business news in context, analysis with attitude

Published on: April 11, 2013

This commentary is available as both text and video; enjoy both or either. To see past FaceTime commentaries, go to the MNB Channel on YouTube.

Hi, I'm Kevin Coupe. This is FaceTime with the Content Guy.

I know I seem to be obsessing about this story a little bit, but this morning I'd like to once again talk about the case of Ron Johnson, the just deposed CEO of JC Penney, and come at it from a different angle.

At this point, the outlines of the story are familiar. Ron Johnson, celebrated for his role in creating the Apple Store, was hired by JC Penney to reinvent the iconic but troubled retail chain, and then was fired 17 months later because his efforts - especially going from a promotion/coupon pricing approach to EDLP - resulted in lower sales, massive losses and diminished traffic. They have replaced him with his predecessor, Myron E. Ullman III - demonstrating, in my not-so-humble opinion, some weird combination of desperation and lack of vision.

Fast Company is out with an interesting look at Johnson's tenure, essentially using his own words, uttered in an interview back in January 2012, to illustrate how and why things may have gone so badly off the rails.

Good piece....and you can read the whole thing here.

There's one particular passage in the interview that I think illustrates most clearly the problems that Johnson faced, and that a lot of retailers face. Here it is:

“My favorite three words in the English language are 'In the beginning' and that’s how I view this. This is like we’re a big $18 billion startup. And we’re going to act like a startup in how we make decisions.

“We can move as fast as we’re willing to and we’re going to win shop by shop, month by month. So every month there will be something new at Penny’s and there will be new shops coming in every month. And eventually we’ll have 100 shops and we’ll just keep moving.”

Well, as it happens, not so much.

But as Fast Company points out, and I would agree, JC Penney was not a startup. It was a big company with a long history, lots of existing problems, and both legacy and cultural issues that could not be turned off with a magic wand...even one made by Apple.

Funny enough, I was talking to my brother Tim about this the other day. He's worked for big and small technology companies, until he decided to leave all that behind, be a stay-at-home dad and then become a teacher. He was saying that in his experience, having c clean sheet of paper to start with is one of the most valuable things a company can have. But, a lot of companies convince themselves that they can have one, when they don't and can't.

Isn't that the problem, in a lot of ways, with the US Postal Service? They are little but a mass of legacy issues, and it is almost impossible to deal with those issues and create a post office that is positioned correctly for the 21st century.

To my mind, that is one of the big problems that Walmart will have in driving online sales. The company is genetically engineered to create antibodies that will fight any disease seen as a threat to its supercenter business. Inevitably, its online business will have an impact on its brick and mortar business .... those sales can't just come from the other guys ... and so Walmart at some point may resemble Steve Martin in All of Me, wrestling with the spirit of Lily Tomlin that has entered his body.

Amazon, at least now, seems to be the ultimate clean sheet culture. It encourages disruptions from within because disruptions from the outside inevitably come from heightened competition.

This is all very, very hard. I don't want to minimize it, not at all. Not impossible, but hugely difficult. JC Penney is only the most recent and most graphic example of how an internal cultural war can help tear a company apart.

But here's the reality. As we move deeper into the 21st century, change happens too fast ... consumer needs evolve too quickly ... and the next technology revolution may be just around the corner. The legacy that companies and company leaders need to to consider is how they adapted, and how that allowed them to survive and, hopefully, thrive.

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

Published on: April 11, 2013

by Michael Sansolo

“I’ve seen the future, and its name is Walgreens.” That line, written by Matthew Yglesias in the Washington Post last Sunday, really annoyed me, but for a really selfish reason. I wish I had written it first.

I can totally second Yglesias’ sentiments. The future of retail may well be on display in select cities where Walgreens has unleashed its new flagship stores - units that demand the attention of supermarket, drug, convenience, fast food, coffee bars and even make-up stores. These new stores are that good.

It’s hard to know where to start with this: the juice bar, the manicure station or the creative positioning of the pharmacist. All three are game changing statements that could demonstrate a new level of performance for smaller format stores, inner city locations and more.

The Washington, DC, store, located in the city’s Chinatown area, makes a different and powerful statement on each of its three floors.

The street level floor focuses on food and clearly targets an area that is crawling with tourists, office workers and some decent nighttime activities and local residents. Much of this main floor is all about the typical Walgreens selection of quick grab items for a mid-week fill-in shopping trip, although the signs, lights and fixtures throughout the store look anything but typical. Rather, everything looks hip, cool and urban.

But Walgreens goes further…much, much further than its typical store. While many Walgreens now feature some grab and go foods, the flagship takes it to a new level with ample displays of sandwiches, salads and sushi among other choices. Plus there is now a stronger presence for produce, dairy, wine, beer and other beverages, including the ever-interesting Coca-Cola Freestyle machines, Icee and frozen yogurt dispensers.

Walgreens enters new turf with a coffee/juice/smoothie bar all in a really jazzy design, featuring creative menus on flat screen televisions. This being Washington, drinks carry names like Life, Liberty and the Pursuit of Happiness (three completely different smoothies.) Or how about a juice named: Water-melon-gate.

Up the escalator we find a floor dedicated to cosmetics, using displays of nail polish to create eye-catching ribbons of colors. The ceiling features a rotunda-like mural of George Washington among others. One nook houses two manicure stations (women in the store told me this is perfect for workday appointments.) Most of all, the entire floor created comfort and a vibe that one young woman said is far more inviting than Sephora or other cosmetic chains.

The lowest level of the store, dedicated to health and beauty care, may have the most radical change of all despite this being the home of Walgreens’ most traditional products. The difference is in the services.

In the HBC area customers can find a health clinic with a comfortable waiting area and doctor’s hours that extend well past the usual workday—8 a.m. to 7:30 p.m. on weekdays and 9:30 a.m. to 5:30 p.m. on weekends. But most interesting to me was the repositioning of the pharmacist to a desk outside the pharmacy counter. As the pharmacist on duty told me, the goal is to have better trained technicians fill the prescriptions, leaving the pharmacist to consult with customers, oversee service and create an environment of health and wellness.

And the pharmacist said the next step is probably the addition of dietitians to the flagship stores to build the image and service around health and wellness.

Walgreens currently has a flagship store in New York City (in the Empire State Building of all places) and Washington. Chicago comes next. It’s impossible to believe this will stop there.

It’s worth a trip.

Michael Sansolo can be reached via email at msansolo@mnb.grocerywebsite.com . His book, “THE BIG PICTURE: Essential Business Lessons From The Movies,” co-authored with Kevin Coupe, is available by clicking here .

Published on: April 11, 2013

Bloomberg reports that Jerry Murray, the Walmart vice president of finance and logistics who wrote an internal email describing the retailer's February sales as a "total disaster," an email that subsequently was obtained and published by Bloomberg, has left the company after seven years there.

Walmart said Murray left on his own accord.

The retailer has been under fire recently because of numerous reports saying that it was not maintaining appropriate inventory levels in its stores, which was leading to declining sales, which then resulted in labor cutbacks, which led to fewer people on staff to stock shelves.

When Murray's email first became public, Walmart said they were taken out of context and were not “not entirely accurate."

Published on: April 11, 2013

The Wall Street Journal this morning reports that McDonald's executives, in a recent webcast with franchisees, pushed them "to improve staffing and service amid mounting complaints about rude employees."

In the presentation, the executives said that "1 in 5 customer complaints are related to friendliness issues ," and it is getting worse.

According to the story, "The webcast identified the top complaint as 'rude or unprofessional employees.'

"One slide said that complaints about speed of service 'have increased significantly over the past six months.' Another mentioned that customers find service 'chaotic.'

"'Service is broken,' said a slide from part of the webcast delivered by Steve Levigne, vice president of business research for McDonald's USA."

The story goes on: "The reason behind the rise in customer complaints is unclear, but some franchisees say it could be partly because customers now have more ways to supply feedback. In recent years, the company has added an email address to its food packaging where customers can direct complaints, and restaurants in some regions of the country have recently started asking customers to fill out an online survey, using information on their receipts.

"High employee turnover also could be a contributor. While McDonald's declined to comment on its turnover, fast-food restaurants have an average annual turnover rate of 60%, according to a 2010 report from the National Restaurant Association."

Published on: April 11, 2013

The New York Times reports this morning that in the budget just proposed by the Obama administration, there is a provision that would "effectively ban the slaughter of horses for human consumption. Technically, the proposal would prevent money from being spent on inspection of horse slaughtering facilities. Without inspections, facilities could not legally operate. The proposal was greeted enthusiastically by horse lovers and animal advocacy groups ... But it was met with dismay by those who have been working to get slaughtering facilities up and running again."

Published on: April 11, 2013

Reuters reports that in the wake of the firing of CEO Ron Johnson by JC Penney, three more executives have left the company - Chief Operating Officer Mike Kramer, Chief Talent Officer Daniel Walker and Chief Creative Officer Mike Fisher. All three, like Johnson, had worked for Apple Inc. before moving over to try to reinvent JC Penney.

As noted elsewhere here on MNB this morning, Johnson was fired after 17 months, during which time he tried to move the company from a coupons-and-promotions model to EDLP, but only managed to send sales, profits and customer traffic into the proverbial toilet. He has been replaced by his predecessor, Myron Ullman.

Published on: April 11, 2013

The US Postal Service said yesterday that it is abandoning plans to stop Saturday mail deliveries, citing a legal opinion that it does not have the right to make such a decision unilaterally.

The USPS had planned to end Saturday mail delivery - though parcel delivery would still take place, and post offices would be open - in August, a move that it said would save it $2 billion a year. The USPS lost almost $16 billion last year.

However, the USPS says it still hopes that Congress will pass legislation that allow it to end Saturday deliveries.

Published on: April 11, 2013

"The politics of genetically modified food has created a rift in a policy-setting committee of the influential Academy of Nutrition and Dietetics that demonstrates the difficulty in finding anyone — anywhere — who doesn’t already have an opinion on the issue," the New York Times reports this morning.

At issue is the firing of a dietitian working on a panel charged with setting policy on genetically modified foods, who contends "she was removed for pointing out that two of its members had ties to Monsanto, one of the biggest makers of genetically modified seeds." The piece suggests the degree to which companies like Monsanto can have an almost insidious level of influence, in which its interests are being represented by people who claim - questionably - to have no conflict of influence. And, it points out the degree to which the debate about GMO safety may have more to do with economics and politics than anything else.

You can read the whole story here.

Published on: April 11, 2013

...with brief, occasional, italicized and sometimes gratuitous commentary...

• A New York State judge has ruled that Martha Stewart Omnimedia did not violate any confidentiality agreements when it showed its contracts with Macy's to JC Penney when it was negotiating a contract with that company.

The decision resolves just one part of a dispute involving the three companies. Still at issue, and still being argued in the courts, is whether the judge should block JCP from selling items designed by Stewart's company in categories where Macy's maintains it has exclusivity.


• The US Senate has voted 87-11 to approve the nomination of Sally Jewell, the CEO of outdoors equipment retailer REI, to be the new Secretary of the Interior. Jewell, who worked in the oil industry and as a banker before taming the helm at REI, enjoyed largely bipartisan support. She succeeds Secretary Ken Salazar, the former US senator from Colorado.


• USA Today reports that Taco Bell has "announced new nutritional plans to have 20% of its combo meals (a main item, a side dish and a beverage) meet one-third of the federal government's recommended dietary guidelines by 2020. One-third was chosen because the guidelines are based on an average three meals consumed daily.

"The move comes at a time legislators, activists and parents are pushing the fast food giants to offer more better-for-you choices. At the same time more Millennials, Taco Bell's key target, also are choosing better-for-you options sold at places like Chipotle and Panera Bread."


• "The convenience store industry had record sales of $700.3 billion in 2012, with in-store sales increasing 2.2% to reach a record $199.3 billion and motor fuels sales increasing 2.9% to a record $501.0 billion," NACS said yesterday during its NACS State of the Industry Summit.

According to the report, "In-store sales growth was driven by double-digit sales gains in several subcategories: alternative snacks, which include meat snacks and health, energy and protein bars (12.2%), liquor, a relatively small subcategory (11.6%), cold dispensed beverages (11.3%) and sweet snacks (10.3%)."

Published on: April 11, 2013

• Dan Sanders, the author of "Built to Serve," and the co-author, with Galen Walters, of "Equipped To Lead," has joined Go Think! a retail marketing, customer loyalty and digital technology firm, as its new Managing Director, Business Development.

Sanders most recently served as a Supervalu division president, leading at various times the Albertsons Southern California and Acme Markets division in Pennsylvania.


• The California Grocers Association has promoted Keri Askew Bailey to be Senior Vice President, Government Relations and Public Policy, a new position. Bailey joined CGA in 2009 as Vice President, Government Relations.

Published on: April 11, 2013

• Jerry Paulsen, owner of 37 grocery stores under banners that include Cub Foods, County Market, Save-A-Lot and Jerry's Foods, has passed away at age 89.

Published on: April 11, 2013

MNB had a story the other day about how Target responded when it was revealed online that a dress sold by the company online in standard sizes was described as coming in "Dark Heather Grey," while in "plus sizes," the same color was described as "manatee grey."

Once the difference went viral, Target responded quickly. A spokesperson quickly released a statement pointing out that the color "manatee grey" was used for a number of products, not just women's dresses. And the spokesman said that because different buyers handled "standard sizes" and "plus sizes," the discrepancy was inadvertent. And Target said: "We apologize for this unintentional oversight & never intend to offend our guests. We've heard you, and we're working to fix it ASAP."

The fix has been made: On the webpage for the plus-sized version of the dress, which is manufactured exclusively for distribution through Target, the color is simply labeled 'gray'.

I commented:

Props to Target for paying attention and moving fast when things started going bad. Go into a shell, or indulge in denial, and this thing can go bad nine different ways. but deal with it fast, and you are able to manage it on your own terms.Also ... Target gets credit for giving credit to its shoppers for bringing attention to the problem .... the words "we've heard you, and we're working to fix it ASAP" have enormous power.

One MNB user responded:

It shows the difference in attitudes between companies.  Rather than defend its out-of-stock position, it would have been much better for Wal-Mart to acknowledge the problem and commit to improvement rather than defending its position.  How about:  “We recognize the inconvenience that out of stocks create for our customers, and are committed to having available what you need every time you shop.”  Of course, such a statement requires that they actually implement a plan to drastically improve the in-stock position.

True on all counts.



Yesterday, MNB took note of a story in The Nation about how Walmart has been accused in a federal lawsuit of manipulating inventory levels in a way that could have artificially inflated the company's profit margins and stock price, and how the accuser - who once managed logistics at the company's Bentonville headquarters, oversaw human resources management in a five-state region, and once received the the Sam M. Walton Hero Award - now also says he was fired because he was black.

One MNB reader wrote:

It can be summed up in one word. DEDUCTIONS. Stores taking deductions for shortages from deliveries that may not have been short. More common then most people think.

MNB user Steven Ritchey wrote:

People have been inflating inventory levels for decades.  Back in my days in retail grocery, it was one of the not so well kept secrets, you used every trick in the book to inflate your inventory on hand to make your gross dollars look better, at least on paper.  I know how we did it then, before everything was computerized, today it would be harder to do, but still doable.  So while I’m no Walmart apologist, don’t make more of this than there is.  I was in retail grocery in the mid 70’s and saw it then.  I doubt it’s changed all that much, maybe the methods have, but the intent is still there.

For the record, I don't think I am inflating the story. I took note of the lawsuit, reported the allegations, and said that while I have no idea of any illegality is provable, the accuracy of the charges certainly seems plausible.

Another reader chimed in:

The accusation of Walmart manipulating inventory levels in a way that could inflate the company's profit margins bring back memories of 45 years ago when I worked for a drugstore chain owned by a major supermarket.  During the annual inventory the manager and district manager hid undocketed invoices for merchandise that was being counted.  This inflated the profit of the store - I don't have any idea how significant the difference was.  Looking back I assume that the profit level determined the manager and district manager's bonus.  The problem is that this really is just "borrowing" profits from the next year.  You have to hide as many invoices the next year just to stay even.   The District Manager was eventually fired when the company found out he was putting the arm on vendors to pay for managers meetings.  It would not surprise me if they discovered  he was soliciting kickbacks as well.



Regarding JC Penney, one MNB user wrote:

You speculated out loud that we'll presumably never know if Johnson's transformational efforts at Penney would have worked if he'd had more time & less pressure to succeed.  True enough, but why not conduct a reader poll on the issue?  I'll cast the first vote: no.

As you're fond of saying, I think Ron just breathed in too much of his own exhaust.

From another reader:

Wow I get that a lot of folks did like Ron Johnson and he earned much of the dislike. But with that said, is the board kidding us by replacing him with the ex CEO??? Let’s be honest, this guy got Penny’s in the mess that Johnson took over, he now gets a cleaned up stores, the inventory he put there is gone (at Johnson expense), better quality products. So with that said, beside having little money to deal with and needing to bring in some type of a customer based, I’d say the board could have done much better. But the street is saying that no one wanted the job. Odd that the board did this, one must ask themselves, what must the suppliers be think this far down the road. They have helped clean up merchandise that wasn’t theirs, help fund some of the remodels and now have a guy who may or may not keep them….

If it were I, the first thing I do is talk to the associates, then the suppliers, then the bankers, the my team, then ask what stores need to be sold. Last, with all the Johnson did right or wrong he took a personal hit, not only on his reputation, but the stock they gave him to replace his Apple is worth about 60% less, the stock he bought and has to hold on to for 6 years is down about the same. To me the board now has put the monkey on their back and monkey might be nice… gorilla might be the better word.

Two emails made similar observations. First:

The Ron Johnson situation at J C Penney brings reminders of Craig Herkert being brought into Supervalu. Neither one did anything positive for the companies they “led”, they brought in many of their own cronies and were later fired. One big difference – Herkert walked away with millions.  Another big difference – J C Penney brought back a former CEO who wasn’t able to lead the company to success, while Supervalu brought in a new CEO with new ideas and a history of success. I wish both companies success.

And:

As you digest this story, close your eyes; doesn’t this sound familiar?  Iconic brand retailer, brings in CEO from another iconic brand, things go downhill quickly.  Seems eerily familiar to Larry Johnson’s tenure at Albertsons and we know how that movie ended.
 
And this dissenting voice:

I was in JCP with my son recently.

We selected a suit jacket which was priced at the rack, on sale $75.00. When it rang up $90.00, I mentioned it to the clerk.

Immediately, she said OK and set about correcting it.

I fully expected I’d have to SHOW her the sign, she’d need to get a manager to approve some over-ride,…something.

Nope! None of that.

The lady handled professionally, without delay, argument, or issue of any kind.

For all the grief they’ve taken recently, I sincerely respect the fact management has given clerks such autonomy…hopefully THAT will not change!




And finally, responding to Kate McMahon's column yesterday about Roger Ebert, with whom she worked when she was entertainment editor of the NY Daily News and ran his syndicated movie reviews, we got this email from MNB user Bev Bennett:

I thoroughly enjoyed your column on Roger Ebert, a colleague at the Chicago Sun-Times during my time there as a reporter in the food department.

Everyone who knew Roger has a favorite aspect to share. For me it was his egalitarian embrace of everyone. Roger could stop the newsroom with his stories. But he not only talked to editors and fellow columnists, he also engaged copy clerks in conversation. He valued everyone. That he embraced new technology to keep up the dialogue is no surprise to me.

I also read David Carr's piece in the New York Times and like this line best:

"For writers and media companies looking for yet more ways to adjust to the digital tide, Mr. Ebert demonstrated that it is much easier to surf a wave enthusiastically than to crankily swim against it."

I have to tell you that as a writer and movie fan, I've been astounded by the outpouring of emotion and affection since Roger Ebert passed away, and especially the stories that point out the degree to which he was a pioneer in new media and technology, and how his indomitable spirit could be found in every enterprise he touched.

Gives one something to aim for.

BTW...if you missed Kate's piece yesterday, you can read it here.