business news in context, analysis with attitude

Published on: May 17, 2013

by Kevin Coupe

Advertising Age has a story about how Domino's Pizza in Brazil created a marketing campaign designed to drive up sales of pizzas among people who rented DVDs.

According to the story, "In partnership with 10 video rental stores in Sao Paulo and Rio de Janeiro, the brand used rented DVDs as media. About 10 discs each of 10 different new release titles such as Argo, 007, Dread And Dark Knight were stamped with thermal ink and flavored varnish, both sensitive to the heat.

"While people were watching the movie, the heat of the DVD player affected the disc. When the movie ended and they ejected the disc, they smelled pizza. They also saw pizza: the discs were printed to look like mini pies, and carried the message: 'Did you enjoy the movie? The next one will be even better with a hot and delicious Domino's Pizza'."

Now, I'm all in favor of innovation, though I think this goes a little far. If I happen to be eating Chinese food while I watch one of those movies, for example, I'm not sure I'd be thrilled with smelling pizza.

But that said, it certainly suggests that the technology is available to enhance the move-going experience through the use of various smells that could be keyed to what is being seen onscreen.

I just think that advertisers have to be careful not to overstep, lest they annoy the very customers they are trying to attract. After all, as they say in Jurassic Park, just because you can do something doesn't mean you should do something.

Published on: May 17, 2013

Walmart yesterday released first quarter financials that were generally conceded to be disappointing and lackluster.

“Frankly,” said CEO Mike Duke,” we had a more difficult quarter than expected."

Q1 net income at Walmart was $3.78 billion, compared to $3.74 billion during the same period a year ago. Sales rose 1% to $113.45 billion, and same-store sales were down by 1.4 percent, the first decrease in same-store sales in more than a year.

The company's Sam’s Club division saw sales rise just 0.2 percent.

Walmart blamed the poor performance on delayed tax refunds and lousy weather.

Published on: May 17, 2013

The Los Angeles Times this morning reports that Michael Jeffries, CEO of Abercrombie & Fitch, is trying to "stem a backlash" against the retailer that was prompted by comments he made about people who should be excluded from wearing his brand.

Jeffries said that he really only wants slim, good looking people to come into his stores and buy his clothes, and that he's really only interested in marketing to cool people - to the point that the company does not even make large sizes.

"We go after the attractive all-American kid with a great attitude and a lot of friends," he said. "A lot of people don't belong [in our clothes], and they can't belong ... Are we exclusionary? Absolutely." While the interview in which he made the comments originally came out in 2006, they gave gained enormous traction in recent weeks as people have used the internet to express their outrage and disgust with the company.

In a statement released yesterday, Jeffries said: "A&F is an aspirational brand that, like most specialty apparel brands, targets its marketing at a particular segment of customers. However, we care about the broader communities in which we operate and are strongly committed to diversity and inclusion ... I sincerely regret that my choice of words was interpreted in a manner that has caused offense. We are completely opposed to any discrimination, bullying, derogatory characterizations or other anti-social behavior based on race, gender, body type or other individual characteristics."

Jeffries did not exactly apologize for his comments, and did say that they have been taken out of context.

Published on: May 17, 2013

The Boston Globe this morning reports that Wegmans "is delaying the opening of a store planned for the Chestnut Hill neighborhood of Newton from the fall to the spring of 2014."

The reason? Construction delays and "the juggling of other projects."

The Globe goes on:

"Family-owned Wegmans currently operates 81 stores in six states and is opening new stores at a rate of two or three a year, Natale said. Fall openings are planned for a new store in suburban Washington, D.C., and another in suburban Philadelphia.

"Plans for opening a Wegmans in Newton were first disclosed in late 2011, a few months after the chain opened its first (and still only) Massachusetts store in Northborough. That store covers a whopping 138,000 square feet.

"The Newton store, by contrast, will be smaller, a two-level store with a total of 82,000 square feet.

"In Massachusetts, Wegmans is looking to open a 140,000-square-foot store in Burlington in the summer of 2014. The chain has recently gotten approval to build a store in Westwood, and Wegmans is also scouting for locations in Boston’s Fenway neighborhood."

Published on: May 17, 2013

The New York Times reports this morning on yet another Asian factory disaster, as the ceiling of a footwear factory in a small Cambodian village collapsed, killing at least two workers and injuring a dozen more. The factory was manufacturing, among other things, Asics sneakers.

The collapse, the Times writes, served to underline "global worries about factory safety in poor countries." It was ironic that the collapse took place in Cambodia, since "multinational clothing retailers have been considering Cambodia as one of several countries that could be alternatives to Bangladesh for manufacturing after the disaster three weeks ago at a garment factory complex there that killed at least 1,127 people. The collapse and the grueling search for survivors prompted an international outcry for retailers to assume more responsibility for the safety of workers at their suppliers."

No reason was immediately established for the collapse.

Published on: May 17, 2013

TheNextWeb.com reports that Apple on Wednesday "passed the 50 billion App Store download mark." What is amazing is that Apple passed the 40 billion mark just last January ...

"That means the company saw some 10 billion downloads in just over four months, or about 78.1 million per day," the story says. "At that rate, it will see 70 billion app downloads before the end of 2013, meaning it will have added 30 billion this year alone. Given that the number of downloads is accelerating, however, we wouldn’t be surprised if Apple held a second countdown, for the 75 billion mark, in time for the holiday season this year."

But here's the kicker to the story:

"Apple may not be the first to get there. Google also today shared its own figures for Google Play app downloads, and the company is gaining on Apple’s App Store: 48 billion downloaded so far, at a rate of 2.5 billion app installs per month.

"Given that Google Play showed up on the scene long after the App Store, and assuming it is still growing faster than its main competitor, number one and number two will soon swap spots. In fact, it’s likely this will happen before 2014."

Published on: May 17, 2013

The New York Times reports that in 2012, "e-book sales in fiction rose 42 percent over the year before, to $1.8 billion. Growth in nonfiction e-book sales was smaller, a 22 percent increase, to $484.2 million. E-book sales in the children’s and young-adult categories increased 117 percent, to $469.2 million."

Meanwhile, the sale of hardcover books, trade paperbacks and mass market paperbacks all were relatively flat.

The survey, conducted by the Association of American Publishers and the Book Industry Study Group, "revealed that e-books now account for 20 percent of publishers’ revenues, up from 15 percent in 2011." And, in fact, "publishers’ net revenues in 2012 were $15 billion, up from $14 billion in 2011."

Published on: May 17, 2013

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

• The New York Times reports that JC Penney, having brought back the CEO it fired, now is bringing back strategies that it abandoned.

"From increasing promotions to bringing back house brands like St. John’s Bay, Myron E. Ullman III, the new C.E.O., is erasing most of the changes made by Ronald B. Johnson, the former Apple retail head who started with much fanfare in 2011," the Times writes. "After significant changes and several disastrous quarters, Mr. Johnson was fired this spring and Mr. Ullman, who had been his predecessor, resumed command about five weeks ago ... Penney has already started to reverse Mr. Johnson’s overhaul by restoring a pricing system in which it artificially marks some items up and then down to give the appearance of a discount. Customers wanted to buy items 'at the price-promotion calculus they were used to; that’s how they want to shop,' Mr. Ullman said. And while Mr. Johnson decried the number of promotions Penney conducted each year, Mr. Ullman says he wants to bring back event promotions 26 times a year, often around holidays like Mother’s Day."

I know that I may not be in the majority on this one, and I'm not part of JCP's target consumer, but y'know what I call the practice of marking up prices only so they can then be artificially reduced to make it look like the sale is more than it actually is? A lie.

And by the way, if you want to find a CEO pronouncement that is a total crock, check out this one from Ullman: “We’re looking forward, not back." Another lie, methinks.

Published on: May 17, 2013

Got the following email from MNB user Bill Purcell regarding yesterday's story about Walmart's investments in e-commerce:

Bill Purcell here — your MNB Silicon Valley Beat reporter reporting in!

You're right about what Walmart should do.  What you might not be aware of, they are doing it, and doing it in a big way through that same division that made those acquisitions — @Walmart Labs.

In fact, in my opinion, what they are investing in has the potential to provide Walmart a deeply entrenched competitive advantage over traditional retailers that will be perhaps the most important thing that will happen in retailing in the window 3-10 years out.

@WM Labs is a separate division based out here in the Silicon Valley.  It's related, but separate from Walmart.com (another division that they operate from here).  Sometimes the two divisions are lumped together as Walmart Global E-Commerce.  Odd, but when most people think of Walmart, they think of Arkansas, but they have two of there fastest growing divisions right here in the Silicon Valley.

The stated intent of @WMLabs is to provide a seamless consumer experience for consumers independent of if they shop in any of their store formats, from home on a PC, or on a mobile device.  The not-publicly stated objective (although it is the world's worst kept secret out here in the Silicon Valley) is to catch up and then surpass the informational advantages that Amazon currently enjoys over them.  This explains why they chose their location in the Silicon Valley — to get the engineers that can do this.  Strategically Walmart fears Amazon and recognizes that for lots of reasons Amazon has not only business model advantages but also informational advantages over Walmart.  They also understand that by investing heavily in these types of Big Data technologies they can not only catch Amazon, they can also significantly increase the technology advantages that Walmart enjoys over traditional retailers.

Walmart Labs has made a number of really smart acquisitions over the last 18 months.  You can think of them as a huge retailer technology incubator and R&D lab Their best buy was Kosmix, from which they have build several things that give them significant competitive advantages over most retailers (including Amazon).

I've heard the rumor of what their investment budget is — its a rumor so I won't repeat it hear — but it's HUGE --- there are more zeros in the @WM Labs R&D budget than most retailers spend in 10 years on IT.

Not everybody sees it quite the same way, though, as another MNB user writes:

How many more of these tiny companies is WalMart going to waste money on? They bought one for the talent, that ended up leaving. If they think, buying these, will help in the battle with Amazon, OMG, it’s like taking baby steps to keep up with a GIANT. Where has the Walmart dot.com and Walmart CEO been, to allow them to get into this position?

Along the same lines, got the following email from MNB user Ron Birkinbine:

Really enjoy your views and analysis, and the insights offered by your readers.  Makes me think, which is one of life’s great pleasures.

Haven’t seen much discussion about another front that Amazon may use to take on Walmart in the battle of the behemoths – distribution.  Same-day/next-day delivery for grocery may fit for some areas of the country, but there are large swaths where that model may never be financially viable or even desired by the consumer.  Why wouldn’t Amazon just become the distribution network for all those bricks and mortar stores, grocery and otherwise?  In addition to their distribution network, they have the DNA to build the best-in-class “cloud-based” backend support services to go with it,  and could probably offer the whole package for a lot less than current providers.  Working for one of those providers, this thought makes me shudder...




On a different subject, got the following email from MNB user Dean Balsamo, who, for the purposes of this email, should be identified as being with One Source Magazine Distribution:

Obviously I have a bias here but I feel it’s necessary to comment on your suggestion that  a lot of magazines are going to stop publishing or be absorbed implying in the process that the internet is killing off print.  This is a common conception of course as we hear from retailers too, who seeing the drop off in their magazine sales and want to blame on the dying of print.

But actually there are so many things going on with magazines that this is too simplistic of a statement. I think a better analogy to what’s happening with print versus digitalization is the comparison between movies and the rise of television.  TV didn’t kill off film. The two channels each developed in their own ways finding convergence here and divergence there.  And as disrupting technologies like cheaper digital means of shooting film and TV, Netflix and Hulu and a host of other advances came, both of these mediums changed and adjusted.

In my opinion magazines look to a similar scenario with the digital approaches adding interactive features like links to interviews, videos/films and host of other things the internet does so well while the printed magazine still holds the almost mystical status only the printed page can lend when it comes to legitimacy, and  certain topics like art/architecture still cannot be displayed with quite the same presence and authority that print conveys. And let’s face it you’re going to think twice about swatting a fly with an iPad.

Advances in technology and of course the internet have also played a part in magazine publication.  The means and tools to publish are available to a wider segment of the population making it possible for many more niche titles to be published and excel. The bigger companies have different economies of scale so they may kill a title that doesn’t hit the numbers they need or maybe like some of the big internet companies-Facebook for instance-they buy a competitor or buy the talent involved in the company seeing that as more important than the product itself. In other words there may be more than one reason why a magazine is stopped. But many other titles are being published all the time out passion for a given subject proving the magazine industry is living ecosystem of ideas and those who constantly feel the need to share their perspective and with Millennial who’ve come of age in total information immersion-we’re likely to see many more magazines from this-the largest part of our population.
 
