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    Published on: December 9, 2016

    by Kevin Coupe

    The issue of income inequality continues to make headlines ... but I have to admit that I didn't see this one coming.

    The Portland, Oregon, City Council has voted to impose a surtax on companies where the CEO makes more than 100 times the median pay of rank and file employees. It will be a 10 percent business tax surcharge for companies where the CEO makes more than 100 times that median pay level, and a 25 percent business tax surcharge if the CEO makes more than 250 times the median pay level.

    The New York Times reports that this is the first such attempt by a locality to address income inequality in this way. "The tax will take effect next year, after the Securities and Exchange Commission begins to require public companies to calculate and disclose how their chief executives’ compensation compares with their workers’ median pay. The S.E.C. rule was required under the Dodd-Frank legislation enacted in 2010."

    Of course, it is possible that these Dodd-Frank provisions could be repealed by a GOP-controlled Congress and a Trump administration.

    But for the moment ignoring what will happen with Dodd-Frank, I have to say that I'm not crazy about this idea.

    I think companies should address income inequality, and I like it when a CEO keeps his or her salary within reasonable levels compared to rank and file employees. To me, it sends a positive statement to employees. And I think it is entirely appropriate for public companies to make discrepancy levels clear so that investors can make informed decisions about these companies.

    I don't think it needs to be legislated, though. It seems to me that what Portland's leadership has done is create a climate in which businesses won't want to move to the city. They can put their headquarters just a few miles away and avoid the tax. And it gives communities competing with Portland a compelling argument to choose them.

    Though I have to admit, this probably has an upside ... for me. Because I suspect that this won't contribute to rising housing prices there, which will be important to me when I finally make my move.

    That's my definition of an Eye-Opener.
    KC's View:

    Published on: December 9, 2016

    President-elect Donald Trump yesterday said he would nominate Andrew F. Puzder, CEO of the company that franchises the Hardee's and Carl's Jr. fast food chains, to be his secretary of labor in his administration.

    “Andy Puzder has created and boosted the careers of thousands of Americans, and his extensive record fighting for workers makes him the ideal candidate to lead the Department of Labor," Trump said in a statement.

    However, there are those who suggested that Puzder has not made workers and their careers a centerpiece of his business strategies.

    Puzder, the New York Times reports, has been "an outspoken critic of the worker protections enacted by the Obama administration," and a firm critic of efforts to boost the minimum wage.

    The Times writes that "on policy questions, he has argued that the Obama administration’s recent rule expanding eligibility for overtime pay diminishes opportunities for workers and that significant minimum wage increases would hurt small businesses and lead to job losses. He has criticized paid sick leave policies of the sort recently enacted for federal contractors and strongly supports repealing the Affordable Care Act, which he says has created a 'government-mandated restaurant recession' because rising premiums have left people with less money to spend dining out."

    And, interestingly enough considering Amazon's unveiling earlier this week of a store format that has no checkout lanes because of some significant technological advances, Puzder also has advocated for replacing fast food employees with robots. Machines, he said, were “always polite, they always upsell, they never take a vacation, they never show up late, there’s never a slip-and-fall or an age, sex or race discrimination case.”
    KC's View:
    I found myself curiously conflicted yesterday when I heard the Puzder quote about automation. On the one hand, I feel bad for the poor fast food employees being replaced by robots. But on the other hand, I took a different position on automation when Amazon made its revelations earlier in the week. Is Hardee's any different from Amazon, at least in this regard?

    Here's what I think. The problem is not automation replacing people. That's inevitable. As one MNB reader said yesterday, when was the last time you went to a bank teller as opposed to using an ATM or banking online? Cars replaced horses, which put buggy whip manufacturers out of business. People read newspapers and magazines online, which reduces the need for newspaper delivery boys and girls. This stuff is inevitable.

    What is important, in my mind, is where you go from here. Once you accept that technology creates the displacement of humans in certain segments, you then have to look forward and figure out where the next jobs will be. And that's what you train people for. Tomorrow's jobs, not yesterday's.

    If I were president (and this is something that nobody would want), I think I'd want a Labor Secretary who came from a company like Linked In or Monster - someone who knows where the jobs are going, as opposed to where they have been. I'd want someone who thinks in terms of the highest common denominator, not the lowest. I'd like someone who created a company that invested in employees and did not see them as liabilities.

    But that's just me. And I'm not president.

    Published on: December 9, 2016

    The Puget Sound Business Journal has a story about how Costco CFO Richard Galanti conceded this week in a conference call with stock analysts that the company has been "a little stubborn along the way" when it comes to e-commerce, making changes a "little bit begrudgingly" at times, adding that there are things the company "should have done earlier."

    Galanti said, ""We think that we could and should do a lot more online, but we also ... want to get people into the warehouses." And he said that the company is looking to improve the experience and functionality of its website and its distribution logistics as it moves forward it a retail environment that clearly is changing.

    Business Insider notes that Galanti also made the point that Costco launched a version of Amazon's new checkout-free store two decades ago. ""In terms of scan-and-go, honestly we've had a version of scan-and-go literally 20 years ago," he said. "A member would walk in, get an RF gun, radio frequency device, walk around, scan their own items, come up to the front, hand that thing to the cashier, and the scanner, and they print out a receipt."

    But Galanti seemed to believe that while what Amazon is doing is interesting, it won't be a path that Costco necessarily will follow.

    "We want to make sure we understand what all of these people are doing," Galanti said, adding, "We do — and not just from a competitive price shop, and whether it's them or someone else — recognize convenience is a value. But there's also some things that we can and can't do. So I think that we're looking at these things offensively, not defensively at this point."

    The comments were made within the context of the announcement of Costco's first quarter results - same store sales were up one percent ... profit was up to $545 million, from $480 million ... and total revenue rose 3.2% to $28.1 billion, while membership fees climbed 6.2% to $630 million. And online sales were up eight percent.
    KC's View:
    I think that Galanti has it absolutely right - Costco has been a little resistant to adapting completely to the growth of online, but it shouldn't necessarily try to replicate what Amazon does.

    I've made the point here before that a number of the purchases that I used to make at Costco have migrated over to my Amazon basket, and I've heard the same thing from a number of MNB readers. I think if Costco wants to get those sales back, which will be difficult because so many of them are on my Subscribe-and-Save plan, it has to figure out how to differentiate itself from Amazon in a compelling way, as opposed to imitating it.

    Published on: December 9, 2016

    The Omaha World-Herald has a story about a new system being tested by Hy-Vee that it hopes will reduce checkout lines, which are "one of the biggest complaints people have about grocery shopping."

    The system is designed to make it obvious which checkouts have the shortest lines, the story says, and "it will be obvious to shoppers when they notice new lights at checkout lanes. A green light indicates an open lane or a short line, and yellow or orange lights indicate a longer line."

    According to the story, the system "is up and running at the Shadow Lake Hy-Vee in Papillion and will roll out to a handful of other stores in the area this winter for further testing. Then, Hy-Vee may decide to install it more widely among its more than 240 stores across the Midwest."
    KC's View:
    Forgive me, because I don't want to denigrate what Hy-Vee is trying to do here. Anything that reduces checkout lines is a good thing.

    But...when compared to the technology being tested by Amazon in Seattle that will eliminate checkout lines and lanes, this seems like small ball.

    It just strikes me as a vivid difference in thinking.

    Published on: December 9, 2016

    Salon has a terrific piece about the debacle known as Sears.

    Here's how they frame the story:

    "Quick: Name a reason to shop at Sears.

    "If you’re struggling to identify one, you’re not alone; even the company’s web team can’t figure it out. On Thursday, the company’s virtual storefront featured home appliances, a pool table, exercise equipment, watches, men’s jeans and a snow blower. A photo advertising a women’s knit sweater was positioned next to a WeedWacker.

    "Consider this the retail version of throwing everything against the wall to see what sticks — and according to the company’s latest numbers, nothing is sticking.

    "Sears Holdings, which owns Sears and Kmart, reported on Thursday a loss of $748 million for the three months ending on Oct. 29. This is the company’s 20th consecutive quarterly loss, and worse than the $454 million loss the company posted in the same period last year. Revenue fell nine percent last quarter to $5.21 billion. Same-store sales, a key retail metric, dropped 10 percent at Sears and 4 percent at Kmart. The company lost $1.6 billion in the first ten months of the year, compared to $549 million in the same period last year, according to its regulatory filing."
    KC's View:
    The funny thing is that the piece has the following headline - Sears death watch update: Is it time to prepare an obit for our least-essential department store?

    For the record, I prepared that obit years ago. Fast Eddie Lampert, who bought the company years ago and has been driving it into the ground relentlessly pretty much from the beginning, keeps pumping money into this thing, making excuses for lack of performance, and saying that things are getting better even when it seems utterly clear that things definitely are not.

    Dead company walking. Just a matter of time.

    Published on: December 9, 2016

    The Seattle Times reports this morning that Amazon is denying a report in the Wall Street Journal that it is planning to build 2,000 grocery stores around the country if its initial grocery store effort works out.

    “We have no plans to open 2,000 of anything. Not even close,” a spokeswoman said. “We are still learning.”

    After Amazon issued the denial, the Journal responded that “we are confident in our sources and stand by our original reporting.”
    KC's View:
    I think it is fair to say that I've always been skeptical about the notion that Amazon has a game plan for 2,000 stores. Bricks-and-mortar by its very definition creates legacy issues that Amazon works assiduously to avoid. That doesn't mean it won't play around in this space as a way of learning, and that it could accelerate store openings if it makes sense,

    But I also wonder if it might make more sense for Amazon to choose a partner or partners with which it could work to offer some of the technological advances it is pioneering, without actually having to build its own stores.

    I would suggest that there are lots of possible iterations ... but the ones likely to be explored by Amazon will be the ones that avoid the mistakes of the past and the moves of traditional competitors.

    Published on: December 9, 2016

    • The Associated Press reports that "Coca-Cola is trying to sell more of its flagship beverage by suggesting the cola can accompany a wide range of meals, rather than just the fast food and pizza with which it’s a mainstay. It’s why a recent TV ad featured a young couple grabbling mini-Cokes while making paella, and why food bloggers were paid to post photos on Instagram of various dishes, paired specifically with glass bottles of Coke that might appeal to the aesthetic of 'foodie' culture. One photo showed a bowl of chicken chili with the soda."

    The story goes on: "Although Coke has often been marketed as a good companion for food, the company is trying to make sure it isn’t left behind as American tastes evolve and people move away from traditional sodas. The world’s biggest beverage maker is particularly trying to update the drink’s image among people in their 20s and 30s who may associate soda mainly with places like McDonald’s and Domino’s."

    • The Wall Street Journal reports that Staples said yesterday that "it would sell a majority stake in its European operations to private-equity firm Cerberus Capital Management L.P., as the office-products company focuses on North America after a failed merger attempt with a rival.

    "Terms of the deal weren’t disclosed. Staples said it is keeping a 15% equity stake in the business and will be represented on its board. Staples’ European business has retail, contract and online businesses in 16 countries generating annual sales of about $1.8 billion."
    KC's View:

    Published on: December 9, 2016

    Godspeed, John Glenn.

    John Glenn, who in an exemplary American life was a war hero, a Marine Corps test pilot, one of the original Mercury astronauts, the first American to orbit the earth, and the US Senator from Ohio for 24 years, died yesterday. He was 95.

    The New York Times writes this morning that when Glenn returned to earth after his space flight in 1962, "flashing the world a triumphant grin, doubts were replaced by a broad, new faith that the United States could indeed hold its own against the Soviet Union in the Cold War and might someday prevail.

    "No flier since Lindbergh had received such a cheering welcome. Bands played. People cried with relief and joy. Mr. Glenn was invited to the White House by President John F. Kennedy and paraded up Broadway and across the land. A joint meeting of Congress stood and applauded vigorously as Mr. Glenn spoke at the Capitol."

    And then, remarkably, Glen returned to space in 1998 at age 77, becoming the oldest person to do so when he joined the crew of the space shuttle Discovery.
    KC's View:
    Cue the music from The Right Stuff.

    BTW...I learned something in the various obituaries that I did not know about Glenn - that Ted Williams was his wingman in Korea. Wow.

    Published on: December 9, 2016

    ...will return.
    KC's View:

    Published on: December 9, 2016

    In Thursday Night Football action, the Kansas City Chiefs defeated the Oakland Raiders 21-13.
    KC's View:

    Published on: December 9, 2016

    It seems almost redundant to write this, since so many other people have weighed in with similar comments, but Manchester By The Sea is an almost startlingly great movie, not just showing us a world in which the people and emotions seem incredibly real, but making us connect to those people and emotions in a visceral, organic way.

    Written and directed by Kennth Lonergan, Manchester By The Sea is the story of Lee, a Boston-area janitor who seems from almost the moment we first see him to be someone who is holding deep and explosive feelings in check. We see through flashbacks that he was not always that way; as a younger man, he was far looser and funnier and spontaneous, and Casey Affleck inhabits the character in a way that almost transcends acting. But something has happened to changed him, and he has to seal with that something when something else happens - his adored brother (played by Kyle Chandler) dies, leaving Lee as the guardian for his 16-year-old son, Patrick (Lucas Hedges, who gives a beautifully affectless performance).

    I'm not going to tell you much more about the movie because I don;t want to ruin the experience, but I can tell you that while it is extraordinarily sad at points, it also can be very funny at points. The writing is sharp, the acting is terrific across the board (with people like Michelle Williams, Gretchen Mol and Matthew Broderick delivering small but memorably etched performances), and Manchester By The Sea is easily one of the best movies of the year.

    And it makes me glad that we've reached that time of the year when the really good movies start to come out.

    Lee Child is out with his latest and 21st Jack Reacher novel, and "Night School" once again delivers the one-two punch that we've come to expect from the series.

    This one delves back into Reacher's past. He isn't the retired military man we've come to know, wandering the backroads of America with nothing but the clothes on his back and a toothbrush in his pocket; instead, it is the mid-nineties, and military policeman Reacher has been assigned to a special team responsible for finding out what is behind a comment overheard by an American agent embedded in a terrorist cell: "The American wants a hundred million dollars."

    "Night School" is a terrific, plot-driven thriller that moves from DC to Germany and the Middle East, and Child offers sharp characters, strong set pieces, and tons of suspense - not to mention some dialogue that struck me as somewhat prescient (considering it had to be written more than a year ago), and an answer to an existential question that is posed in every ethics class.

    Great stuff. Fun read. Go get it.

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

    KC's View: