business news in context, analysis with attitude

• The Wall Street Journal reports this morning that the states of Connecticut and Maryland are looking to close a tax loophole popular with retailers such as Wal-Mart.

The loophole allowed retailers to deduct from their taxes rent payments made to so-called captive real-estate investment trusts.

Connecticut Attorney General Richard Blumenthal tells the Journal that his office is investigating the practice.

"It is our policy to comply with all the laws in every state in which Wal-Mart does business and these are lawful structures," John Simley, a Wal-Mart spokesman, tell the Journal. "Even without the tax benefits, there are compelling reasons to use this type of structure creating a separate vehicle solely to manage real estate and administer capital requirements."

• The Wall Street Journal reports on Wal-Mart’s practice of having executives and other employees designate Value Producing Items (VPIs), for the sole purpose of focusing marketing and merchandising attention on specific products in such a way that drives sales.

One example: “In late 2005, Unilever made a special pitch for its environmentally friendly All Small & Mighty laundry detergent to Wal-Mart Stores Inc. Chief Executive Lee Scott.

“Mr. Scott, who had pledged to make Wal-Mart a green company, was so impressed he designated the product one of his personal VPIs for 2006, and from then on did everything he could to sell the detergent. He touted it in a TV interview with Charlie Rose and urged Wal-Mart employees to give it prominent display in stores.

“The detergent rang up $100 million in U.S. sales last year, its first full year on the market. And Unilever executives estimate that Mr. Scott was responsible for 15% to 20% of that. "’t was our most successful new-item launch’ of 2006, Unilever Vice President Joe Cavaliere says.
KC's View:
This is a good piece, and you should check out the Journal this morning to read the whole thing.

The central lesson is this one: retailers that actually try to sell stuff, as opposed to just putting them on the shelves and collecting slotting allowances, can move the needle in terms of sales and profits.