business news in context, analysis with attitude

We got a number of emails yesterday about our story about Brown & Cole closing eight of its stores because of competitive pressures.

One MNB user wrote:

I agree with your general comments regarding the piece on road kill and Wal-Mart, however it is important to also say that grocers, especially the independent grocer, maintain and grow their own business as well. I love the independent grocer and many are doing well, however many also lack the passion and the hands-on example that their company's founders had when they started the company. In all my encounters with these smaller businesses I stress the importance of thinking like the big boys do, but take a all the advantages that the small players have. It does not come automatically.

Independents must maintain a lean structure with as little layers of management as possible, they need to train their staffs continually and re enforce this training by example, make meetings effective (I found that some independents had more meetings and initiatives than the larger companies), and above all create a culture/team that operates the stores to that high example…

And another MNB user wrote:

What possible motivation would Wal-Mart have for changing the way they do business. Eric Berger was right on the money when he said " the customer chooses which business survives". The only motivation they would have to change is if stopped shopping at Wal-Mart. Their customers say, we only care about ourselves, give me low prices no matter who it hurts. Unfortunately they have a lot of customers that don't realize who is being hurt. The hardest thing to teach young people is that when they buy anything, they are voting for the way they want business done. People have to learn that Wal-Mart is not giving them lower prices, they are just moving costs and quality around to look like lower prices. As long as people continue to buy, Wal-Mart will continue business as usual.

One of the cited by Craig Cole in his announcement of the closings was the rising cost of health care.

One MNB user wrote:

Consumers could give flip about the health care employees for a Wal-Mart or a Neiman Marcus receive. Although they probably believe that the folks at Neiman’s have a better plan because heck, look at the prices Neiman’s charges. All consumers care about is paying a fair price for the service/quality of product they receive; however they may define that equation. If consumers cared about the altruistic objectives in a retail organization, or the community it serves, then downtown Athens Texas, Jackson Alabama, and Macon Georgia would still have the quaint feel of Americana they had a decade ago. BUT they don’t. What amazes me is that food retailers today still have not figured out how to compete with Wal-Mart. Especially in the rural south where price of goods is king. For the most part, food retailers still cling to high/low pricing so they can run BOGO’s, Ten with Ten, Red Tag sales, Green Tag sales and what ever else they can call some weekly ad event. They continue to charge slotting, co-op, rebate, and store product placement fees. All created to generate “other income”.

Even loyalty card programs are entitlement programs that offer no real benefit other than receiving ad prices. It’s a me too game that few have figured out. It’s ironic that loyalty cards were originally created to move away from running ads that promote cherry picking, to a more targeted marketing program that speaks to loyal customers and provides those customers the best prices along with other benefits for being loyal. But food retailers today are addicted to the perceived traffic generation that a weekly ad generates, and cards are a bother to the consumer. It was a wasted opportunity.

If main stream food retailers today are going to compete with Wal-Mart, then they need to stop doing business the same way they did it in 1960, 70, 80, or 90. They need to learn how to model their procurement processes after the best model out there. Retailers need to quit adding to the cost of goods and partner with suppliers to reduce those costs. If they did that and then really took a look at what the average selling price and margin of a can of green beans is on an annualized basis, they might be surprised just what their retails structure could look like.

But then again my dad always said if a frog had wings; it wouldn’t bump his (rear end) every time he hit the ground.

MNB user Gary Loehr wrote:

Perhaps Wal-Mart should become a health insurance provider for their employees and customers. They could bring hospital administrators, pharmaceutical companies and malpractice attorneys into Bentonville and ask them to justify the costs of their services. Eliminate all those providers who don't lower their rates. We could all go to doctors who received their diplomas from internet based medical schools in China. Washington hasn't made much headway against this issue, perhaps it's time for the boys in Bentonville to take a shot at it.

Another MNB user wrote:

Agree that the health care system in the country is out of control, maybe the elected officials should do something...but wait, what are they paying for their health care?

We wrote the other day about lousy advertising, and MNB user Warren Thayer responded:

I must emphatically agree. I’m forever trotting out David Ogilvy’s remark about advertising: “It’s not creative unless it sells.” It’s hit home to me even more lately, as I’ve taken to watching old “I Love Lucy” episodes (thank you, Netflix) every day for a half hour on my treadmill. Often, the old ads from the 1950s are included. They were memorable, they sold the benefit, and they sold the brand. It’s not rocket science. Why can’t we do that today?

We had a piece yesterday about Borders’ declining CD business and how they are responding to it. In our commentary we noted that this isn’t just a marketing and merchandising problem – that the digital revolution is changing consumer behavior in profound ways, and the downloading of music simply is preferred by young people. (We also noted that, ironically, retailers that got into the CD and DVD business because of concerns about book sales may find that books actually will be their salvation.)

This prompted a number of emails.

MNB user John Hennessy wrote:

Borders need only look as far as its CD prices to understand the cause of its declining music sales. I'm a huge music and book consumer, but Borders isn't getting any of my music dollars. They price CDs in the stratosphere. $18.98 for one title than can easily be found for $13.49 on and in that range at a number of other on and offline retailers. Around half that if you pick it up used.

Anyone who purchases a CD at Borders likely knows they overpaid - a lot - and vows not to be taken by them again. While immediate gratification can justify a small price premium, their uncompetitive pricing levels are at the heart of their poor music sales.

MNB user Rob Wilson wrote:

Regarding the 3/2 MNB "Borders" commentary...

As one of the dwindling number of music mavens who'd rather own and enjoy an old-fashioned "hard copy" of a professionally-produced music CD/DVD - complete with artist and production credits, attractive graphics, readable lyrics, et al) - I enjoy browsing through the CD/DVD racks at my local Borders outlets, for the sheer breadth and variety of titles and artists the chain offers, along with searching for the attractive, reasonably priced Borders-branded sampler albums they'll occasionally feature.

However, my fortnightly Borders browsing usually turns into actual purchasing only when I find select releases that I know I'll seldom find elsewhere - typically lesser-known musicians in limited release on smaller or "indie" labels.

This is simply because Borders' demands stratospheric retail prices for most audio/video product. Charging $17.99 or $18.99 for a single compact disc is not uncommon, whereas most CD purveyors ask for $3-$5 less - in exchange for keeping a far more limited selection on-hand.

I strongly believe in store brand loyalty - but for impulse purchases on a skintight budget, sometimes price sensitivity must remain a mitigating factor when approaching the checkout counter.

Another MNB user wrote:

Some years ago, I did a consulting project for a company that was contemplating an investment in the supply chain for books. They were concerned that the book market might disappear in a wave of digitization. We did extensive research and delivered 50-ish page presentation arguing that there are many reasons why books won't go away and that those categories of books (mostly references) that were high probability candidates for digitization in fact were digitized in about the first five minutes of the Internet age. The punchline of the presentation was, "If you don't believe us that the book is alive and well, just visit the Michigan Avenue (Chicago) Borders at 11:00 PM on a Friday night."

And MNB user Glenn Cantor wrote:

I am 43. Just last night, I downloaded a 3-disc, live Grateful Dead CD (from the great, Dick's Picks collection) off I-Tunes.

The suggestion to download came from an internet newsletter, and link directly to the I-Tunes section with the CD.

So, I did not have to leave my house, the suggestion was customized to my music tastes (based on an e-mail newsletter that I elected to receive), I was able to listen to samples in my home, and I can listen on both CD's (in the car) and on my I-Pod. I did not have to go anywhere, I did not have to find a store that actually sells the Dick's Picks collection, and I did not have to deal with some kid with safety pins hanging from her nose.

This process is only going to get better, quicker and cheaper as computer applications evolve.

Welcome to the 21st century, courtesy of Apple.

You think that’s great, wait until you get the gadget that allows you to plug your iPod into your cigarette lighter in the car and play its selections through the car radio.

It’ll change your life.
KC's View: