business news in context, analysis with attitude

Published on: August 19, 2019

by Kevin Coupe

Writer David Sax had a lovely piece in the New York Times over the weekend about the closure of June Records in Toronto, and the pain of losing a “beloved brick and mortar business.”

In the piece, Sax makes some salient points about what made June Records so important to him and to other customers.

“June Records wasn’t the oldest record store in Toronto,” he writes, “the largest or its best known. It was a small place, and opened only in 2012. But it meant the world to me for several reasons: it was a block from my house; the selection was eclectic and sweeping; the prices were fair; and its staff members were the kind of knowledgeable, highly opinionated music geeks that possessed a soulful recognition engine more powerful than any algorithm.”

Sax goes on: “I never went to June Records to buy a record. I went to June to go to June. To experience a humanizing moment, through commerce. To enter that space, interact with its goods and its personalities and walk out with something far greater than a copy of Bill Withers’s ‘+Justments.’

“My relationships with the staff at June Records were forged over their recommendations: Julia’s suggestion of Jennifer Castle’s dreamy ‘Pink City,’ Raf’s assurance that even my children would dig William Onyeabor’s minimal Nigerian disco and Andrew’s recent pick of an obscure Brazilian acid psych record that’s become the instant soundtrack of my summer. Sure, you can get help and suggestions shopping for music at an Urban Outfitters, but it’s not the same, because what I built at June over the years of transactions was something deeper: a sense of place.”

Churn, Sax writes, “is the normal course of commerce, the invisible hand working its efficient magic, shifting resources from less productive activities to others.” And, he says, “No place stays the same forever, and few of us want to live somewhere that is frozen in amber, where entrepreneurs cannot take a chance with their ideas and open a business. We seek the new, and the novel, and welcome improvements in our neighborhoods with open arms.

“But we also need places to anchor us. Novelty is wonderful, but only when balanced with the familiar. And when those familiar businesses close, for whatever reason, our reaction also occurs on a human scale. A sigh of resignation. A flood of memories. And sometimes, if you truly loved the place, a sadness so genuine it can trigger tears.”

It isn’t like June Records did anything wrong. The building in which it resided got sold and the landlord terminated its lease, no doubt to open a vape shop or some other such thing that will appeal to the moment, if not to the soul.

“Our emotional connection to stores, restaurants and other commercial spots whose loss we mourn has nothing to do with economics,” Sax writes. “These businesses give us the most pleasure because of their irrational exuberance, their daily chutzpah, which is what’s so humanizing about them.”

Sometimes you can fight the good fight, and still lose. But at least there is the satisfaction of knowing that you provided that emotional connection, that sense of place, that sensibility more powerful than any algorithm … all the Eye-Opening things that bricks and mortar stores have to do in order to have any chance of survival.

Published on: August 19, 2019

The Business Roundtable, made up of the CEOs of the nation’s top corporations, has released a statement suggesting that companies should not make increasing shareholder value their driving motivation and top priority. Rather, the statement says, companies should have a broader perspective - “delivering value to our customers,” “investing in our employees,” “dealing fairly and ethically with our suppliers,” and supporting the communities in which we work,” followed by “generating long-term value for shareholders.”

The statement concludes by saying that “each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”

Axios describes this as a “small, symbolic but significant move,” spearheaded by the Roundtable’s chairman, JPMorgan Chase CEO Jamie Dimon, that “reflects the growing pressure from employees, social media and customers to do more than increase stock prices.”

There were 181 CEOs who signed the statement. Among them were a number of retailers: Amazon’s Jeff Bezos, Best Buy’s Corie Barry, CVS’s Larry Merlo, Home Depot’s Craig Menear, Macy’s Jeff Gennette, Target’s Brian Cornell, and Walgreen’s Stefano Pessina, and Walmart’s Doug McMillon.

Published on: August 19, 2019

The Washington Post has a story that, while it focuses specifically on the state of Maine, actually points to a broader issue facing the nation, one that inevitably will impact retailers of all kinds and their suppliers - the aging population.

Maine, the story says, is dealing with both “the growth of the retirement population and a simultaneous decline in young workers,” which has been “exacerbated by a national worker shortage pushing up the cost of labor … The disconnect between Maine’s aging population and its need for young workers to care for that population is expected to be mirrored in states throughout the country over the coming decade, demographic experts say. And that’s especially true in states with populations with fewer immigrants, who are disproportionately represented in many occupations serving the elderly, statistics show.”

Here is the cold reality: “Maine is the tip of the spear — but it foreshadows what is to come for the entire country. Last year, Maine crossed a crucial aging milestone: A fifth of its population is older than 65, which meets the definition of ‘super-aged,’ according to the World Bank.

“By 2026, Maine will be joined by more than 15 other states, according to Fitch Ratings, including Vermont and New Hampshire, Maine’s neighbors in the Northeast; Montana; Delaware; West Virginia; Wisconsin; and Pennsylvania. More than a dozen more will meet that criterion by 2030. Across the country, the number of seniors will grow by more than 40 million, approximately doubling between 2015 and 2050, while the population older than 85 will come close to tripling.”

Furthermore, “From 2015 to 2050, the number of Americans 85 and older will increase by more than 200 percent, while those ages 75 to 84 will rise by more than 100 percent, according to AARP. By contrast, the number of Americans younger than 65 will increase by about 12 percent.”

Published on: August 19, 2019

The Courier Journal has a story about the Zero Hunger Mobile Market, a 44-foot trailer that is the result of a partnership between Kroger and Dare to Care Food Bank, that will travel among Louisville, Kentucky’s food deserts five days each week.

“The goal of the market is to provide better access to fresh food for people who can't easily get to a store for a number of reasons, including physical disabilities and lack of transportation,” the story says, adding, “The market is based on a similar program in Milwaukee. And it could become a model for other cities that want to address food access issues in their own communities.”

The trailer features “two refrigerated units (that) hold fresh meat, dairy products and eggs, among other items. A row of shelves contains baking ingredients, pasta, cereal and other pantry staples. And an entire wall displays fruits and vegetables, from mustard greens to clementines.
Grocery baskets are available at the entrance, and near the exit, a checkout station lets customers watch as their total adds up — with Kroger Reward sale prices automatically included.”

Funding “came from Kroger, Dare to Care and Louisville Forward, the city's economic development arm, which committed $60,000 to the project … Dare to Care spent more than $140,000 to purchase a truck and the trailer, while Kroger paid to outfit the market and hire three employees to run it.”

Published on: August 19, 2019

Crain’s Chicago Business has a story about the problems being faced by poultry processors like Koch Foods, which long has used “immigrant workers willing to work long hours in tough conditions for low pay” to bolster their bottom line and provide low-cost product to consumers.

“Koch and its rivals have long depended on a steady flow of workers from south of the border to cut up birds in chilly processing plants for median hourly pay of $12.96, according to federal data.

“That business model is under pressure as the Trump administration steps up its campaign against both legal and illegal immigration. Agents from U.S. Immigration & Customs Enforcement arrested 680 workers Aug. 7 in raids on seven Mississippi poultry processing plants, including one owned by Koch. Even more ominous for Koch, the administration on Aug. 9 announced new restrictions likely to reduce the number of people allowed to enter the U.S. legally and stay permanently.”

The story notes that “the share of undocumented workers in the U.S. workforce already is dropping, tightening the labor supply at a time when historically low unemployment has forced many poultry processors to raise wages. Rising labor costs can quickly erode the relatively modest 8 percent operating margins typical of chicken processing plants.”

Koch has said that it is "working with the government to ensure only authorized workers may return to work,” but also has pointed out that “it is difficult to comply with immigration laws while also not violating laws banning discrimination. Employers can't request more documents if a job candidate's appear authentic, and the federal system for checking work status can't detect stolen identities.”

Other companies said to be in a similar position are Tyson Foods, Pilgrim's Pride and Sanderson Farms.

Published on: August 19, 2019

The Wall Street Journal has an interview with Brad Hiranaga, General Mills’ chief brand officer for North America, in which he talks about how, “in a world where consumer tastes and habits are changing,” companies are under an enormous amount of pressure to achieve relevance at a time when private brands are growing market share and big food companies are suspect.

“he past six to seven years<‘ he tells the Journal, “have been difficult for companies in the packaged-goods industry, specifically food companies, to find ways to grow. There has been a massive disruption with how consumers get information and make decisions. It’s shortsighted not to look out and see what’s happening in the world, as tastes and the way consumers engage with brands are changing. It’s easy for brands to become irrelevant today.”

