business news in context, analysis with attitude

Responding to our story about Amazon-owned Whole Foods expanding the number of markets where Prime members can get discounts, one MNB reader wrote:

You know, this will be interesting; to see if Amazon does something new for Prime members, or with the data they collect. Most retailer loyalty cards are nothing more than entitlement cards used for card members to qualify for “Loyalty Card Customer” discounts. Loyalty programs, for the most part have just been a way to mitigate ad markdowns. Which sounds exactly like Amazon is going to do for Prime members that shop at Whole Foods….offer deeper discounts to a defined membership group.

Now if such a program drives an increase in Prime membership which as you mention increases store level customer count, then that’s a win for them if the incremental markdowns at store level don’t outweigh the Prime membership revenue through directing Whole Foods customers to buy more gross profit light products each visit…nothing like increasing ones ad mix and everything that goes with that to throw a wrench in store operations….and profitability.

MNB reader Kris Kenyon Jackson wrote:

I was in the Jacksonville, FL Whole Foods and saw that Sunscreen was 50% off for prime members. I loaded up and bought way more than I originally intended as this was such a great deal! So I saved a ton but also bought more, so it’s a win/win for all!

On the subject of endangered malls, MNB reader Glenn Cantor wrote:

Instead of the closure of shopping entities that we currently call “malls,” I think the name and concept of what we perceive as a cluster of connected stores will supplant traditional malls.
For example, retail town centers are everywhere.  They combine restaurants, small stores, and entertainment with larger, stand-alone stores located on the perimeters of the overall property.
Instead, it would appear that stores like JC Penney are threatened, and not necessarily retail shopping.

From another reader:

As a kid who grew up in arguably the height of the Mall, I believe their potential saving could be in what the kids always found attractive about them. Hint, it wasn’t buying stuff. At least not for our group. The real value was that you could meet all of your friends there and interact away from the house or neighborhood.
Turn the malls into a source of community with the benefit of some great food opportunities that go beyond renting space to the local chains and sprinkle in some services and you could be on to something.
I work from home and would welcome a space that I could go to get some work done while having the ability to actually walk to a great lunch and maybe grab some groceries on the way out. I cannot think I am alone in this area. I would make that a separate space from the entertainment options to keep the worlds divided.
Make it a walkable living community in the suburbs with desirable condos and it could be the new hot living destination!

Yesterday, we took note of a CNBC interview with former Walmart CEO Bill Simon, who the story says “slammed Amazon for using cloud and ad revenues to support what he called meager retail profits.”

Simon told CNBC that Amazon has been “gaining traction and profitability by other business activities that have nothing to do with retail," including Amazon Web Services and advertising. Walmart, on the other hand, “went out head to head, knuckle to knuckle and won market share in retail by executing a business model that customers wanted.”

I commented, in part:

First of all, let me say that I respect Bill Simon’s career and especially his military service - he spent 25 years in the U.S. Navy and U.S. Navy Reserve.

But I’m really getting tired of his whining about Amazon - these days, he seems to make a habit of appearing either on CNBC or Fox Business and complaining about how Amazon is treated and evaluated, and how unfair it all is. I wish he’d just knock it off … though, to be fair, his comments do reflect how some folks in the retailing community think. They complain rather than compete effectively.

I don’t think there’s any question that Amazon has figured out a formula that helps to support its retailing business, which continues to evolve as the company looks for new competitive advantages. But that’s a smart thing, not something to mock. They figured out a better way, or at least a more effective way, which was something that other retailers were not able to do.

Now it is up to other retailers - such as Walmart - to figure out how to be competitive, as opposed to whining about it.

Simon … might have been better off wondering why he didn’t figure out a way to better compete with Amazon, and peer around the corner into the future, when he was in Walmart’s c-suite between 2010 and 2014, a time when Amazon was achieving considerable competitive traction. If he’d done a better job then - he was replaced because of disappointing store sales - maybe current CEO Doug McMillon wouldn’t have to make all the expensive strategic moves he’s making now just to close the online gap between Walmart and Amazon.

On the other hand, it is possible that economic circumstances made it impossible for Simon to do what needed to be done then, even if he knew what to do. But he should keep in mind that economic circumstances now make it possible for Amazon to do what it does, and necessary for Walmart to do what it is doing.

I’m just asking Simon to stop whining. Show a little style, concede that Amazon has been smart enough to reinvent the game and create a new economic model, and talk about what its competitors must do to differentiate themselves and succeed.

MNB reader Robert Dyer responded:

As I read your story on Bill Simon’s observations on Amazon and their ability to offset low margins in retail with the higher margins in cloud services, it brought to mind a similar strategy that Safeway utilized in their attempt to keep their retail pricing competitive – Blackhawk.  Blackhawk was their gift card subsidiary that they sold in to other retailers and merchandised through kiosks.  If you have bought a gift card at a kiosk in a grocery/drug retailer, it most likely sat on a Blackhawk kiosk.  For years Blackhawk masked the true profitability of Safeway, until it was sold and split off from Safeway through investor pressure.  Soon afterwards, as the true financial picture was revealed, Safeway was merged with Albertsons.
Maybe in the future, given a similar investor pressure to realize improved investor returns, Amazon might have to do likewise.  But given the high level of appreciation of Amazon stock and their current trajectory of success, I do not see that happening any time soon.

MNB reader Charles P. Moore wrote:

Tough but fair response to Bill Simon, ex-CEO of Walmart.

Seems to me that anyone from Walmart (even a former leader) decrying Amazon in this area is a bit of 'pot meet kettle’ situation. It can be argued that Amazon’s practices are 'predatory’ in so far as profits from one area of the business (or capital raises) allow them to price below actual cost in order to drive other competitors out of business. But Walmart (and lots of big box retailers) deployed a very similar strategy of pricing differentially by market in order to drive out competition during their national expansion phase. Could certainly be described as ‘predatory’ as well.

So, perhaps Simon has Walmart’s blessing to make these arguments, that is, to promote a legal rationale for a DOJ antitrust action that would slow down Amazon a notch.

For better or for worse, if we do see a DOJ case with Amazon, it’s likely more about Bezos and the Washington Post than the actual practices.

Meanwhile, this may become a bit of a Coke vs Pepsi battle in which the winners are Coke and Pepsi, with everyone else squeezed.

From another MNB reader:

I’m with you on Simon’s commentary.  Bill was out-strategized by Amazon. For a long-time military leader, that Bill didn’t lead the company into unchartered waters, is on him. He exited with lots of stock that has done very well since his departure so let’s not feel too sad for Bill.
For whatever reason, Bill was unable to sell a different vision of success to the Walmart Board during his tenure as CEO.  I don’t mean to sound critical – but he needs to take a page from President GW Bush playbook and stay silent now that he’s out of the corner office.  Bill was unable to develop a formula for “selling more” – which is necessary in successful retail (and business) today.

And from another:

Of course there is a measure of respect for Bill Simon but what he is complaining about is realistically just a broader and more updated portfolio of businesses at Amazon than at WalMart.

Seems like in the late 90’s as WalMart steamrolled across the continent and globe with Supercenters, they used food in their portfolio and priced it with the profits of the rest of the store to come out whole….it sure was tough to only have food in those days.

Good point.

And, from one more:

Finally! Thank you KC for saying what needed to be said. About time he gets off that high horse.
KC's View: