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    Published on: March 21, 2017

    by Michael Sansolo

    Amid the endless stories and worries of e-commerce disruption and destruction of existing industries, it’s both interesting and instructive to find an area that seems strangely unaffected.

    The apparent absence of impact reminded me of "The Adventure of Silver Blaze," a famous Sherlock Holmes story that hinges on a dog that didn’t bark ... eEspecially when the industry in question is real estate, which hardly seems like a candidate for such unusual status in the Internet age.

    Yet, as the Washington Post reported this weekend, real estate agents seem to be going about their business in much the way they always have. The percentage of home buyers using them is relatively stable and even the commission rates garnered on transactions has barely budged.

    And this is happening despite the entry of sites like Zillow and Redfin that promised to change the industry.

    So what gives?

    It’s a complex mix of issues, according to the Post story. First, real estate is hardly a simple transaction. When people are buying homes they are most likely making their largest purchase ever, and they are dealing with complexities, like offers and counter-offers, contracts and the entire laborious process. Faced with those tasks, buyers seem to like the guidance of an experienced professional.

    Secondly, the real estate industry has done everything possible to handicap inroads by the e-agents, with efforts ranging from lobbying to direct action to impede the new sites. Though the efforts haven’t been completely successful, they have helped buy time in some areas.

    Most interestingly, though, real estate agents have learned to use the emerging e-commerce sites to their advantage. As some agents interviewed by the Post explained, that ranges from constant monitoring of real estate apps to using language translation apps to better serve customers who might not speak English.

    As the Post reported, the real estate example “offers potential lessons for workers in other industries worried about the Internet’s destructive powers. The web has changed how agents hustle for a share of…residential real estate commissions. But it hasn’t taken their jobs. In fact, the number of agents has grown 60 percent in the past two decades.”

    A key piece of the success may stem from the ability of realtors to position themselves as agents for the consumer rather than middlemen. The latter group is usually viewed as adding little value and lots of cost. The former are all about value.

    This is one point made in the Coca-Cola Retailing Research Council report I recently wrote about here on food retailing’s quest for continued relevance. As the report explained, consumers are constantly looking to buy something they need from someone they trust. Position yourself well as an agent for the consumer and you gain that trust, but recognize that position is constantly under assault now from myriad e-commerce portals.

    The industry has long positioned itself - rightly or wrongly - as the purchasing agent for the consumer. Increasingly, that role needs to expand. To combat the new world of electronic competitors trusted agents need provide advice on diet, recipes, tastes, price and maybe more.

    The ability to create that relationship and demonstrate value might determine your future success.

    Michael Sansolo can be reached via email at . His book, “THE BIG PICTURE: Essential Business Lessons From The Movies,” co-authored with Kevin Coupe, is available on Amazon by clicking here. And, his book "Business Rules!" is available from Amazon by clicking here.
    KC's View:

    Published on: March 21, 2017

    Walmart said yesterday that it has launched a new incubator, named Store No. 8, that is designed to nurture start-up online businesses within the company as well as identify outside companies that ought to be acquired by Walmart as it positions itself for a long-term battle against Amazon.

    This is just the latest move by Walmart as it positions itself for an extensive and extended battle against Amazon. A major part of that was the $3.3 billion acquisition of Jet, as well as purchases of smaller online businesses.

    The New York Times writes this morning that "behind the strategic shift has been a recognition that Walmart, long dominant in the world of physical retailing, has fallen far behind in the business of selling goods online — and particularly far behind Amazon. Jet had ambitions of becoming Amazon’s most formidable rival at a time when few credible challengers had emerged. But Jet failed to achieve profitability or emerge as a robust competitor." The belief is that ownership by Walmart will give it access to capital and resources and the necessary economies of scale that will enable it to be more competitive.

    The Times also writes this morning that while Walmart has an internal research lab tasked with developing new online applications, "Store No. 8 is the first incubator or investment arm of its kind at Walmart, which has a market value of $213 billion ... Store No. 8 is meant to foster relationships with entrepreneurs, particularly those in the fields of artificial intelligence, autonomous vehicles and other emerging technologies."

    The name, the Times notes, comes "from an early Walmart store, built in an old bottling plant, that the company founder Sam Walton used to try out new retail strategies."

    The principals at Store No. 8, the Times writes, will be Seth Beal, previously a senior vice president for global marketplace and digital store operations at Walmart, and Katie Finnegan, "who led Jet’s corporate development and has a background in fund-raising and mergers."
    KC's View:
    It should not come as a surprise to anyone - and it certainly is not going to surprise Amazon - that Walmart is building up an arsenal for a sustained battle for e-commerce dominance. These guys are serious, and if they made missteps in its early days of competing against Amazon, there's no question that Walmart is making a series of big and varied bets to make up for lost time.

    Walmart still has legacy issues, but it seems to me that these guys are doing their level best to create real cultural change at Walmart. That's not easy, and it won't be quick. But give upper management a lot of credit for really trying to be change agents.

    I continue to believe that the impact of Walmart's new digital aggressiveness may most be felt not by Amazon, but by all the retailers who have been half-hearted about e-commerce. Because the online battle between Amazon and Walmart is going to take up a lot of the oxygen in the room, leaving others with little air to breathe. There is no room for the timid in this battle, and there is almost nobody who will not be affected and/or victimized.

    Published on: March 21, 2017

    The Minneapolis/St. Paul Business Journal reports that Target has hired Jeff Burt, most recently the most recently president of Kroger-owned Fred Meyer, to be its new senior vice president of grocery, fresh food and beverage.

    This is the second time in two years that Target has turned to a supermarket industry veteran to help it revive its flagging food business. In April 2015, it hired Anne Dament, a former group vice president for perishable strategy at Safeway, to revamp the company's food business as Senior Vice President, Merchandising. However, she only lasted about a year and a half, and departed after less than stellar reviews of her efforts.

    The Journal writes that "Target is still struggling to find the identity for its grocery business, which accounts for about a fifth of its sales. A decline in shopper traffic has made stocking and distributing fresh food tricky for the retailer. Target's grocery offerings also often fall short of grocery stores like a Cub Foods, or even its chief rival Walmart Inc."
    KC's View:
    This is tough, and Jeff Burt has a tough job ahead of him. The question that needs to be answered is whether Target is nimble enough to accept real change. It is hard to create change in any environment, in part because a lot of people don't think it is needed, and a lot of other people give change a kind of lip service because they've grown too complacent. Burt has to not just get past these problems, but has to do so fast enough to satisfy internal and external constituencies ... because the competition continues to move forward.

    I continue to believe that it may make more sense for Target to do in grocery what it did with CVS in HBC - create an alliance with a retail brand that will give it heightened credibility but take away the operational responsibilities. And I wonder if Burt, with his Kroger lineage, could be exactly the right person to make this happen.

    Published on: March 21, 2017

    Fortune has a piece about PepsiCo's first-ever chief design officer, Mauro Porcini, who "was recruited by PepsiCo CEO Indra Nooyi five years ago to help spread design thinking at the company, which is home to brands like Pepsi, Lay’s, Tropicana, and Doritos."

    According to the story, Porcini says that a design sensibility is important because a "generation of social media-fatigued consumers has forced traditional retailers to shift their businesses toward designing experiences, not products." These customers "behave in a different way with our products and brands. They don’t buy, actually, products anymore, they buy experiences that are meaningful to them, they buy solutions that are realistic, that transcend the product, that go beyond the product, and mostly they buy stories that need to be authentic."
    KC's View:
    I completely agree with Porcini ... customers are interested in buying relevant experiences, not just products. And they're interested in stories, so the companies that learn how to unveil an authentic narrative will be companies with an advantage.

    Published on: March 21, 2017

    The Los Angeles Times reports that while Amazon said that it was phasing out the use of list pricing on its site - a tacit acknowledgement that it is a "a controversial practice accused of deceptively inflating how much consumers save" - a new study from Consumer Watchdog "finds that the pricing system remains widely used, affecting more than a quarter of the 4,000 products examined by the advocacy group on Amazon ... In its study, Consumer Watchdog said it found at least half the list prices examined were greater than the prevailing market price."

    The Times says that Amazon calls the Consumer Watchdog study "misleading."

    “Manufacturers, vendors and sellers provide list prices, but our customers care about how the price they are paying compares to other retailers,” Amazon said in a prepared statement. "We validate list prices against actual prices recently found across Amazon and other retailers, and we eliminate List Price when we believe it isn’t relevant to our customers.”

    The Times also says that Amazon has introduced a “was” price, "using recent price history of the product on Amazon. That provides customers with 'an alternative reference price when we don’t display List Price,' the statement said."
    KC's View:
    It is not in Amazon's best interests to try to be half-pregnant. Either get rid of the list prices, or don't. But whatever it does, Amazon - like every other retailer - needs to be transparent with consumers and act in the shopper's best interests. Always.

    Published on: March 21, 2017

    Excellent piece in Fast Company about Hamdi Ulukaya, the founder and CEO of the multibillion-dollar yogurt business Chobani, and his approach to leadership and corporate culture.

    An excerpt:

    Chobani "is one of the business world’s most unlikely stories: An aimless young anticapitalist immigrates to the U.S. simply because he needs a place to go, and through grit, determination, and eerie prescience about changing American tastes somehow builds a massive brand that eventually dominates the $3.6 billion Greek yogurt industry, besting international conglomerates such as Danone and General Mills. But Ulukaya has done more than that. He has begun to forge a new kind of business leadership, one that fuses competitiveness with an unusually strong sense of compassion.

    "In just the past year, he has launched a program to give away up to 10% of Chobani’s equity to his workers and instituted a generous six-week parental-leave policy. No unions or worker groups pressured him; he just decided on his own. He also employs more than 400 refugees, which is proving increasingly controversial in the Trump era. Ulukaya’s actions have brought both death threats and invitations to speak at the World Economic Forum in Davos, Switzerland, where in January he challenged other business leaders to take more responsibility."

    “You have to lead by example,” he says.

    You can read the entire story here.
    KC's View:

    Published on: March 21, 2017

    Fierce Retail has a story pointing out that e-commerce has become the dominant contributor to sales at Williams-Sonoma, which owns brands that include Pottery Barn and West Elm. Online sales accounted for almost 52 percent of all revenue, as the company's overall sales grew just 2.2 percent.
    KC's View:

    Published on: March 21, 2017

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

    USA Today reports on how "low food prices and razor-sharp competition are creating bargains for shoppers - but killing profits for grocery chains." Supermarkets, the story says, "are destroying their profit margins as they fight for new shoppers - and fight off deep discounters like Walmart and online sellers."

    The story notes that "prices of supermarket items declined 1.3% last year, compared to the year before, says the Agriculture Department's Economic Research Service. It was the first annual decline since 1967. Just about every family will feel the impact since weekly household grocery expenses in 2016 were $107.34, according to the Food Marketing Institute."

    One of the problems that a lot of supermarkets have, it seems to me, is that they have decided to play the pricing game without really having the weapons necessary to win it. There's a difference between having sharp prices and the lowest prices. If you only have sharp prices, you'd better have something else to hang your hat on - some product or service that is unique and differentiating. You win where you are different, not where you are the same.

    • The Cincinnati Business Courier reports that Procter & Gamble has filed a federal lawsuit against a comp[any called Ranir, charging it with patent infringement. The product in question is P&G's Crest Whitestrips. the technology for which the company says Ranir ripped off to create its own private label version that is sold in retailers that include Walmart and Kroger.

    According to the story, "P&G requested an injunction to stop the sale of the Ranir products in question, a jury trial and unspecified monetary compensation for alleged damages. P&G also asked that the court triple the damages in an amount yet to be determined 'for Ranir’s willful infringement … of patents'."

    Ranir has not commented on the suit. The story notes that P&G's Whitestrip patents expire on June 6.

    • The Wall Street Journal reports that Costco has filed a lawsuit against Acushnet Holdings Corp., parent company for golf ball manufacturer Titleist, asking "for a declaratory judgment defending its business practices."

    According to the story, Costco "said that the lawsuit was necessary because Acushnet Holdings Corp. , which owns Titleist, accused Costco in a 'threatening letter' of violating its patent rights and engaging in false advertising."

    At issue are private label Kirkland golf balls sold by Costco that the Journal says are the "hottest golf ball among fanatics." Titleist says that when Costco advertises them by saying that they "meet or exceed the quality standards of leading national brands," it is being disingenuous, hence the threatening letter. The Journal writes that "Costco, which has no history of making golf balls, bought the Kirkland Signature balls from a company called Nassau Golf, which also manufactures balls for TaylorMade, a major equipment company."

    Costco apparently does not sell the golf balls at the moment, but says in its complaint that it plans to in the future.
    KC's View:

    Published on: March 21, 2017

    • In response to Target's hiring of Jeff Burt, president of Kroger-owned Fred Meyer, Kroger announced that it has named Joe Grieshaber, president of Kroger’s Columbus division, to be president of Fred Meyer Stores.

    At the same time, Kroger said that Dan De La Rosa, who has been vice president of merchandising for Fred Meyer Stores, has been named president of Kroger's Columbus division.