One example he cites of how the company has worked to achieve a new kind of relevance:

“ Years ago, we pulled Kix out of the cereal business unit and put it into a lab, adding different local agencies and new marketing experts, including a content strategist, someone with an understanding in digital, technology and data, and someone more like an anthropologist. The brand’s mission was to inspire creativity in children. We put art, games, puzzles and things into the package so that it was more than a box of cereal. With this, there was no [obvious] return on investment.

“We worked with specific customers in markets that could show us we’re getting more of a lift for what we’re doing. Target was a natural connection for us. We had the new packaging and displays in the stores. We were able to determine how it was performing at this retailer, in certain markets, versus the rest of the markets - what metrics were better or not than rest of the U.S. Sales increased for Kix across all Targets it launched in. Internally, we could show management how quickly we were coming up with ideas, how fast and agile the team was operating. We wanted to show quantitative results as much as possible, but also the journey.”

You can read the entire story here.

Published on: August 19, 2019

The Wall Street Journal has a story about how Nordstrom, seeking to avoid the mistakes of its department store brethren, “invested heavily in e-commerce, didn’t open too many cavernous stores and has been quick to experiment with new types of shopping formats, including stores that don’t carry any clothes.” And, it continues to be the gold standard in terms of customer service.

But it hasn’t seemed to matter: Nordstrom is “suffering the same fate as department stores that innovated less, with year-over-year sales and profits expected to fall for the second consecutive quarter when it reports results on Wednesday.”

The story notes that Amazon’s moves have appeared to be savvy. An excerpt:

“Although slow to jump into e-commerce—only about 6% of its sales were digital a decade ago, according to a former employee—Nordstrom moved aggressively.

“It bought the flash-sale website HauteLook in 2011, and Trunk Club, an online clothing subscription service, in 2014. It rolled out new services that melded e-commerce and physical stores, such as same-day shipping for online orders that pulled items from local stores in select markets. And it changed its compensation to reward employees not just for sales they make at a store, but also for online sales in the surrounding market.

“In 2013, before many retailers fully understood the threat of Amazon.com Inc. and other digital newcomers, Nordstrom posted signs in its corporate offices that urged employees to think like a startup. It poached dozens of employees from Amazon, whose Seattle headquarters is six blocks away from Nordstrom’s. Today, e-commerce accounts for nearly a third of the company’s $15.9 billion in annual sales, far higher than most of its rivals.”

But … “the investments haven’t always paid off. In 2016, Nordstrom wrote down the value of Trunk Club by more than half of the $350 million purchase price.”

The Journal writes that there seems to be a growing feeling that Nordstrom may need to find an outside CEO who can look at the business with fresh eyes. Nordstrom has only had one outside CEO in its history, and currently is “run jointly by Pete and Erik Nordstrom, who share the title of co-president. A third brother, Blake, who was also a co-president, died unexpectedly in January, after disclosing he had been diagnosed with cancer.”

This form of consensus management, the story suggests, “may not be ideal in a world that is changing rapidly.”

Published on: August 19, 2019

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

• Interesting stat from Business Insider, which reports that Kohl’s decision to take Amazon returns at all its stores seems to be paying dividends - “Shopper visits to Kohl's stores rose nearly 24% in the three weeks after all of its locations started accepting Amazon returns, compared to the previous three weeks.”

The story says that “short visits lasting under five minutes increased the most, by roughly 17%,” while longer visits of 16 minutes or more increased 14 percent.


• Reuters reports that Amazon has defeated “an appeal by the U.S. Internal Revenue Service in what the online retailer has called a $1.5 billion dispute over its tax treatment of transactions with a Luxembourg subsidiary.”

The story says that “the 9th U.S. Circuit Court of Appeals in Seattle upheld a 2017 ruling by the U.S. Tax Court related to intangible assets that Amazon.com transferred in 2005 and 2006 to the unit, Amazon Europe Holding Technologies SCS … Amazon.com has said it chose Luxembourg for its European headquarters because of its central location, and because it had Europe’s lowest value-added tax rate and a relatively low corporate tax rate.”

“Intangible assets,” the story says, has been defined as “such items as customer lists, intellectual property and software. The appeals court rejected a broader definition sought by the IRS that would have boosted Amazon.com’s tax bill.”

I’m sure there will be some folks who will argue that this is yet another case of Amazon not paying what it owes in taxes. I’ll work on the assumption that these people never ever take advantage of every possible deduction, loophole and established laws when doing their own taxes, but rather just tell their accountants to give the government everything it wants, without challenge of question. Because that has to be the case, right?

Published on: August 19, 2019

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

• Newsday reports that “King Kullen has closed an ‘underperforming’ grocery store and plans to shutter two more by late September while the retailer continues the process of being bought by Stop & Shop.”

The one closed earlier this summer was in Mt. Sinai, and the other two are in Lake Ronkonkoma and North Babylon.

Ahold Delhaize owned Stop & Shop announced it would buy the then-37-store King Kullen back in January, in a deal that was supposed to close in the first quarter, and then was pushed back to the second quarter.

“The dates were estimations. Stop & Shop continues to work through customary closing conditions and regulatory approvals relative to its acquisition of King Kullen Grocery Co., and the transaction has not yet closed,” says Stefanie Shuman, spokeswoman for Stop & Shop.

I’m still trying to get past the words “underperforming” and “King Kullen.” No offense, but put together in a sentence, aren’t they sort of redundant?

Published on: August 19, 2019

• Bloomberg has a story about the “burgeoning market for personalized, high-end cannabis products, especially on the West Coast, where growers often have a glut and are trying to find new ways to market their harvest. Oregon and California, two states with a long history of cultivation, have experienced oversupply since marijuana was legalized.”

The story says that “as marijuana loses some of its historical stigma, and pushes into the mainstream, it’s getting a luxury makeover … Creating a tailored cannabis line reflective of your brand - hypothetically, a Lululemon weed would have a different high and aesthetic than a Monster Energy weed - is a way to be in that conversation.”

Key to making it work, Bloomberg writes, is focusing on authenticity - doing the hard work to assure that new strains of cannabis and new ancillary products reflect the character and aesthetic of the existing brand; it can’t just be a profit play, or the efforts could fail.

Published on: August 19, 2019

Content Guy’s Note: Stories in this section are, in my estimation, important and relevant to business. However, they are relegated to this slot because some MNB readers have made clear that they prefer a politics-free MNB; I can't do that because sometimes the news calls out for coverage and commentary, but at least I can make it easy for folks to skip it if they so desire.

• The Los Angeles Times has a story about the impact that the US-China trade war - and specifically tariffs - are having on US wine producers.

According to the story, “Since April 2018, in response to U.S. tariffs, China has slapped retaliatory taxes on $110 billion in U.S. imports - products as varied as electronics and soybeans. For wine, taxes and tariffs now amount to a 93% surcharge on every U.S. bottle. That’s double the amount on French wine, long favored by well-to-do Chinese. At the same time, wines from Australia and Chile, which recently signed free trade agreements with the Asian giant, are flooding into China, taxed at just 26%.”

It is, the story says, reflective of a growth opportunity that may be slipping away, at least temporarily: “Global exporters view China as a barely tapped opportunity, given its exploding middle class and growing appetite for the quality and prestige of imported wine. The U.S. exported $1.46 billion in wine last year, 95% of it from California. China was the fifth-largest destination after the European Union, Canada, Hong Kong and Japan.”

However, “U.S. wine exports to China were down by 33% in the first half of this year compared with the same period in 2017.”

Published on: August 19, 2019

• Peter Fonda, who co-wrote, co-produced and starred in 1969’s Easy Rider - one of the seminal movies of the late sixties, reflecting a counterculture movement that soon would subvert traditional Hollywood themes, business models and mores - passed away over the weekend of lung cancer. He was 79.

Published on: August 19, 2019

As always, lightly edited for clarity…

MNB reader Dean Chilcote wanted to respond to last week’s FaceTime commentary, “Hey, Bob!”…

The phrase “Hey, Bob” being called out while inside a Starbucks restaurant brought me immediately back to my days as a Starbucks partner (employee).

At one point all stores went through a training session that was about how to treat customers whether they were new or long time customers. We were shown a video. The name of the video, I believe, was “Bob, Not Bob” and it was about a new customer walking into a Starbucks and standing in line behind “Bob” who was a well-known and well liked customer. His visit was highly praised by the partners and the new customer was intimidated by the interaction between Bob and them. He felt he didn’t belong there, that he was an outsider. The intent of the video and training was for us to be cognizant of this try to be open and friendly to all customers at all times. To make everyone feel like they belong.

Anyway, I just thought it was funny that the guy in your story was named Bob and was given the Norm from “Cheers” treatment.

If employees make new customers feel excluded, that would, I think, miss the point … which is to make everyone feel like a regular to the greatest extent possible.

From another reader:

Loved that story. Another outstanding tool at a retailers disposal to gain customers.
I like it when people refer to a store “As their Store”. That says a lot to have your customers refer to your store as their store.

Greeting customers in a friendly sort of way pays long term results.

The real advantage….. It doesn’t cost money….doesn’t add expense to the store.

True.



Last week, MNB reader Christopher Cash/Dooley wrote in about a story we referenced from the Washington Post about places where the average temperature has increased by two degrees Celsius since 1895, which “has emerged as a critical threshold for global warming. In the 2015 Paris accord, international leaders agreed that the world should act urgently to keep the Earth’s average temperature increases ‘well below’ 2 degrees Celsius by the year 2100 to avoid a host of catastrophic changes.”

He responded to that story as follows:

While the 2015 Paris Accord may have assumed catastrophic changes in the future unless human activity is dramatically altered, taking us back to an earlier age in many respects, they also surmised that even if TRILLIONS were spent to essentially force the curbing of greenhouse gases, only a fraction of a degree Celsius would be improved by 2100. Basically meaningless, as there isn’t much we humans can really do about it on this little spec in the universe. And that is only if all the countries in the world committed to their hypothetical pledges, which is highly doubtful (particularly in developing countries), as no one is going to sacrifice bettering their standard of living for a minuscule (perceived or not) impact. Fact remains though, considering that even the brightest minds consistently get wrong their predictions of the weather tomorrow, I don’t put much credence in “scientists” forecasting the possible climate almost 80 years from now.

I reacted this way:

I disagree, and am not even sure why you’d put “scientists” in quotes.

Trying to deal with climate change may require more than the human race is capable of, and more synchronicity of effort and purpose than the many peoples and nations of the world can muster, especially when some of these folks would put the word “scientists” in quotes.

But not trying … not leading … strikes me as deeply unethical and immoral. Not to mention delusional.

And now, via email, this clarification of his position:

It was not my intention to imply that we as humans should do nothing regarding our carbon footprint on our beautiful planet. We absolutely should take measures as INDIVIDUALS to be environmentally conscious, make efforts towards sustainability and to respect Mother Nature.

However, many of the judgements from conservationists and news outlets in modern times appears to be that humans should be forced in some fashion (generally by zealous government bureaucrats) to essentially reduce their standard of living to drive this radical transformation of society. I sensibly oppose such verdicts, while also grasping the impracticality of these unfeasible calculations. Particularly when you account for the previously mentioned minuscule impact the human race could have even by dramatically changing current behaviors, while also spending a significant portion of the world’s GDP towards such “delusions”.

Further, what many seemingly are choosing to ignore are the sundry of variable external forces in our universe, in our own solar system, that are utterly out of human control that also have a significant impact on our climate. Nonetheless, neither the WaPo article, or many of the aforementioned environmentalists, have presented many rational solutions that don’t involve much of the world reverting back to late 19th century methods of living and commerce, which was the premise behind my original reply. But I, like most others, are always willing to listen to a balanced dialogue on the quandary.

I get your point, but will respectfully disagree with the notion that we can best have an impact individually.

I believe that we all should do what we can individually. But I also believe that responsible, sensible government can be an effective tool for responding to a wide variety of situations and scenarios to which an individual’s acts - however well-meaning - may simply not be enough. I think that there is great power in a civilization’s ability to marshal the better angels of our natures … and government can be the best reflection of a civilization’s priorities, beliefs and needs. And sometimes, I think, it needs to lead the way.

Now, I get that for a lot of people the phrase “responsible, sensible government” sounds like an oxymoron. I often feel that way, too. But I also think it can, to quote something Bobby Kennedy said in a different context, “tame the savageness of man and make gentle the life of this world.”