets its business from the Covid boom period that, executives have said, caused it to expand aggressively. The company’s operating expenses in North America have outpaced sales during the first three quarters of 2022, though the company narrowed the gap in the fourth quarter."

    The Journal points out that "Amazon has long relied on its cloud-computing arm, called Amazon Web Services, as its profit engine, especially when its e-commerce sales have disappointed. Amazon executives have said cloud-computing customers have looked to reduce their spending. AWS sales growth slowed to 20% in the most-recent quarter, the lowest growth rate since Amazon began to report the segment.

    "The company’s cloud-computing rivals have been grappling with a similar slowdown. Microsoft Corp. in late January reported its slowest sales growth in more than six years as demand for its software and cloud services cooled."

    •  From The Information:

    "Amazon said revenue in its cloud unit rose 20% to $21.4 billion in the fourth quarter, the slowest growth since at least 2014 when it started breaking out Amazon Web Services results – and warned that the cloud business would likely remain sluggish through the coming year.

    "Amazon’s chief financial officer Brian Olsavsky said on a call with reporters that AWS had seen 'continued slowness' so far in 2023 and that the company expects to 'to see some slower growth rates for the next few quarters'."

    •  And from the New York Times:

    "While the overall sales surpassed Wall Street expectations, as compiled by FactSet, the overall profit and the performance of the cloud computing business fell short, sending shares of the stock down about 4 percent in aftermarket trading.

    "Andy Jassy, the company’s chief executive, has spent the past year pushing the company to trim costs. Amazon has been working through plans to lay off 18,000 corporate and tech workers; it added fees for grocery deliveries that had once been free; and cut back from a breakneck warehouse expansion that left the company with too much space.

    "'Being maniacally focused on the customer experience is alway going to be a top priority for us,' Mr. Jassy said in a call with investors. 'We are working really hard to streamline our costs and trying to do so at the same time that we don’t give up on the long-term, strategic investments that we believe can meaningfully change broad customer experience, and change Amazon'."

    •  From Bloomberg:

    " Inc. has paused expansion of its line of Amazon Fresh grocery stores as it evaluates how to make the chain stand out to shoppers, Chief Executive Officer Andy Jassy said on Thursday. 

    "Amazon has owned Whole Foods Market since 2017, but in recent years much of its energy has been devoted to Amazon Fresh, a line of mainstream grocery stores that now number in the dozens after a rapid expansion during the pandemic. The effort to crack the grocery market has long been one of Amazon’s biggest bets — and struggles. 

    "'We’re doing a fair bit of experimentation today with those stores to find the format that we thinks resonates with customers, is differentiated in some meaningful fashion, and where we like the economics,' Jassy said.

    "He added that the company had decided not to expand physical Fresh stores until they complete that evaluation. 'We’re optimistic that we’re going to find that in 2023,' and expand more quickly, he said."

    •  The Washington Post analysis has a provocative lead (albeit one we used here a few months ago):  "It looks like 'Day Two' is coming fast for Amazon."

    The piece goes on:

    "To be fair, nearly every tech and retail company has come into the new year licking a few wounds from 2022. The economy has ping ponged its way to a recovery that was fueled by stimulus-rich consumers, who have since slowed spending as their checking accounts start to shrink again. Retailers have scrambled to get rid of excess inventory that was no longer in demand like air fryers and yoga pants, eating into margins. 

    "Amazon lost money for a fifth straight quarter in its north American business, which includes its retail offerings. Right-sizing the business is critical for Amazon as rivals like Walmart Inc. close the gap with bigger online investments and better integration between their digital and brick-and-mortar storefronts. The company also faces growing competition from social media platforms like ByteDance Ltd.’s TikTok, which is luring away shopping search traffic. 

    "Amazon has dug itself out of deep holes before. After taking a $170 million inventory charge for the Fire phone in 2014, it closed some of its less profitable businesses such as travel booking site Amazon Destinations, and gift and loyalty card app Amazon Wallet, while ramping up revenue through its cloud division Amazon Web Services and the annual Prime Day sales event."

    And, the Post writes:

    "Grocery is one area where Amazon has a chance to grow sales and market share, and catch up to Walmart. It’s yet to take full advantage of its Whole Foods footprint aside from extending discounts on its Prime members service to in-store shoppers and delivering online orders for a fee. The grocery business was a 'really important strategic area,' Jassy said. 'We’re building a pretty broad grocery network across online and physical and you’re going to see us continue to work on it.'

    "Whole Foods and its Amazon Fresh stores, which use touchless and cashier-less checkout technology, target a high-income, younger shopper and are easy places to grocery shop. Amazon Fresh stores have added appeal among techie and nerdy types with full wallets. The challenge is that even these high-income shoppers are being pinched by inflation with more consumers earning in excess of $100,000 a year reporting they are living paycheck-to-paycheck. Walmart told investors last year that it’s seeing more shoppers in that income bracket walking into its stores."

    KC's View:

    Amazon's volume in 2019 was less than half what it was 2022, and that volume, at least, continues to grow, albeit at a slower pace than in the past.  So before people start burying the company and dismissing its value proposition, it is important to keep that in mind.  It also is important to remember that whatever its problems, and the company certainly has gone through cycles, Amazon has set the agenda for how innovation and customer expectations for much of the past two decades.

    That said, Amazon certainly is dealing with cost issues, with management apparently trying to just keep its expenses even as sales grow.

    The New York Times notes that this is becoming a familiar narrative for almost every tech company, and that it "is an abrupt turn for an industry that became famous for its big salaries, extravagant offices and lavish perks, from free shuttle buses to free laundry services for employees. But as a boom that lasted 15 years comes to an end, shrinking profits are making tech executives rethink what they believed were important tools in an industrywide competition to hoard tech talent."

    And, Amazon has competition issues, as companies like Walmart and Target continue to make savvy investments in technology and customer service that they feel will differentiate them.

    (BTW … I still think that Amazon's physical stores are one great retail executive away from being able to fix their problems.  Again, I tender the offer … if they want some idea, I'm happy to share them.)

    I do think the company has to be concerned that it may be losing control of its narrative.

    Raising prices, closing stores, over-promising and under-delivering, disappointing customers, dealing with federal probes, fighting unionization movements … Amazon seems to be doing battle on so many fronts, virtually every day.  It used to occupy rarefied air in the American psyche, but that seems to be shifting.  And Amazon has to find a way to regain control of the narrative, to be its best self as opposed to being the company that in some ways it seems to have become.

    That said … yesterday all my Subscribe & Save items showed up at my front door, right on time.  A bunch of boxes, holding things like paper towels, toilet paper, laundry detergent, soap - all items that I used to buy at the supermarket but for which the store offers absolutely no advantage.  I have some two dozen items on Subscribe & Save, all coming at varying intervals, and I can say that it is a service that has made a real difference in how we shop.  It gives us time back in our lives.

    Seems to me that Amazon has to get back to its core mission of being resolutely focused on serving customer needs and empowering aspirations.  It really isn't Jassy's fault that when he talks about "maniacally focused on the customer experience," he doesn't really sound authentic.  He is, after all, charged with an amazingly difficult job with challenges on a multitude of fronts.

    In this moment, though, Amazon has to get its story straight.

    Published on: February 3, 2023

    CNBC reports that one prominent analyst is suggesting that by 2030, Amazon may have more robots than human employees.

    Cathie Wood, chief executive officer and chief investment officer of Ark Invest, suggests that "Amazon’s use of automated robots will dramatically change the company’s workforce in the coming years."

    “Amazon is adding about a thousand robots a day. ... If you compare the number of robots Amazon has to the number of employees, it’s about a third. And we believe that by the year 2030 Amazon can have more robots than employees,” Wood said on CNBC’s 'Squawk Box.'

    “So we are just at the dawn of the robotics age. And I would say artificial intelligence and battery technology are all a part of that movement as well,” she added.

    Wood also says that "the robot revolution will not be limited to Amazon; it will spread across manufacturing, Wood said, as improving technology and falling costs speed up the transition.  'If you look at the cost declines, which drive all of our models ... for every cumulative doubling in the number of robots produced, the cost declines are in the 50-60% range,' she said."

    KC's View:

    Cathie Wood has had mixed results - to be generous about it - in her investment choices over the past few years, but I still think this is a fascinating prediction … and one that, if it comes true, has enormous implications for all sorts of businesses, not to mention the nation's labor pool.

    Published on: February 3, 2023

    USA Today reports that "CVS and Walmart are in the midst of a court battle for selling FDA-approved, over-the-counter medications alongside homeopathic products, a form of alternative medicine based on diluted ingredients.

    "The Center for Inquiry, the nonprofit that filed the lawsuits, argues that this sort of product placement is misleading and presents homeopathic products as equivalent alternatives to science-based medicines."

