business news in context, analysis with attitude

Published on: July 20, 2015

by Kevin Coupe

The New York Times has a piece that has the potential to worry privacy advocates, and thrill marketers.

According to the story, technology has been created that will allow public lighting, "using a combination of LEDs and big data technology," to serve as a kind of backbone for "a system that could use billions of fixtures to collect data about traffic congestion at an intersection or a consumer walking down the cereal aisle, to name just a couple of applications."

A company called Sensity Systems has lined up some $70 million in investment capital - with some of it from companies that include mall developer Simon property Group, General Electric, Cisco, and LED lighting manufacturer Acuity Brands - to begin constructing this system.

The Times notes that "LEDs have proved attractive as cities and businesses look to replace aging, energy-guzzling fixtures with lights that cannot only turn on and off automatically but receive and transmit data about their own status as well as their surroundings. Depending on the installed or connected sensors, they can detect a range of factors and activities, including motion, congestion, pollutants, gunshots or, increasingly, a particular shopper in or around a store.

"Both G.E. and Acuity executives are looking to smart-city projects, which use a canopy of connected streetlights as the wireless infrastructure to coordinate city services, like easing traffic congestion, sensing when the garbage cans are full or even picking up on suspicious behavior at a pedestrian plaza.

"Cities worldwide are expected to replace 50 million aging fixtures with LEDs over the next few years. And while some are mainly interested in switching from older technologies to ones that use less energy and last for decades, others want to use the savings in electricity costs to help pay for the sensors and software that allow for the more sophisticated use of the LED’s electronics and communication abilities."

And marketers theoretically will be able to use such technologies to "employ a sort of GPS system that can give retailers a shopper’s location and orientation in a store within five centimeters of, say, a shelf or product display," or tell them where open parking spaces are in a parking lot.

The story makes clear that there is likely to be a robust debate about privacy and tracking issues, but the Eye-Opening point is clear that technology is making it ever easier to respond to even the slightest variable in consumer behavior.

Which is impressive. If also a little bit scary, since it sounds a little bit like The Village ...

Be seeing you.

Published on: July 20, 2015

USA Today has a story about Jet, the new e-commerce site being launched by Marc Lore, the Quidsi founder who sold that company to Amazon for $545 million in 2010, and is launching his new site this week with $225 million in venture capital funding.

What apparently is going to make Jet different from Amazon - and Walmart, for that matter - is that Lore is not focusing on customer service, but rather is putting all his muscle into scale and price.

According to the story, "Jet's consumer proposition is as simple as its algorithms are complex: Spend $50 a year for a membership and you get the Web's lowest prices on 10 million-plus goods ... As you add items to your basket, a discount tally starts accruing. The more you add, the bigger the discount, aided by specific choices such as opting out of a product return (a cost that Lore says is built into most shipped goods) and non-credit card payments (debit cards and linked checking accounts cut your final bill)."

"It's simply about undercutting everyone," says Lore. "We make money only on the memberships, so we can cut profit margins to zero. But the real secret sauce is our technology. It's more a real-time trading site than an e-commerce site."

The story goes on: "With the proper runway, Jet could take off. E-commerce sales totaled $300 billion last year and will surge to $414 billion by 2018, according to Forrester Research. Currently, e-commerce represents less than 10% of retail sales, and some analysts predict a jump to 30% by 2030. With average savings of 10-15% on most items, Jet's niche is the cost-conscious, from millennials on a budget to boomers hunting coupon-less savings."

Published on: July 20, 2015

The New York Times had an interesting piece over the weekend about how e-commerce business Zappos, owned by Amazon but largely operated independently, is engaged in a shift to a "self-management system" called Holacracy, which has as its goal creating "a dynamic workplace where everyone has a voice and bureaucracy doesn’t stifle innovation ... At Zappos, this means traditional corporate hierarchy is gone. Managers no longer exist. The company’s 1,500 employees define their own jobs. Anyone can set the agenda for a meeting. To prevent anarchy, processes are strictly enforced."

The story goes on to explain that "nothing about Holacracy is easy to understand. In place of a traditional organizational chart are concentric circles of responsibility. Employees get to choose which circles they belong to and what projects they work on. The jargon is relentless. At meetings, 'tensions' are resolved. People don’t have one job; they have multiple 'roles.' 'Lead links' are designated to communicate between circles. Everyone must use the Holacracy software, called Glass Frog."

The Times writes that CEO Tony Hsieh, who sold the company to Amazon for $1.2 billion but who remained at Zappos, "seems to regard Holacracy as a way to revive the close-knit community feeling that made the company so special 10 years ago, when it was just a few hundred people taking on the giants of e-commerce. 'Once you have that level of friendship, there’s higher levels of trust,' he said. 'Communication is better; you can send emails without fear of being misinterpreted; people do favors for one another'.

"If only it were so simple. Holacracy has been met with everything from cautious embrace to outright revulsion at Zappos, but little unequivocal enthusiasm." And Zappos has even paid people who don't believe in Holocracy to leave the company, rather than have them hanging around subverting the broader efforts.

The Times also writes that "such self-management remains the exception in the workplace today, yet its advocates constitute a small but growing movement. Holacracy has other adherents, including the David Allen Company, a consultancy, and Medium, the blogging platform started by the Twitter co-founder Evan Williams, though none of the other users are as large as Zappos."

You can read the entire story here.

Published on: July 20, 2015

MarketWatch reports that Piper Jaffray analyst Gene Munster believes that when Walmart decided to run its own online sale to compete with Amazon's Prime Day promotion last week, it was from "a position of weakness" and "a sign of desperation."

“Wal-Mart’s attempt to create a competitive offering to Amazon shows the power Amazon is exerting as it gains loyalty and takes share from traditional retailers,” Munster wrote in a note to clients. “We think Wal-Mart’s response to Amazon indicates it is grasping for anything to attack Amazon.”

Published on: July 20, 2015

The Wall Street Journal has a story about a Portland, Oregon, business called the SamplingLab, described as a store "that functions like a corporate focus group. It gives customers free samples in exchange for their opinion."

According to the story, "SamplingLab was founded by Jeff Davis, a marketing consultant, who figured a store setting with a lounge area would be less expensive for companies to test products and marketing than traditional focus groups. He opened in December on the city’s north side, in a gentrifying neighborhood where bike traffic and tattoo ink are common. Though anyone can browse the shelves and try products, the store chiefly aims to place brands into the hands of young adults who gravitate to the area. In its early months, it has stocked mostly food but expects to add personal care, health and beauty products and household goods."

The Journal writes that Portland seems to be an ideal place "to find a target audience of consumers in their 20s and 30s who eat organic, are passionate about where their chickens were raised, and are well-versed in the flavors of almond milk ... The city has developed a reputation for its restaurants and as a leader of food trends, and as a punch line for artisanal eating."

The experience works like this: "SamplingLab shoppers are invited to sip Portland’s beverage of choice, beer, gratis, while selecting from shelves stocked with full-size packages of snack food, candy, condiments, olive oil, soup, dried fruit, health drinks, soda and other foods. The store doesn’t have a cash register, but there is a catch. Customers can’t try the next product until they’ve completed a questionnaire about the last, giving brands their two cents, sometimes in great, descriptive detail, on flavor, texture, packaging and what they’d be willing to pay."

Published on: July 20, 2015

The New York Times reports that "CVS and Walmart Canada said on Friday that a data breach at a Canadian information technology vendor may have leaked credit card information from their online photo processing websites, possibly compromising data on millions of users ... The two retailers have temporarily shut down their online photo processing services and related mobile services, and are investigating the scope of the possible breach, the companies said in separate statements."

Neither retailer has said how many customers may have been affected.

The story says that "CVS and Walmart Canada said that a vendor based in Vancouver called PNI Digital Media hosts the photo sites, and collects customers’ payment information. The vendor is owned by Staples, which suffered an online attack of its own last year."

Published on: July 20, 2015

Slate.comhas a long and exhaustive piece by William Saletan that takes on the anti-GMO movement.

"I’ve spent much of the past year digging into the evidence," Saletan writes. "Here’s what I’ve learned. First, it’s true that the issue is complicated. But the deeper you dig, the more fraud you find in the case against GMOs. It’s full of errors, fallacies, misconceptions, misrepresentations, and lies. The people who tell you that Monsanto is hiding the truth are themselves hiding evidence that their own allegations about GMOs are false. They’re counting on you to feel overwhelmed by the science and to accept, as a gut presumption, their message of distrust.

"Second, the central argument of the anti-GMO movement—that prudence and caution are reasons to avoid genetically engineered, or GE, food—is a sham. Activists who tell you to play it safe around GMOs take no such care in evaluating the alternatives. They denounce proteins in GE crops as toxic, even as they defend drugs, pesticides, and non-GMO crops that are loaded with the same proteins. They portray genetic engineering as chaotic and unpredictable, even when studies indicate that other crop improvement methods, including those favored by the same activists, are more disruptive to plant genomes.

"The deeper you dig, the more fraud you find in the case against GMOs.

"Third, there are valid concerns about some aspects of GE agriculture, such as herbicides, monocultures, and patents. But none of these concerns is fundamentally about genetic engineering. Genetic engineering isn’t a thing. It’s a process that can be used in different ways to create different things. To think clearly about GMOs, you have to distinguish among the applications and focus on the substance of each case. If you’re concerned about pesticides and transparency, you need to know about the toxins to which your food has been exposed. A GMO label won’t tell you that. And it can lull you into buying a non-GMO product even when the GE alternative is safer."

Saletan maintains that the "fundamental flaw in the anti-GMO movement" is that "it only pretends to inform you. When you push past its dogmas and examine the evidence, you realize that the movement’s fixation on genetic engineering has been an enormous mistake. The principles it claims to stand for - environmental protection, public health, community agriculture - are better served by considering the facts of each case than by treating GMOs, categorically, as a proxy for all that’s wrong with the world. That’s the truth, in all its messy complexity. Too bad it won’t fit on a label."

You can - and should - read the entire story here.

Published on: July 20, 2015

The Washington Post writes about Walmart's efforts to source more products from American manufacturers, noting that "two years into a ten-year plan to buy $250 billion more in products from U.S. factories, the retailer is heavily hyping its effort, which comes as it struggles with flagging sales and labor strife. Skeptics, citing the company’s history, say it’s just a glitzy PR stunt.

"This time, though, the retailer might break though ... Advances in technology and a rising standard of living (and thus wages) in China help. And just as Wal-Mart originally used its gargantuan scale to send supply chains overseas, it can redirect that purchasing power into hauling them back onshore, while sticking to its every-day-low-prices raison d’être."

Skepticism seems rooted in a sense that "much of what Wal-Mart’s counting toward its $250 billion goal for products 'made, grown, or assembled' in the U.S. might have been bought anyway. $250 billion is only about five percent of Walmart’s net sales over the past decade, and could be achieved through normal growth. Wal-Mart is still by far the nation’s biggest importer, and a strong proponent of a trade deal with Asia that would allow it to import even more at lower prices."

And, the story makes clear that Walmart isn't abandoning price as it looks to re-shore manufacturing - it is pushing US manufacturers on price every step of the way, looking for them to cut, cut, cut until they just can't cut any more.

Published on: July 20, 2015

• Amazon has announced that it has expanded its same-day delivery option to Chicago and Indianapolis.

According to the Chicago Tribune, "Two-hour delivery is free and one-hour delivery is $7.99 between 8 a.m. and midnight each day, the company said. The service can be accessed using an Amazon Prime Now app. The service can be accessed using an Amazon Prime Now app."

The Prime Now service until now has been available just in Atlanta, Baltimore, Dallas, Indianapolis, Manhattan and Miami, but Amazon says that more cities will get it in 2015.

Published on: July 20, 2015

• The Associated Press reports that Blue Bell Creameries is now saying that Texas billionaire Sid Bass is loaning the company up to $125 million as it looks to get its ice cream back on store shelves after a listeria outbreak forced a nationwide recall. The story says that Bass is getting a one-third stake in the company, though Blue Bell is not commenting on the terms.

Published on: July 20, 2015

Moe Greene is dead.

Alex Rocco, who famously played Las Vegas gangster Moe Greene in The Godfather (until the character meets a violent end during the final scenes of the movie), has passed away. He was 79.

Published on: July 20, 2015

Regarding Amazon's Prime Day promotion, one MNB reader sent me the following email:

It may have been good for Amazon and boosted their sales, but it was incredibly frustrating. I get that it was supposed to be a Black Friday type event with limited supply of “hot” items, but this is just not what I’m used to shopping online. For example, I was “hunting” a convertible car seat that was about 40% off. I counted down the minutes until this deal went active. At the very second the deal became active, I tried to add it to my cart and was #305 on the waiting list – they must have had 1 of these available. Again, I get that Black Friday is like this, but I am just not used to this type of an experience online. Perhaps if they had told people how many of X item they had, it would have alleviated some of the frustration I experienced (and which I saw many people posting about). This same scenario played out with myriad items I wanted – from a $5 cloth baby book to a $250 Maclaren stroller. The only thing I was able to “win” was disinfecting wipes (exciting) and coffee.
 