Categories and genres are undergoing constant transformation with new food titles like Gatherer’s Journal-combining a foodies love of food with an art magazine’s approach to lay out and photography-it’s one of a handful of new food related titles that are taking this area to new heights.
 
The single most important thing affecting magazine sales and migration to either the internet only or just being killed is the fact that the retailer/magazine wholesaler relationship has not in general evolved with the times.  Slotting fees/logo pockets have acted over time to actually stifle magazine sales by preventing many of the great titles-even more niche titles that sell well-from being on the check stands where magazines sell best. Whether out of laziness or cynicism or habit…this is a self-defeating proposition for both the retailer and magazines and the sooner this model is done away with the better for most grocers.
 
When it comes to magazines it seems like many grocers have written them off a long time ago because the publisher/wholesaler agenda superseded pure common sense when it comes to selling things. They simply take money for the real estate without thinking how they might get  the best sales they can get on a single copy basis. And most of wholesalers are of little help as they simply dump magazines without much logic or attention to what the retailer can sell- since the logo dominates what gets into the prime place.  Most magazine providers use a simplistic  metric formula involving square footage which they then use to just fill spaces in the store.

We saw a recent study that suggested the more wired-read affluent the household-the more magazines the household buys. And this is borne out in the particular niche we specialize in the serving-the more upscale grocers around the country. Their magazines sales with us has shown little attrition because the constant attention to making what really sells is in the prime places. But until grocers start thinking about treating magazines like they do other products who they ideally want to stock because they sell enough to warrant being on the shelf,  many will go on repeating what a meme that seems so obvious but as this pieces has tried to suggest-is much more nuanced than meets the eye.




Regarding the anti-Abercrombie & Fitch video that we linked to yesterday on MNB, one reader wrote:

Awesome video…awesome activism on the individuals part…I’ll bet the farm that the video and all the views accomplish absolutely nothing regarding how and to whom AF brands and doesn’t register with any AF shopper (they are too absorbed)

However, I’ll also bet that some less fortunate individuals get some new clothes…however their values may be too high to wear the new AF clothing!

From another reader:

All I can say is this is another pinnacle example of how powerful Crowdsourcing has become. Jeffries has exposed himself to the masses, a very large group of people, most of whom don’t fit (literally) into the A&F brand. He gave them the motive to retaliate against the A&F brand. So they will. And with vigor. I’ll bet the A&F Board of Directors is already asking Jeffries, “what is your response strategy going to be now that you have alienated so many people?” By the way, I was in a Victoria Secret last weekend. I saw lots of obese people buying their products. Maybe Jeffries should pay attention to the buyer as much as he does the user.

Read that last line again. I think it is an important observation.




Responding to yesterday's FaceTime piece about how Ohio Wesleyan University send my son, a recent graduate, return address labels as a way of nurturing its relationship with an alum - a move I saw as being totally irrelevant to how he lives his life - one MNB user wrote:

Ah . . . sounds like a perfect opportunity for an old person to teach the virtues of sending cards. You said your Son graduated, right? Didn’t he send Thank You cards to all the old geezers that congratulated him. Perhaps he needs some education on the beauty of select cards that convey sentiment and wisdom? The point, Monsieur? Focusing on only whatever electronic thing is in your hand is pretty myopic, don’t you think. This is the generation of not only intense focus, or preoccupation, with electronic gadgets, but also of a huge disconnect from the world around them. Since we’re nearing Father’s Day, Dad, it’s your role to help him expand his vision beyond his generational vision or lack thereof.

I knew this one was coming.

He sent thank you notes via email. He also made phone calls. And i'm not sure that one method of communication is necessarily better than another, just because "old people" think it does.

Another MNB user wrote:

Just listened to your podcast on the OWU labels and understand and agree to some extent your line of thinking.   My take is your example illustrates one of many fundamental problems companies struggle with and that is how to connect with new customers without alienating their proven customer base.  JC Penny comes to mind right away.  With all of the new multi marketing channels available to connect with their customers, companies must choose wisely which ones are the correct ones?

In your case scenario, I would suspect the packet of information your son received wasn’t sent out to just the more recent grads but to generations of alumni as a mass plea for support.  So while it may not be relevant to your son at this particular point in time, there are probably lots of people that would or could use those address labels which bring us back to the question how does a company walk this cross generation line and do they have the infrastructure in place that enables them to be successful at it.  Depending upon the business maybe instead of killing off the sacred cow all together, ask some hard questions, then use those answers and just maybe the more sensible solution would be to create a new hybrid cow, the new mixed with the old?

I would argue that if they sent the same packet to the class of 2011 that they sent to the class of 1981 or 1971 or 1961 or 1951, then they've already proven that they have no idea how to market in a 21st century environment.

From another reader:

I’ve been reading your blog for a year and I appreciate your insight and views, whether I agree with them or not; however, I think your “No Labels” FaceTime misses a much bigger point.
 
I’m a 29-year-old, Sales Operations Manager at a startup footwear company. I’ve been very fortunate to have two great jobs with successful retail and footwear companies along with my current job where I was the third employee and became a shareholder for the first time in my life. None of this I can thank my degree in Print Journalism to which I still owe a relatively low $13,000 in student loans. I’m fortunate it’s only $13K, I have friends who graduated with me that owe over $100K.
 
This is the point I think you missed, your 24-year-old son along with every other graduate in their 20’s are being asked to donate money to a college or university that made a big profit on that graduating class, as that same classes dreams are weighed down by student loan debt. I know this phrase will make me sound older than I am but, How dare they? How can a university ask graduates to give whatever small amount of money they have left over after student loans payments back to that same university? The saddest part is that when my college calls me they have current freshmen on the other end of the phone, I wonder how many graduates they’ve called who aren’t working right now—can’t be reassuring.   
 
If Nike were a college, they would be asking you to pay them for shoes you bought four years ago even though you didn’t get a job playing in the NBA like alumni: Michael Jordan and Lebron James. In fact now you no longer play basketball, you had to enroll in the University of Brooks because the Running is a better long term career goal and you wish someone told you that in high school.
 
How about we do what the Australians do, your student loan debt matches what kind of job you land after college. That seems fair, right?

Yup.

Of course, not everyone thinks the way I do:

Regarding the OWU labels -- you're obsessed and making a big deal out of nothing. Chill out!

C'mon, now. I make a living, in part, by making a big deal out of things that other people ignore.

MNB user Alex Jackson wrote:

Hi Kevin!
 
I work at Frieda’s Specialty Produce ... and graduated from George Mason University in 2011. I, too, have received return address labels and personalized notepad paper with my name “Alex Jackson” on it from my alma mater. However, on the return address labels, they assumed I was boy and put “Alexander.” The notepad had the accurate name, because it stuck with good ole Alex, but for a school that has enough information on me to contribute to a future memoir, I was annoyed they got my name wrong. My George Mason Patriot Pride has increased since graduating, and I was happy to put a GMU return address label on envelopes, since I do send out hand written thank you notes twice a year after birthdays and holidays. But, Mason lost their chance at easy, although dated, marketing from me.

Big lesson! You have to know who you are talking to, especially if you are trying to get money from them! Thanks, Alex .... this is a great example of blind marketing, which cannot and does not fly these days.




MNB yesterday took note of a Los Angeles Times report on what is called an anaerobic digester system operated by Kroger at a Compton, California, distribution center, that actually serves to "transform moldy chicken and stale bread into clean electricity ... Though many grocery stores have tried to cut down on food waste and experiment with alternative energy, Kroger says it's the first supermarket company in the country to do both simultaneously."

Which prompted one MNB user to write:

Loved your comments about Kroger’s installation of an energy-producing food digester at their Compton, CA distribution center, especially the contrast with Mike Jeffries’ world view. You quoted Robert B. Parker as saying that it isn't hard to know the right thing to do, but actually doing the right thing is an entirely different matter. It actually takes quite a lot of courage for big public companies to do the right thing, but when they do, the effect can be huge.

And from another reader:

Kroger clearly got their inspiration from the underground methane refinery in “Mad Max Beyond Thunderdome”…

I would never disagree. After all, the best business lessons often come from the movies. (I hear a couple of guys wrote a book about that...)




Finally, responding to another observation that I made, MNB user Chris Utz wrote:

I heartily agree with you about the banality of computerized 'special' effects offered in film lately; especially those of the action genre.  I believe that the enduring popularity of Steve McQueen's Bullitt is the realism of the chase scenes, which were filmed with actual vehicles and stunt men.  Except of course, the motorcyclist who inadvertently drove around barriers and accidentally crashed during filming. It doesn't get more real than that.  The Bourne films also benefit from actual stunts being filmed.

Before I waste time and money going to a film; I usually examine trailers for evidence of hokey computerized special effects.  I can always wait until they come out on Netflix or Amazon and watch them at home with good snacks and perhaps an adult beverage.

A very few modern films use modern special effects that still inspire amazement and wonderment.  The Chronicles of Narnia series and Avatar are notable exceptions of computerized special effects that work well.

I think sometimes special effects can be really special. For example, I'm going to see Star Trek Into Darkness in Imax 3-D ... and I'm fairly confident that the effects will blow me away.

But I'm with you on special effects that are there just to have special effects.

Published on: May 17, 2013

Sometimes, as the late Robert B. Parker used to say, the world really is filled with possibility.

It has been a pretty good few weeks.

I've had two trips to the Pacific Northwest, with extended visits to Portland and a quick sojourn to Seattle. Both, as you know, feed my soul.

I've discovered that I am now formally a member of the adjunct faculty at Portland State University's Center for Retail Leadership, which I find to be enormously gratifying. Also pretty good in the soul-feeding department.

I had the opportunity to meet and interview Ace Atkins, the novelist who has taken over the Spenser novels after the death of Robert B. Parker, and who also is an accomplished novelist in his own right.

But I won't be writing about my conversation with Atkins here on MNB. You see, the other cool thing is that I've started writing a column/blog for Forbes Media, on the subject of "where business meets culture." And probably other stuff that occurs to me. My column will be appearing roughly once a week, and sometimes more frequently than that ... and will probably cast a somewhat broader net than I'm able to cast here on MNB. (Then again, maybe not ... since I pretty much write about anything I want here.) The first piece can be found here, and the Atkins piece will probably run in a week or so. I'll let you know as these things appear...




Tomorrow: Star Trek Into Darkness. I can't wait, and I'll have my review for you next Friday.




By the way, regarding summer movies...

There is a story in the Wall Street Journal this morning about how several summer movies are "taking antibusiness sentiment to a new level, depicting not just corporate malfeasance but characters who exact comeuppance for business treachery in imaginative new ways." Among them are The East, about "an underground activist collective, whose creative attacks allow corporate bosses to 'experience the terror of their crimes'"; Paranoia, starring Harrison Ford, described as "a more traditional corporate thriller about highly successful bosses whose secrets include 'extortion, blackmail and murder'"; and Now You See Me, about magicians who use their skills to take revenge on major corporations that have exploited the defenseless.

Now, there will be some who suggest that these movies represent a typical Hollywood anti-business liberalism.

But I would take issue with that point. Hollywood may have more liberals per capita than some other places, but if there is one thing that show business executives - themselves part of a very, very, very big business - like more than politics, it is money. They spend a lot of it, and they want their movies to make a lot of it.

What these movies - and others - actually represent is a celebration of the individual, which is a highly American sentiment that goes back to the earliest days of Hollywood. The enemy can be a corporation, or a government, or some sort of massive conspiracy, but many of the best Hollywood movies are about how the individual (from John Wayne and Humphrey Bogart to Robert Redford and Steve McQueen to, more recently, George Clooney and Matt Damon and Julia Roberts) can succeed in the face of major odds and opposition.

I care less about whether these movies are anti-business than I do about whether they are any good.




My wine of the week: the 2008 Proprietor's Reserve Cabernet Franc, from Washington State's Maryhill Winery in the Columbia Valley ... which is utterly delicious.

And, a beer to recommend as well ... the Ol’ Factory Pils, from the Two Roads Brewing Co. of Stratford, Connecticut, which is crisp and refreshing as the weather warms up.




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

Slàinte!