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Thursday, January 19, 2017

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FaceTime with the Content Guy: Metered Out


This commentary is available as both text and video; enjoy both or either ... they are similar, but not exactly the same. To see past FaceTime commentaries, go to the MNB Channel on YouTube.

Hi, Kevin Coupe here and this is FaceTime with the Content Guy.

We spend a fair amount of time here on MNB identifying things and processes and business models that used to be relevant, and suddenly have become outmoded, irrelevant or just obsolete.

It is sort of fun. But there's also no real challenge in pointing out that buggy whips are no longer used, that fax machines are way less useful than they were just a few years ago, or that the print media need to figure out ways to resonate with a population more and more focused on digital.

I was thinking about this the other day when I came up with something that I don't think is out of fashion yet ... but soon will be. Or should be.

Parking meters.

Here's my logic on this.

Think for a minute about how many online retailers over the years have moved to free shipping because bigger competitors like Amazon and Zappos did. Spending money on shipping, when it is so easy not to someplace else, simply doesn't make a lot of sense.

Now, think about parking meters, like this one, or that one can find on main streets or shopping malls all over the country. This happens to be a perfect day to make this point; the weather is cold and lousy, but not only do the stores in this town want me to come out in it to do my shopping, but they want me to pay to park.

The alternative would be to stay home where it is warm and dry and go online and shop at many of the stores that have invested in physical real estate within a block of here - stores like J. Crew or CVS or New Balance or Jos. A Bank. Oh, wait...Jos A. Bank just closed its store here recently, presumably because the economics just didn't work anymore. Think that has anything to do with shopper traffic?

The last thing that Main Street stores need is an impediment or inconvenience to shoppers. Parking meters are, in fact, both. Imagine going to a Main Street store, spending a ton of money, and then getting a ticket because you spent a little more time shopping than you planned.

There may have been a time when it made sense to charge for the privilege of shopping on Main Street or in a mall, but no longer - not when there are options that allow me to avoid Main Street.

Now, I'm sure there will be lots of communities and mall managers who would say that they can't get rid of the meters because of the revenue they produce. Which is the kind of short-term thinking that'll kill you in this competitive climate. The meters might produce revenue now, but if people stop coming downtown and stores close, they're going to lose a lot more revenue than just the meter money.

Now, there probably will be some places where the stores are so differentiated and compelling that they'll still be able to charge for parking. Like Rodeo Drive in Beverly Hills. But I think for the vast majority of places, these things are going to go the way of the buggy whip.

That's what is on my mind this Thursday morning. As always, I want to hear what is on your mind.

Thursday Morning Eye-Opener: Not So Gently Down The Stream

by Kevin Coupe

Netflix yesterday released subscriber numbers that seem to illustrate that - even as it faces ever-tougher competition from the likes of Amazon and Hulu, and expectations that Apple will get even more aggressive in the production of original programming - it continues to grow its streaming business, which was launched just 10 years ago.

According to the New York Times:

"Netflix added a record 7.05 million streaming members in the three months that ended Dec. 31, up from the 5.59 million net additions in the same period of 2015. That growth, in domestic and international markets, beat its forecast of 5.2 million new members for the quarter. Netflix now has a total of 93.8 million members."

"Fueling the increase in subscribers was a rapid rise in Netflix memberships abroad. The company said it is learning 'how best to match content with audiences tastes around the world.' It added 5.1 million international members in the quarter, and now has 44.4 million members outside the United States, more than than 47 percent of its total membership."

"Netflix cited its original series 'Marvel’s Luke Cage' and 'The Crown' as worldwide hits. It said it planned to invest more than $6 billion in content this year, up from $5 billion in 2016."

"Profits are rising steadily. Net income increased 56 percent to $67 million in the quarter from the same period in 2015. The company projected that profits would reach $165 million in the current quarter, up from $28 million in the period a year ago."

But the way in which this disruptive business model has had an impact on the culture and consumer behavior was perhaps best summed up by Jerry Seinfeld, who this week announced that he was moving his "Comedians In Cars Getting Coffee" series from the Crackle streaming service to Netflix, and also will do a couple of stand-up specials for the service.

"When I first started thinking about ‘Comedians in Cars Getting Coffee,’ the entire Netflix business model consisted of mailing out DVDs in envelopes,” he said, adding that it now is "the most amazing technology platform to deliver (comedy) in a way that has never existed before. I am really quite charged up to be moving there.”

And 10 years ago, this technology hardly was a blip on the radar.

It is an Eye-Opener.

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From MyWebGrocer...


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Daymon Acquired By Bain Capital & Chinese Food Retailer For $413 Million

Daymon Worldwide, the retail services and private label company, has been acquired by Bain Capital Private Equity and Chinese supermarket chain Yonghui Superstores for $413 million.

Bain will get a 60 percent stake in Daymon, while Yonghui will get 40 percent.

According to the announcement "Bain Capital Private Equity’s proven operational expertise and globally integrated platform will support the acceleration of Daymon’s global ambitions, enabling it to access increasing demand in Asia’s high growth markets. The firm also brings significant resources which present the company with opportunities to explore strategic acquisitions and accelerated organic growth."

The Reuters story notes that "the global retail market is expected to reach $28 trillion by 2019 at an average annual growth rate of 3.8 percent, while Asia's retail sales are expected to exceed $10 trillion by 2018."

KC's View: It has been a long run since July 1970, when Peter Damon Schwartz and Milt Sender created Daymon. I got to know Milt a little bit over the years, and always thought of him as being a disruptor, even before that word became commonplace in business settings.

I hope that this is a good move for the people who work at Daymon. I know there have been some layoffs, and there are some folks there who have suggested to me that it was a company struggling to find new relevance in a changed business climate.

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From ReposiTrak...


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Target Suffers Through Tough Holiday Season

The Minneapolis/St. Paul Business Journal reports that Target Corp. has acknowledged "disappointing customer traffic in stores during the crucial holiday shopping season."

According to the story, Target now projects that Q4 same-store sales will be down between one and 1.5 percent.

While toy sales were said to be strong, advances were offset by lower-than-expected sales in electronics and groceries, the latter of which continues to be a tough slog for the retailer.

"Target has continued to build its e-commerce business — digital sales were up 30 percent in the fourth quarter — but some critics say that's not an altogether good thing," the Journal writes, because "stronger online sales may be cannibalizing its in-store business."

KC's View: While it is entirely possible that online sales may be hitting Target's physical stores' performance, I think that one thing companies - and stock analysts - need to do is understand that the two cannot be thought of as being in different silos. They have to be considered as being part of one portfolio, one brand ... it may be hard to find a balance if you have a legacy company, but increasingly, that's how you have to see the world. (By the way ... that's exactly the direction in which Walmart seems to be heading ... which ought to be a cautionary note to Target.)

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From WAFC...


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USDA Implements New Organic Animal Welfare Standards

The Wall Street Journal reports that the US Department of Agriculture (USDA) today is issuing "more stringent animal-welfare standards for farmers who market their meat and eggs as organic. Under the new rules, farmers will have to provide a minimum amount of space to chickens raised for organic eggs and meat. Cattle, pigs and poultry will need to be allowed outdoors each day to feed."

Most of the new regulations take effect in March 2018, while poultry and egg producers have until 2020 to comply.

The USDA estimates that "it will cost organic farmers up to up to $31 million to comply with the new laws," according to the Journal story.

The story also notes that, as usual, advocates for humane farming methods are in favor of the new regulations, while some farming organizations say they will be too expensive.

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From the National Grocers Association...


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Smart Shelves Create More Dynamic Physical Selling Platform

Media Post has a good story about a company called Powershelf that was exhibiting at the National Retail Federation (NRF) Big Show, offering "smart shelves" (in partnership with Hitachi).

These smart shelves, "essentially an entirely networked device, provide for electronic price tags placed in front of the items just behind it on the shelf, much like printed price tags typically found in most stores. The key is the connectivity.

"When an item is lifted off the shelf, it automatically triggers the inventory system to notify it that an item is at least being considered. When a shelf is empty, the system triggers a restocking alert to store personnel ... If inventory of a product is high, a specific inventory-based offer could occur in real time, such as when a shopper picks up an item, the pricing message could offer ‘two for the price of one.’

"Pricing is dynamic and can be based on inventory, essentially more effectively matching supply and demand."

KC's View: The story also notes that these smart shelves can interact with customers' smart phones - not just telling stores when merchandise is moving or not moving, but create incentives and promotions that can generate movement.

One reads about these shelves, and one cannot help but think about Amazon Go, where some version of smart shelves and other technologies are being combined to create a shopping experience without a checkout line.

This all seems radical now, but it may well be that five years from now it'll seem as natural as shopping carts or scanners.

Whole Foods Closes Three Food Prep Facilities

The Boston Business Journal reports that "Whole Foods Market Inc. is permanently closing its North Atlantic food-preparation facility in Everett effective March 17, a move that will affect 170 workers ... Whole Foods is also closing regional kitchen facilities in Atlanta and Landover, Maryland ... The grocery chain will rely on outside suppliers for its in-store prepared foods."

The Business Journal notes that "Whole Foods received a June warning letter from the U.S. Food and Drug Administration, which notified company leadership of several serious food-safety violations. Those violations included the presence of listeria and workers preparing ready-to-eat food under a leaking condensate pipe, among others." However, it said that the decision to close the facilities was an internal decision, and not affected by any third parties or regulatory agencies.

KC's View: This may work for Whole Foods operationally, but they've cerated the image of a company that is totally hands-on when it comes to this stuff, not one that outsources prepared foods to outside suppliers. I have to wonder if there is an internal debate at Whole Foods about what corners can be cut and what values are core - and what values can be compromised a little bit in search of greater efficiency.

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From Samuel J. Associates...Better To Light A Candle Than Curse The Darkness...


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E-conomy Beat

selling its products through the new medium, if a new job offer is any indication. The company is currently looking for a 'Creative Director, Virtual Reality' whose tasks include to 'envision the future of Amazon’s VR solutions and guide our creative and technical teams to produce compelling, world-class experiences'."

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Industry Drumbeat

Energize your Digital Circular

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FastNewsBeat

• The Austin Business Journal reports that H-E-B CEO Charles Butt "is making a $100 million investment in the future of Texas education. His donation will help create The Holdsworth Center in Austin as a training academy for public school administrators, to support current principals and superintendents as well as groom the next generation of education leaders."

According to the story, "The Holdsworth Center’s first classes will begin in June. Sixteen school districts have been invited to apply, including Austin ISD and Round Rock ISD, and six will be chosen in March. In the future, the application process will open to all districts. A commitment to human capital and talent development and a strong alignment of vision among top administrators are among the qualities desired by Holdsworth executives."


• McDonald's has announced two new limited edition menu items in the Big Mac family - a Mac Jr., which does not have the middle bun and only has one beef patty, and the Grand Mac, which is described as being an enormous version of the Big Mac with 860 calories (the original has 540 calories).

Bloomberg writes that McDonald's is offering the new versions in an attempt to revitalize the 50-year old Big Mac. "Last year an internal company memo revealed that only 20 percent of millennials had even tried a Big Mac," which is when "McDonald’s decided it was time for a makeover."

Executive Suite


• The Minneapolis/St. Paul Business Journal reports that Supervalu has hired Anne Dament, who used to be Target's senior vice president of grocery, to be its new senior vice president of retail, responsible for the company's retail banners, including Cub Foods.

CEO Mark Gross said in a prepared statement, "As we focus on improving our retail store performance, Anne's experience across varied retail and merchandising disciplines should prove extremely beneficial." The story notes that "sales have lagged at Supervalu's retail businesses, and company executives have worked on new pricing strategies in an effort to battle growing competition."

Dament left Target last November after just a year-and-a-half on the job and less than stellar reviews of her efforts there. Before that she held executive jobs at PetSmart and Safeway.

KC's View: While Dament was unable to get Target out of the mushy middle that it was desperately trying to escape, it may not have been her fault - they've continued to have problems since her departure, and she may not have gotten needed support to make the necessary changes.

But Supervalu should keep all this in mind moving forward. You can't half-commit to being more effective and efficient. And effectiveness has to come first.

Your Views: Models That Work & Models That Don't

Got the following email from an MNB reader who wanted to take issue with another reader who expressed some skepticism about the broad import of Walmart's announcement that it will be hiring 10,000 employees:

It seems that adding 10,000 jobs in this economy ought to be a good thing.  For many of those people, the alternative maybe be to remain unemployed or work for someone else.

An entry level job at Walmart may be one additional paycheck for a household, which gives them just that much more to help out.  It might be the first job for a teenager, and perfect for their age and experience.   Most of the 10,000 will also have a good chance of working their way up to better pay and benefits. 10,000 people without a job is a drain on their families and the economy.  In many cases the benefits of unemployment and other government programs will be paid for by the taxes charged to those who do have jobs. New jobs will result in additional purchases, which helps many others.

Adding low paying jobs doesn't instantly solve income equality. That's a different conversation, with many other factors such as how to equip the workforce for the new economy, how to create more business investment that results in better paying jobs...

In all, I'd say adding these jobs is much better than the alternative!




Some interesting emails about Sears, which stands accused of running an analog/catalog business in a digital world.

One MNB reader wrote:

Somehow the irony that Sears once disrupted retail during my grandparents generation with their catalog yet missed converting that to a modern era looms very large every time I think of this iconic retailer going out of business. I can only surmise that nobody listened to the new person that suggested killing the catalogue to use the internet. Or perhaps, that person was not present at all which is a great case study for expanding our circles and including dissenting views!

From another reader:

Speaking as an individual consumer, Sears lost me before there were computers, never mind internet ordering services or mobile phones. Sears became irrelevant because it was, in my personal experience, an incompetent and uncaring retailer often enough that it wasn’t worth the trouble to deal with them.

I used to buy a lot from them – literally thousands a year, when I lived in a small town in Maine and managed to acquire a number of older multi-family properties, where maintaining them was essentially my second job. Tools, water heaters, paint and wallpaper, plumbing and electrical parts, lawn and garden equipment, as well as clothes and children’s furniture and who knows what else.

And they gradually lost me because they couldn’t keep parts in stock, because they sold too many defective items and didn’t make it good, because they stopped carrying things of quality in preference for things that were cheap, not merely inexpensive,  because they didn’t care and it showed.

We are talking decades in the past here. But the few times I gave them another chance, as recently as 4 or 5 years ago, when I dropped in on a whim to get a filter for my ancient Sears shop vac, it was the same story. The vacuum still works. But Sears doesn’t.
 
The internet is a convenient whipping boy, but it is not even remotely the reason Sears is in trouble. They stopped being good at what retailers need to do. They lost the shoppers they could have retained, they practically chased them away. That ain’t Amazon, Kevin. That’s Retail 101come back to bite them.


MNB reader Bob Vereen wrote:

Sears has had two big problems—its stores were located in big malls, and they are losing traffic.  The second problem has been its owner.

And from another reader:

Imagine how incredible it is.  We can sit down at our own leisure, thumb through the hundreds of pictures, and pick what we want to buy:  clothing for every member of the family, hats of all shapes and sizes, furniture to fill our rooms, tools for work and hobbies, sewing machines, thermometers, cameras, appliances, and trunks to put it all in.  All you have to do is place your order and wait for the shipment to arrive.

Amazon?  Nope.  It’s the 1897 Sears Roebuck & Co. catalogue.  I find it fascinating that Amazon is now doing what Sears was doing over a century ago.  The details and the technology are different, but the overall aim is the same – to be the go-to retailer for everyone.  I think it’s sad that Sears wasn’t able to maintain the forward thinking it started with.





Got the following email from MNB reader Chuck Burns:

My wife's big complaint about going into brick and mortar stores is that IF she finds something she wants to buy it is hard to find a clerk so she can pay for the item. She may go past three or four unmanned checkout stations before she finds one manned; and there will always be a line. Many times she has just set the purchase down and left the store in frustration. Management invests in stores, inventory and advertising and then run short staffed, to save money, and make it hard to complete the purchase.

Other than food items I would say that 80% of all of our purchases are from Amazon.





And on another subject, from another reader:

I read your article about how lacking Staples is in the customer service department.. I had an equally painful experience at my local Staples. First I bought a new printer on Staples website since I had gotten a very good deal on it using a coupon code. It delivered very quickly to my house. Then, long story short, the printer seemed to malfunction so I had to return it. It turns out that they didn't carry this particular printer in the stores so they couldn't exchange it and they also were now out of stock online. So I just wanted to return it. They had to call a manager up to the front to return an online item.. After arriving up front and finding out what was happening the manager immediately gave a very long and loud sigh.. He said that I can't return an online item to a store. He said they are separating online from in store. This was very inconvenient. They wouldn't even ship it back for me.. I had to go home, call a very terrible phone system to finally be able to return the printer.. What's the point of having stores if you don't utilize them to make the process easy for all customers. I learned my lesson, just use Amazon.




The other day I wrote that Amazon is either the Death Star or the Rebel Alliance, depending on your point of view.

MNB reader Mark Baum wrote:

Death Star or Rebel Alliance.  HMMMM – I like it!

And MNB reader Karen Alley wrote:

Great metaphor about Amazon today!

Thanks. I'm sort of proud of that one ... and I'm going to make it a centerpiece of future speeches.




Finally, I got the following email from MNB reader Deb Faragher about Bosch - the books and the TV series:

I’ve also been a huge fan of Michael Connelly from the beginning.  Am not a member of Amazon Prime but since the series was introduced, I’ve been dying for them to release it on DVD.  They haven’t done it and, at this point, I’m guessing they won’t.  As you say often, “resistance is futile”.  I guess if I want to see it, they’ll have me!

It may seem inconvenient if you're not a member of Prime, but I have to admire Amazon's discipline in cases like these. They could go for some short term bucks by offering DVDs, but they know that the longer-term business model is better served by continuing to build the value of Prime.

If I were you, I'd just join. The $99 I spend each year on Prime are 99 of the best dollars that I spend in any given 12 months.

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Industry Drumbeat

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From The MNB Sports Desk

The Major League Baseball Hall of Fame yesterday announced the election of three new members - Jeff Bagwell, Tim Raines and Ivan Rodriguez.

The New York Times writes that "Bagwell, a slugging first baseman for the Houston Astros, was elected on his seventh attempt, while Raines, a star leadoff man for the Montreal Expos in the 1980s, was elected on his 10th. Rodriguez, who played mostly for the Texas Rangers and the Detroit Tigers, joined Johnny Bench as the only catchers to be elected on their first try."

They will be inducted into Cooperstown on July 30, along with former MLB Commissioner Bud Selig and former team executive John Schuerholz.

Barry Bonds and Roger Clemens, both implicated in the use of steroids during their careers, were not elected, though they did get a majority of votes for the first time. (Three-quarters of voters have to cast their ballots in favor of a player in order to get elected.) The Times writes that "the swift election of Rodriguez — who was named as a steroid user in a book by his former teammate Jose Canseco, who said he had injected Rodriguez and others – could help the momentum of Bonds and Clemens, who have both been strongly connected to performance-enhancing drug use."

PWS 28