In addition, I found the interface itself annoying. The search function didn’t really work, the waitlist kept dropping my spot, etc. etc… I find Amazon absolutely irreplaceable for my daily life – I could not work and run my household without it – but cannot describe Prime Day as anything but annoying and frustrating.

From another reader:

As a frequent Amazon shopper, I was very disappointed in the quality and variety of items were offering on their one day Prime ‘Sale’.  It seems like they were cleaning out their junk drawer; or getting rid of slow moving items.  Their one day celebration was like going to  a garage sale, except that one couldn’t negotiate on the pricing.  I already have enough stuff in my junk drawer; I sorry I wasted my time looking.

And another:

I’m a reasonably active Prime customer.  I appreciate the convenience, selection, and fair pricing. (I also sell to Amazon and they are tough to work with, largely because of the same three reasons and its impact on company processes & budgets! But, I digress..)

I was looking forward to the sale for a few big items and what a disappointment.  The flash sales and gamification was annoying.  I think the MBA’s got carried away with this event; the super managers that can create and manage any event to look good.  However, we prim’ers know and Amazon just lost a bit of brand luster.

Votes are being tallied but most are saying Amazon Prime Day was a bust.  They overhyped and did not provide the all-important great experience that Amazon is known for. Walmart didn’t come out unscathed but Amazon may have tarnished some of their luster with their approach to this one.

Also, note how social media voted on this one, almost as negative as positive. Rare because most sentiment is neutral, usually for deals and sales.

My favorite – “#PrimeDay is like when grandma says "help yourself to the candy jar!" but it has nothing but raisins and sugar-free salt water taffy”.

They say even bad press helps a brand but I don’t think so here….

If someone did something like this at Apple when Jobs still there … heads would have rolled.




On another subject, an MNB reader wrote:

I read the comments you posted on Starbucks and their proposed foray into lower income neighborhoods. What’s interesting about these areas is the assumption that there is not real business to capture or people are too poor to buy a specialty drink. We are in the process of opening up a pop up, small store in just such a neighborhood. (And yes, we will be selling organic, fair trade coffee in addition to a full line of groceries). According to studies that have been done, there is 19 million dollars in ‘leakage’ from this area (that we’re going into)- meaning people have to leave the neighborhood buy the goods and services they want. Starbucks is smart - they need qualified employees AND realize that these neighborhoods are full of untapped business. Yes, price will be a factor, but honestly, everyone wants to treat themselves. Lots of people are busy getting kids off to school and rushing to jobs and will pay for the convenience of someone else handing them a hot coffee.

But, from another:

My take on this stems a bit outside the box in regards to what other readers have already posted. In my humble opinion, I see too many individuals in low income areas that decide to buy luxury items that they can not afford just so they can flaunt them. They’d rather lease a BMW for ~$475 a month than buy household items like paper towels and shampoo. This will be the same case with Starbucks, another item these low-income individuals really can’t afford, but will find a way. They will cut out another important staple in their life so they can find a way to buy a cup of Starbuck’s coffee at $3-$4. All of this just so they can flaunt the Starbuck’s cup in their BMW that they are struggling to even possess in the first place. Its all about who can get the most likes on social media as their seen with expensive items they are purposely photographed with as they try to show the world they are living some kind of lavish lifestyle.  It’s all about portraying the assumption that they are well off and doing better than their peers, and what better way to do that than post a picture on Instagram with a cup of Starbucks coffee, a brand everyone knows as the premium brand of coffee. The sad truth is, individuals like me see this and know that they can’t afford it, and wonder what they aren’t buying themselves or their children in place of now another expensive, unneeded luxury item.
 
My take: Live within your means. If that doesn’t do it for you, go out and get a real job/a supplemental job so you can afford all these expensive things. The scary truth is that Starbuck’s will have a line of cars and people in these low-income areas just as long as the other areas where they are located. Low-income individuals have to be crafty and find ways to pinch pennies, but they will figure it out. After all, they figured it out enough to get that ~$475/month BMW in their driveway, what’s another $3-$4?

To be honest, I'd like to see some evidence of a trend that has a lot of low income people leasing BMWs. It sound suspiciously like the kind of anecdote that gets trotted out for political purposes, but is reflective of isolated instances, not broader consumer trends.

Published on: July 20, 2015

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Published on: July 20, 2015

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