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From The MNB Archives
Friday, January 06, 2017
by Kevin Coupe
A couple of stories caught my attention this week as a couple of companies seemed to acting in a counter-intuitive fashion ... growing in segments that many people thought were dying, albeit for different reasons.
The New York Times reported that "the United Record Pressing plant, a mainstay of vinyl production since 1949, would be expanding its operations to a new 142,000-square-foot facility in South Nashville ... United said that the new facility, estimated to be the size of 'two football fields,' would double the plant’s production capacity, and that the expansion would help the country’s largest vinyl manufacturer keep pace with strong market demand."
Which is sort of remarkable, since vinyl has seemed to be on the way out for a long time, replaced by tapes and then by CDs and then again by streaming. I'm not an audiophile, but I am persuaded by people who are that the reason vinyl has survived - and now is growing - simply is because it offers better sound.
In other words, quality won out.
The other story was in Publishers Daily, which wrote that the Washington Post "plans to expand its newsroom by about 60 journalists in early 2017 -- a large number of hires at a time when many publishers are making staff cuts." These hires come after a year in which the Post increased its newsroom staffing by more than eight percent, to around 750 people.
In 2017, the story says, "the Post plans to add a 'rapid-response' investigative team and expand its video journalism, especially its mobile video production. Journalists will also be added to the Post’s breaking news team, and the publisher will invest in its podcasts, photography and mobile."
In this case, there are two reasons for the Post strategy. One is that subscriptions are up. But they're up at the Wall Street Journal, too, but the Journal is offering buyouts rather than hiring ... which points to the importance of the other reason.
Jeff Bezos. The Amazon founder and billionaire. Who bought the Post in 2013 and last year alone invested a reported $50 million in the company.
In this case, I think, quality and financial resources won out. (I'm sure some folks will quibble with the "quality" characterization. Not me, though. One of the best job interviews I ever had was at the Washington Post, which took place in its old and legendary newsroom, just a few doors down from where Ben Bradlee was at his desk. I didn't get the job, but I felt like I'd been to the Vatican and caught a glimpse of the Pope.)
It is good to know - and an Eye-Opener - that some companies and industries can successfully sail against prevailing winds. I think we're better for it, because for them to be successful, they have to be driving innovation.
The Wall Street Journal reports that US retailers could be facing an enormous impact on their earnings if the US Congress and Trump administration are successful in implementing what is being called a "border-adjusted tax proposal" designed to drive up the cost of imported products.
According to the story, "Among the companies whose earnings are calculated to take a hit under the so-called border-adjusted tax proposal are Wal-Mart Stores Inc., Costco Wholesale Corp. , Genuine Parts Co. and Dick’s Sporting Goods Inc., analysts said.
"The earnings hit to six big retailers could total nearly $13 billion, according to RBC Capital Markets analyst Scot Ciccarelli, with Best Buy Co. ’s annual earnings wiped out. To offset their higher tax bills, retailers would need to increase revenue by raising prices for consumers, he said."
The Journal writes that "the proposal would cut the corporate tax rate, let multinational firms repatriate foreign profits and allow companies to write off capital expenses immediately. At the same time, the 'border-adjusted' portion of the proposal would impose taxes on imported goods by making imports a nondeductible expense, and exempt exports.
"Authors of the Republican tax plan crafted it to spark economic growth and reduce the incentives for U.S. companies to shift jobs, profits and headquarters out of the country."
Analyst Ciccarelli estimates that Walmart's annual tax from $6.6 billion to $16 billion, Costco's from $1.2 billion to $3.2 billion, and Best Buy's from $600 million to $3.8 billion. These are just estimates, the story notes, because retailers generally don't break out what percentage of the their revenues come from imported products.
And, to be sure, there would be compensations - such as the GOP's proposal to lower the corporate tax rate from 35 percent to 20 percent.
The Journal writes that the border-adjusted tax proposal could bring the federal government as much as $1 trillion in new taxes.
I've long argued that in this country we don't really know what things actually cost, which makes it harder to assign value to things. This may be about to change, and things that we've gotten used to spending not-too-much money on may end up getting a lot more expensive.
It remains to be seen whether this will create economic growth or recession, and whether the new taxes will be compensated for by increased sales. But it sounds like we're going to find out ... and retailers that sell imported products have to go to school on how these policies are going to affect them.
Sears Holdings said yesterday that it will sell the Craftsman brand to Stanley Black & Decker for $900 million, and will close 150 additional stores as it looks for any solution to mounting problems that include slumping sales, increased losses, and what appears to be growing irrelevance.
The Wall Street Journal this morning reports that Sears "has suffered through several weak quarters and warned Thursday that same-store sales fell as much as 13% in November and December. Over the past five years it has booked $8.2 billion in cumulative losses.
"The moves by Sears Holdings this week coupled with the injection of $1 billion in financing from its controlling shareholder and chief executive, Edward Lampert, helped shares climb off recent lows and reassured suppliers, who had grown increasingly uneasy over the retailer’s prospects."
The stores that will be closed include 108 Kmarts and 42 Sears units; since the company was bought out of bankruptcy by hedge fund manager Lampert, the Journal writes, it "has closed, sold or spun off more than 2,000 stores."
"Uneasy over the retailer's prospects?"
You gotta be kidding. Anybody who has been paying attention has to be outright alarmed by this week's events ... even if not surprised.
The thing is, it looks from here like the moves being made by Sears are designed to provide a blood transfusion without doing anything to actually stop the bleeding. It doesn't seem like the company is doing anything to make it more competitive and compelling in an increasingly uncertain marketplace; if the likes of Macy's and Kohl's are having trouble, what hope does Sears have? (I have to wonder what impact the GOP-proposed border-adjusted tax would have on Sears.)
The Journal writes that "Sears will receive $525 million when the (Craftsman) deal closes, $250 million after three years, plus annual payments over 15 years." Is there anyone out there who would be willing to bet that Sears will be around in three years, much less 15?
Dead company crawling. (And BTW...this isn't Amazon's fault.)
Walmart said yesterday that it is buying ShoeBuy, an online footwear retailer that competes with Amazon-owned Zappos, for $70 million.
Recode writes that the move is "aimed at helping its subsidiary Jet.com offer shoppers a larger selection of shoes and sneakers ... The ShoeBuy purchase follows the same acquisition strategy Jet employed when it paid a reported $90 million to buy the online home furnishings retailer Hayneedle to help boost its assortment in that area."
According to the Recode story, "Jet co-founder Marc Lore said ShoeBuy’s online catalogue of more than one million items from 800 footwear and clothing brands will speed up Jet.com’s penetration of those categories by several years. In 2015, clothing and accessories became the largest online retail category for the first time, and Walmart and Jet rival Amazon is leading the way."
This is a really interesting story, and not just because it means that Walmart and Jet are going to be more effective selling shoes. I think it also may mean that Walmart is going to get a lot more aggressive about acquisitions on a lot of fronts, which could make it more effective competing with Amazon and everybody else.
The Washington Post reports that Adobe yesterday said that "retailers pulled down some $91.7 billion in digital sales" during the just-ended holiday shopping season. "That haul represents an 11 percent increase over last year and surpassed Adobe’s earlier projections for the season by $115 million ... The strong growth in online spending reflects a long-term shift in which shoppers are choosing the convenience of swiping, tapping and clicking over a trip to the mall. Indeed, in-store analytics tracker RetailNext reported Thursday that mall traffic sank 12.3 percent in November and December, while sales dropped 9.9 percent."
From MorningNewsBeat, September 15, 2016:
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Winston-Salem, NC -- ProLogic Retail Services, the largest provider of loyalty marketing solutions to independent grocers, announced the extension of its contract with Lowes Foods, which operates close to100 full-service supermarkets in North Carolina, South Carolina and Virginia.
Through the Fresh Rewards program, ProLogic enables Lowes Foods to segment its shoppers, identifying its top shoppers and understanding their purchase patterns. With this information, ProLogic enables Lowes Foods to run targeted promotions that are specifically tailored to individual shoppers or groups of shoppers. These targeted promotions help Lowes Foods to retain its best shoppers and expand their purchases throughout the store.
"We are very pleased to extend our longtime partnership with ProLogic," said Tim Lowe, President of Lowes Foods. "ProLogic delivers great value to Lowes Foods with a powerful, flexible loyalty marketing platform that enables us to create and execute intelligent promotions. The Fresh Rewards program is a cornerstone of our relationship with our guests and has proven highly effective in helping us retain our top shoppers and increase their purchases."
For more information, click here. Or contact Lance Recker at email@example.com or at 561-454-7646.
The Associated Press reports this morning that the US Postal Service (USPS) is ending its relationship with Staples and no longer will offer mail services at 500 stores operated by the office supply chain.
According to the story, the USPS "was ordered by a National Labor Relations Board administrative law judge to discontinue its retail relationship with Staples and that it plans to comply. Staples confirmed that its partnership with USPS would be ending, saying in a statement that its customers would still have access to shipping services through its relationship with UPS."
The arrangement had been opposed by the American Postal Workers Union, which said that the deal "replaced union jobs with low-wage, nonunion workers."
Put this in the column of good ideas that got waylaid by unions. The USPS deal may have hurt some union jobs, but it seems to me that it also made the USPS more accessible, which it needs to compete with the likes of FedEx and UPS. If it were up to me, I'd be working on ways of putting postal stations in as many retail outlets as feasible, and closing as many traditional post offices as possible. The old business model just doesn't work, and the USPS has been late in figuring this out. The postal workers, apparently, are coming to the realization even later.
• Add two more locations to the list of places where Amazon plans to open Amazon Books stores - Paramus, New Jersey, and Lynnfield, Massachusetts.
Earlier this week, Amazon said that it plans to open an Amazon Books store in the Time Warner Center on Columbus Circle in Manhattan. Other locations that have or are slated to have Amazon Books include Seattle, San Diego, Portland (Oregon), Chicago, Brooklyn, and Dedham, Massachusetts.
...with brief, occasional, italicized and sometimes gratuitous commentary…
• Bloomberg reports that "Google is rolling out a real world application for its most ambitious virtual reality effort: letting shoppers see what they might buy without leaving home." The company this week "introduced two new retail partnerships, with BMW and Gap Inc., deploying its 3D-scanning project called Tango. The technology uses cameras and sensors in mobile devices to overlay digital images in physical space -- akin to the hit mobile game Pokemon Go."
The story makes clear that it is early days for this technology ... but experience would suggest that these kinds of developments evolve faster than anyone expects, and suddenly become mainstream, leaving people wondering how they lived without them.
• The Chicago Tribune reports that Coca-Cola is being sued by nonprofit activist group the Praxis Project, which compares "the beverage giant's advertising tactics to the tobacco industry's past efforts in minimizing the health effects of its products and targeting children to replenish the ranks of its customers."
The suit, according to the Post, "seeks to stop Coke and the Washington-based American Beverage Association from deceptive advertising of sugary drinks, particularly to children, and for the disclosure of documents related to their impact on health."
Coke and the American Beverage Association have not commented on the suit.
• The Pittsburgh Post-Gazette reports that "Giant Eagle plans to close five supermarkets and four GetGo locations in Ohio, Maryland and in Altoona ... All of these locations will close between Feb. 4 and March 4."
MNB reader Steve Ritchey had some thoughts about the story looking at the dwindling group of people who, for a variety of reasons, resist the lures of Amazon:
I'm in that age group being 58 now, and I do use Amazon fairly regularly, however, I'm not entirely comfortable. Not due to safety concerns or product quality. I've seen too many reports about mistreatment of employees, particularly those employees who pick and package our orders. I don't like supporting employers who don't respect their employees, I've been down that road a few times as the used and disrespected employee. So, while I still use Amazon, I also look at other online retailers that I'm more comfortable supporting.
We had a story yesterday about an internet-connected hairbrush, which prompted one MNB user to write:
Extend this technology to a toothbrush and imagine the possibilities.
That's a really good point.
And from another reader:
Boy, Marcia Brady could have used this; or better yet, Kerastase could have used Marcia Brady to product place this one...missed each other by 40+ years.
Extra credit for the semi-obscure cultural reference...
Nice to get the following email from MNB reader Mark Boyer:
Great piece on Shake Shack. Not even sure where to begin, since it touched on so many pieces of learning, so let’s just leave it at “well done.”
I love emails like this one, from MNB reader Howard Schneider:
Changing times, changing business models...
Here in Portland, Ore., a former Radio Shack has become a marijuana store.
Regarding the auto repair store designed to appeal to women by offering spa services as well as oil changes, MNB reader Philip Herr wrote:
Love this idea. My wife hates the condescension at auto dealers/repair shops. So I am the designated driver when service is necessary. Interestingly, we purchased a Saab for her several years ago based on the respect afforded by the salesperson at Saab of Westport. The decision wasn’t entirely based on how she was treated, but it was the factor that closed the deal for her.
From MNB reader Stacy McCoy:
This. Is. Amazing.
If the auto and spa services were great, I would completely support a business like this in my town. But, like anything, they would need to have great quality, reliable services for all of their offerings. I wouldn’t even think twice about the costs, because I would be saving Time. And my time is worth a lot of money to me.
Regarding the closing of stores by Macy's, one MNB user wrote:
The Evil Amazon strikes again! Does Macy’s and Sears/Kmart, and most likely Kohl’s and others have a part in their becoming less relevant? Of course they do, and a major part, but Amazon is certainly a contributor. Not to mention the loss of working class jobs effected by lost foot traffic at the malls and strip malls all across the country. The irony of it is, it is the packages delivered by Amazon drivers (more jobs Amazon is planning to destroy) that are stolen from front doors by (some) people who have lost their jobs because of Amazon.
I just think this is so much nonsense. Amazon isn't evil, and these competing retailers aren't hurting because of Amazon ... it is just that Amazon has seen the future and is acting on that vision, and they haven't.
People and companies have to adapt to the future, because the future is not going to adapt to them.
From MNB reader Woody Weddington, on the same general subject:
For the consumer it is more about the shopping experience. Going into a big box store searching and searching and searching for product (normally without assistance from the retail associates). Then waiting waiting and waiting in line to get checked out. Consumer see their time as a valuable asset and are not willing to spend it in a big box store. My opinion is retail has to create a great shopping experience in order to survive. I personally like to touch and feel the item I am about to buy but am will to forgo that and turn to online due to poor experiences in the retail bricks and mortar stores.
We had a story the other day about companies that are addressing diversity issues in their advertising and marketing, which prompted one MNB reader to write:
I believe in everyone's freedom to choose to worship whomever they wish. As a veteran, I served to protect that freedom. However, I do not like it when people try to convert me to their religion, and imply that whatever I might believe in is wrong. Muslims not only believe that anyone who is not Muslim is an infidel; they also believe that if infidels don't convert they should be eliminated.With that in mind, I can't grasp the thought of respecting any religion, or allowing anyone who believes in that religion, to live where I live. I appreciate those that are concerned, and share their concern.
I think it might be more accurate to say that some Muslims believe that anyone who does not convert to Islam should be eliminated. (The ones who feel this way are pretty vocal about it.)
To be honest, I've been strong-armed more by people who are Jehovah's Witnesses than by Muslims. And if I'm not mistaken, there are least some Catholics who believe that unless one is baptized into their faith, one cannot enter the kingdom of heaven.
I just think a bit of context is needed. Pretty much every religion believes that what everybody else believes is wrong. On this point, I agree with you - I don't like it, either.
Yesterday, in an email regarding my comment about the story concerning a 37-year-old Spokane man who was banned from a Starbucks there after he hit on a 16-year-old barista, and then complained about ageism and said that he believes in "age gap love" - I said he was a creep and that if he'd hit on my 16-year-old daughter, I would use my baseball bat to persuade him to focus his attentions elsewhere - one MNB user suggested I was being hyperbolic:
Unless you’re using inflammatory language to intentionally get “fan mail” you’re starting to sound like Trump.
One MNB reader thought this was a good thing:
“…starting to sound like Trump.” I knew I sensed subtle improvement in your writing.
But MNB reader Brian Blank had a different reaction:
No, you’re starting to sound like the father/husband/boyfriend of the many women that Trump has sexually victimized over the years. Trump IS the creep. I mean, anyone who would tell an interviewer that he would sleep with his own daughter…WAY beyond the guy trying to pick up a 16 y/o barista.
Sounds like the MNB readership is just like the country. Divided.
But fear not. I may not be able to bring us together, but I'm at least going to shoot for civil discourse.
That said ... I don't completely understand the following two emails, but thought I ought to post them anyway.
One seemed to want to bring politics into the discussion of Macy's issues:
You'd think Macy's would be able to stay in business by selling more tissues, security blankets and prefabricated safe zones. Or better yet, how about those giant form hands with the pointer finger extended so people can use them to deflect the blame away from the poor decisions of their losing political party and candidate. She did after all win the "popular vote" so there should be ample opportunities to make money especially when we consider all the crying that they have been doing for the last two months. Please keep posting these articles Kevin, as it provides a nice break from you usual Amazon Pravda articles that you always write.
Another reader wanted to comment on my response to the person who accused me of being hyperbolic in my baseball bat comment as a way of generating fan mail:
First of all, I don't have to use inflammatory language to generate email. I get hundreds of emails from readers every week. (Though, to be fair, I wouldn't characterize all of it as "fan" mail. A percentage of it could be described as "you're an idiot" mail.)
Maybe it's the content of the blog that could be garnering all of these negative emails. You know, all those articles that always seem to stray away from the retail business and your usual Amazon articles. I guess you could say it's the fault of the blogger.....now that's what I call a real Eye-Opener!
First of all, I didn't say I was getting a lot of negative emails. (I actually get a lot more positive reinforcement than any single human being has any right to expect.) I'm glad people write in when they disagree with me, because it creates discussion and makes me think about my positions. Sometimes I even change my mind.
I do, however, resist the characterization of some stories as being not business-related. I like to think that the vast majority of stories that appear on MNB are related to business and retailing ... not always in obvious ways, I concede, but usually in ways that I think are important. I firmly believe that businesses are only going to be successful if they are aware of and adapt to the technological, political, demographic and cultural changes taking place around them, and it is stories about such things that I think best serve the MNB readership. They're more interesting, I think they're more fun to read, and, frankly, they're more fun to write.
Is every story featured on MNB interesting to every reader every day? Of course not. Like every writer and editor, I make choices daily. They reflect my sense of what I think the MNB readership ought to know, as well as what interests me.
You're right. When MNB fails, it is entirely and completely my fault.
I'm totally okay with that.
I had lots of plans for my holiday vacation, many of which were disrupted by getting sick. I ended up spending all of Christmas Eve and Christmas Day in bed, and didn't feel like myself until right before New Year's Eve. Add to that the fact that I had to move out of my office after almost 18 years, which was great because I'm actually now in a nicer building in a bigger office that is a lot closer to my house. (This is, to be honest, relative. My old office was a 10 minute walk from my house. The new one is a five minute walk. Life is good.) The downside was that I had 18 years worth of crap to clean out, which was fulfilling in some ways, though it fills me with foreboding when I think about cleaning out my basement, which as more than 30 years worth of crap. (Maybe I just need to move more.)
The result of all this was that I only got to see one movie over the holidays, which was sort of a disappointment - except that it was a very, very good one.
Lion is a wonderfully satisfying piece of moviemaking, based on a true story, about an impoverished five year old boy in India who gets separated from his family and finds himself thousands of miles from home. Young Saroo doesn't know his mother's name (she just "mom"), he doesn't know the actual name of his town, and he is totally lost and alone.
Eventually he is adopted by an Australian couple, and is raised in a supportive, loving household ... but in his twenties, Saroo is plagued by memories of his childhood and guilt over the grief his Indian family must've felt. And so, he decides to figure out who and where he is from, starting with the use of Google Earth.
Dev Patel is terrific as the older Saroo, and Sunny Pawar is astonishing as the five year old version; Nicole Kidman is extremely good as his adoptive mother.
Lion is a tearjerker without being manipulative, and it is well-served by appearing to respect the events on which it is based. I heartily recommend it.
While I didn't get to a lot of movies, being sick in bed meant that I watched a lot more Netflix than probably was healthy...
I finally watched the fifth season of "Longmire," which has been available for streaming on Netflix, and found it to be every bit as good - and even more complex - than the seasons that preceded it. "Longmire" is a modern western in which the title character is the sheriff of fictional Absaroka County, Wyoming; Robert Taylor plays the role as a bear of a man facing the fact that justice and the law are not always the same thing.
Based on novels written by Craig Johnson, "Longmire" portrays a west in which mean streets pose as open roads, and where a variety of people, good and bad, are angling for influence and power over the future. Well cast and beautifully shot (ironically, in New Mexico), "Longmire" continues to be intriguing, involving television.
I also finally caught up with "Luke Cage," the Netflix series based on a series of Marvel comics about an African-American man who has enormous strength and unbreakable skin; he'd like to fly under the radar, but finds himself compelled to help residents of Harlem who are being victimized by a pair of criminals (played with verve by Mahershala Ali and Alfre Woodard).
Mike Colter is terrific as Cage, physically imposing but emotionally vulnerable, and he makes the series, which in many ways is far more earthbound than most Marvel projects, absolutely worth watching. The entire supporting cast is excellent, and "Luke Cage" gives us a superhero who is relevant and relatable - no small achievement.
I also had the chance to read an excellent book over the holidays - "One More Thing, Stories and other Stories," by BJ Novak, who is best known for writing and acting in the US version of "The Office."
"One More Thing" is a delightful read - a series of short stories (*some of them extremely short, some a little longer) about a wide variety of subjects and unique characters. They are often very funny, sometimes ironic or touching, but always getting at some essential truth. It was a wonderful book with which to end the year, and I found myself wishing it would go on a lot longer.
Read it. Thank me later.
I have a wine to recommend to you this week - the 2015 Gen Del Alma Ji Ji Ji, which is an improbable blend of Malbec and Pinot Noir from Argentina. It doesn't sound like it should work, but it totally does - it is simultaneously rich and spicy, and I loved it.
That's it for this week. Have a great weekend, and I'll see you Monday.
"GOOD IS NOT GOOD WHEN BETTER IS EXPECTED"
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