    The story notes that "there is little evidence that shows homeopathic products are effective, according to the National Institutes of Health. And while experts say most are harmless, the Food and Drug Administration warns that it cannot ensure their safety or effectiveness."  And, USA Today quotes Kelly Karpa, a former pharmacist and a professor in East Tennessee State University's department of medical education, as saying that "over-the-counter medication has to have been proven safe and effective for the condition that it's purported to treat," while homeopathic products "had their own set of conditions under which they can be marketed. They kind of bypassed all of that safety and efficacy.”

    KC's View:

    I think it is really important that products not approved by federal regulators have to be clearly marked that way … false equivalences need to be avoided, especially by retailers that could be held responsible if things go badly.  

    A customer-centric mindset would make dealing with this issue easy, I think.

    Published on: February 3, 2023

    •  The Wall Street Journal writes that "Google reported its first drop in advertising revenue since the beginning of the pandemic, as a slowdown in online marketing continues to weigh on the search giant’s business.

    "Alphabet Inc., Google’s parent company, reported $59 billion in advertising revenue for the fourth quarter, a decrease of 3.6% from the same period in 2021. Those results marked the second time ad sales fell since Google became a publicly traded company in 2004.

    "Google is attempting to weather one of the most challenging environments for its core advertising business in recent memory. While the company’s fortunes soared during an uptick in digital advertising in 2021, it has recently faced pressures from a worsening economy and new competitive forces in fields like artificial intelligence."

    •  The Wall Street Journal reports that Apple "announced its first quarterly revenue decline in nearly four years as manufacturing disruptions in China curbed its ability to deliver premium iPhones.

    "For the holiday quarter ending in December, Apple had revenue of $117.2 billion, down 5% from the same quarter a year ago, missing analyst estimates of $121.4 billion, according to FactSet. Net income was $30 billion, down 13% from a year ago, lower than analyst estimates of $31 billion.

    "Apple Chief Executive Tim Cook said that in addition to manufacturing challenges, the economic climate also played a role in the company’s results.  'We estimated that we would have grown on the iPhone absent the supply constraints,' Mr. Cook said in an interview. 'The macroeconomic situation is more difficult to estimate, but it’s apparent from looking at the numbers that wind was in our face for the quarter.'

    "For the important holiday quarter, the company struggled to keep up with demand for its latest premium iPhone 14 Pro models as China’s zero-Covid policies caused upheaval at a smartphone factory in Zhengzhou. In November, Apple issued a rare warning about disruptions to output of the iPhone 14 Pro.

    "Apple has been able to get its supply chain back in order and increase its iPhone 14 production, and China has loosened its Covid-19 restrictions. Analysts now expect iPhone demand to be pushed to the current March quarter, but some have also expressed concern that Apple might face reduced demand for iPhones and other products."

    •  Standard AI announced the signing of a definitive agreement "to acquire leading self-checkout solutions provider, Skip."  The deal, the company said, will allow Standard AI "to connect self-checkout with AI-powered autonomous checkout into one integrated experience," giving retailers "a self-checkout option with a clearly-defined path to an autonomous future."

    Published on: February 3, 2023

    •  From the Associated Press:

    "US applications for jobless aid fell again last week to their lowest level since April, further evidence that the job market has withstood aggressive rate hikes by the Federal Reserve as it attempts to cool the economy and bring down inflation.

    "Applications for jobless aid in the United States for the week ending Jan. 28 fell by 3,000 last week to 183,000, from 186,000 the previous week, the Labor Department reported Thursday. It was the third straight week claims were under 200,000 and the third straight weekly decline.

    "Jobless claims generally serve as a proxy for layoffs, which have been relatively low since the pandemic wiped out millions of jobs in the spring of 2020."

    •  From the Washington Post this morning:

    "The labor market shattered expectations in January, as the economy added 517,000 jobs and the unemployment rate dropped to 3.4 percent, a low not seen since May 1969, according to data released Friday from the Bureau of Labor Statistics.

    "Job gains had been steadily dropping for months, but January’s stunning job growth reflects unexpected tightness in the labor market , even amid fears of a looming recession as high profile layoffs spread across the tech industry.

    "The Federal Reserve has been in an all-out effort to lower inflation, hoping it can manage to hoist interest rates without slowing the economy so much that it undercuts strength in the labor market. But that task appears much more difficult to pull off, with scant signs of a cool down in a labor market that created more than a half million jobs in January."

    •  From WDRB-TV News:

    "Trader Joe’s is challenging last month’s vote by workers at its Louisville store to form a union, alleging that pro-union workers 'created an atmosphere of fear and coercion and interfered with the laboratory conditions necessary to conduct a free and fair election.'"

    Trader Joe's reportedly "filed its objections Wednesday with the National Labor Relations Board, according to a copy of the filing shared by the Trader Joe’s United, the union seeking to organize the Louisville store.

    "Trader Joe’s’ Louisville workers voted 48-36 in favor of the union during the Jan. 26 election, according to Trader Joe’s United. If the tally holds up, it will become the third Trader Joe’s in the nation to unionize."

    •  The Wall Street Journal writes that Starbucks reported Q1 "net income of $855 million, about 5% higher than the $816 million generated in the same quarter a year earlier," and "sales of $8.71 billion, up 8% from the prior year period and slightly below analysts’ expectations of $8.79 billion."

    Global same store sales were up five percent, US same-store sales were up 10 percent, but China same-store sales, hard-hit by that country's Covid-related restrictions, were down 29 percent.

    •  Urban Milwaukee reports that Go Grocer, a Chicago-based small format store that features 4,000 SKUs, focusing on fresh food, prepared meals and fast delivery, has added to its 14-store fleet with a 15th unit opened in Milwaukee's Third Ward neighborhood.  

    It is the first Wisconsin store for Go Grocer.  Another unit is slated to open in Milwaukee's Brewery District later this year, the story says.

    Published on: February 3, 2023

    Executive Suite is sponsored by Robin Russell Executive Search.

    •  Kohl's announced that it has named Tom Kingsbury as its CEO, removing the "interim" from his title.

    Kingsbury, who is the former president and CEO of Burlington Stores, became interim CEO in December, when the retailer's then-CEO, Michelle Gas, left to become president of Levi Strauss & Co., a job that puts her in line to eventually succeed longtime CEO Chip Bergh.

    Published on: February 3, 2023

    Managed this week to catch up with two Oscar-nominated films and one highly praised streaming TV series … and I want to offer my take on them.

    The Banshees of Inisherin is a wonderfully Irish film written and directed by Martin McDonagh … and by Irish, I mean it is unbelievably bleak, leavened with moments of humor and pathos.

    The plot is fairly simple.  It is 1923, and on a remote island off the coast of Ireland, two lifelong friends suddenly find themselves at odds as Colm Doherty (Brendan Gleeson) informs Pádraic Súilleabháin (Colin Farrell) that he no longer wants to spend any time with him.  Pádraic is mystified, and unwilling to accept this turn of events, and from there the plot gets darker and darker and darker still.

    I'll tell you no more of the plot for fear of spoiling anything, except to day that Farrell and Gleeson are simply grand in their roles, and matched by Barry Keoghan as a troubled local lad and Kerry Condon as Pádraic's sister.  The Banshees of Inisherin is a terrific movie, but you have to be prepared for a tough couple of hours of movie-going.  (A tumbler of Jameson' might be helpful.)

    I watched Everything Everywhere All at Once with the full knowledge that a) it was an absurdist comedy that had gotten a lot of critical raves, and b) it got more Oscar nominations this year than any other movie.

    To be honest, I don't get it.  I mean, I understand why people like it so much, and why its subject matter appeals to so many people.  But it just didn't work for me, as much as I liked the performances by Michelle Yeoh, Stephanie Hsu, Ke Huy Quan, James Hong and Jamie Lee Curtis.

    To me, it seemed as if the writers/directors dropped acid, watched Sliding Doors, The Matrix, and Inception, then dropped acid again before sitting down to write a screenplay that essentially is about a mid-life crisis played out in the multiverse.  I understand the intent, but the sensory overload was way too much for me - it is the very definition of videogame filmmaking.  That said, the young people I know who have seen it really liked it, so maybe I'm just not the audience.

    The thing I have liked the most this week is "Poker Face," the new Rian Johnson-produced TV series streaming on Peacock.

    "Poker Face" stars Natasha Lyonne as Charlie Cale, a young woman who has the unique ability to tell when people are lying.  For reasons I will not explain here, she finds herself on the run from a Las Vegas casino owner, going from town to town and solving mysteries with her unique talent along the way.

    If that sounds like a 1970s-style TV mystery movie, that's because it is - "Poker Face" has elements of all the great NBC Mystery Movies of the time, especially "Columbo," right down to the style of the opening credits, which look just like the style that Universal used at the time for "McCloud," "McMillan & Wife," "Columbo," "The Bold Ones," and "The Name of the Game."  At one point, I found myself watching Lyonne, who essentially has Peter Falk's voice and was wearing David Starsky's sweater.

    I recognize that for the vast majority of the MNB audience, none of the references of the past several sentences make any sense at all … but "Poker Face" is escapist fun, well written and acted, and a perfect antidote to winter's gloom.

    That's it for this week.  Have a great weekend, and I'll see you Monday.