    Reuters reports that Tesco said yesterday that "its long-standing international boss Trevor Masters would step down and two executives who have played key roles in the firm's turnaround at home would take over his responsibilities ... Tesco said that from April 1 Tony Hoggett will become Tesco's CEO Asia and Matt Simister will become CEO Central Europe.
    Hoggett is a 27-year Tesco veteran and is currently UK Chief Operating Officer. Simister has been with the company for 21 years and is currently food sourcing director."
    KC's View:

    Published on: March 21, 2017

    I continue to get email about last week's FaceTime story in which I talked about it being 20 years since my first Amazon purchase, and how the retailer - and my purchases - have evolved over the years. Some readers think that I'm buying into a retail model that is destroying traditional businesses ... but not everybody feels that way:

    You nailed it - Amazon is not to blame for a brick & mortar failure, and I'm going to check my order history as soon as I get home to see what my nostalgic trail says about me.  I'm not a direct member, as I use my daughter as a procurement agent,  but I'm sure there is enough there to be of interest.

    MNB reader Marv Imus wrote:

    Fascinating !  I’m sure you will get a lot of members checking their history now but I thought I would report back to you anyhow.  My first order was also books on Jan 24, ’97.  My first digital order was Dec 10, ’09, when I got my first Kindle reader.  Of course now all my book purchases are digital.

    I noted last week that when I started shopping at Amazon, they'd send out gifts like coffee cups just to say thank you to customers. MNB reader Linda Yordy responded:

    Used the Amazon coffee cups ‘til they wore out.


    We write here a lot about how Amazon uses some businesses to fund others ... and while some people seem to think of it as a kind of shell game, it in fact is the smartest way to maintain leadership.

    One MNB reader wrote:

    I agree that Amazon is investing heavily to succeed, and Prime is largely footing the bill, followed closely by the cash being thrown off by AWS…

    From another reader:

    Their global ambitions for growth are spread across a large variety of areas, and while some will not work out, most will, and we will continue to watch  them succeed by leveraging technology to meet consumer’s shopping needs…

    And another:

    IMHO, Jeff Bezos will take his place in history alongside Edison, Ford, Firestone and others based on his unique ability to couple a visionary approach with long-term thinking.  Amazon represents a very specialized and powerful competitor that has more data, logistics, and consumer demand data than any other company in history. Based on their continuing success, they have been able to fund massive global human and physical resources that are being deployed with unprecedented focus and persistence to win at both consumer and enterprise levels.

    But some remain unconvinced:

    I truly understand the context of actively competing and enjoy your reporting and views on each new thing Amazon does.  In many ways, however, this is an entirely different competitor…one with huge revenue streams unrelated to retail (i.e. AWS) that seems to leverage those to “buy into” portions of the retail segment.

    Much of Amazon’s success in retail is built on the free shipping aspects of Prime.  This week, I read a few articles indicating they lost over $7B last year on their shipping program…that they’re only recovering 55% of their shipping expenses via Prime fees, etc.  The year before, they lost $3B on shipping.  I haven’t examined their reports, so I can’t validate these…and I don’t know if this is just reinvestment of retail profits or…buying the business…but it is worth asking whether Amazon retail by itself is indeed profitable…and if not, does their investment constitute fairness or is it a new business model for becoming a monopoly.

    It’s tough to argue that “free shipping” is a sustainable process…and it’s tough to compete with a company willing to lose $7B.  I guess I’d ask that you’d report on that aspect of their business also.

    I love emails like this one, which is not about the business but rather about my discourse last week about binge TV watching, from MNB reader Jerry Sternberg:

    Have read your MNB for many years, don’t always agree with your positions but do more often than not. Have never written to you before but I could not agree more on most of your viewing habits. My solace has been catching up on Justified. Six years done in a binge. However it’s just one month until Bosch returns.

    I want to thank you for much of your reading recommendations as I discovered Michael Connelly (among others) and his great cast of characters.

    My pleasure.

    And here's the good news.

    Ace Atkins has a new Spenser novel coming out on May 5, and a Quinn Colson novel coming out on July 18.

    Michael Connelly has two new novels coming out this year, on July 18 and October 31.

    Reed Farrel Coleman has a new Jesse Stone novel coming out on September 12.

    There is a new Jack Reacher novel by Lee Child coming out on November 7, and a short story collection coming out on May 16.

    If only George Pelecanos would come out with a new Spero Lucas novel, it'd be a perfect year for people like me who love novels in this genre.
    KC's View: