Best Buy can beat Amazon.com with Low Service Model

Published by clickbroker.blogspot.com.

Best Buy (BBY) has been talking up its ability to compete against Amazon.com (AMZN) with knowledgeable salespeople and limited price matching.  They are down talking show rooming for Amazon and up talking their equivalent of Apple’s (AAPL) genius bar (the in house Geek Squad).  Copying other companies formulas never works - just ask Microsoft (MSFT).

Apple salespeople are experts on one brand (their own) with a limited number of products.  Furthermore most of the Apple products are interrelated; the iPhone, iPads, iPods and Macs share many features such as AppleTalk.  Best Buy sells thousands of unrelated products making it impossible to provide the same level of knowledgeable salespeople.  Even in specific departments such as mobile phones my experience has been that the salespeople do not know their products.

Best Buy cannot separate the sales experience from the Geek experience.  Customers will never venture to the Geeks if they encounter an uninspiring sales experience.

Best Buy does have the opportunity to be the first to create the virtual (online) experience in the brick and mortar world.  Amazon captures the electronics customers that do their own research and do not need hand holding.  These are high margin low service customers.  These customers are coming to Best Buy anyway for show rooming, so converting them does not require an expensive sales force.

Best Buy should simply allow customers to scan each item in the show room, enter their credit card and select back of the store pickup or home delivery.  All accomplished without waiting for a salesperson to retrieve the item and waiting again in line for a cashier; plus instant gratification.  Best Buy can afford to lose people that need more hand holding.  The airlines learned years ago that only profitable customers are worth betting their survival on.

Best Buy needs to combine its greatest asset (the show room) with Amazon’s greatest asset (a friction free purchase experience) to succeed.  An efficient low cost, high tech buying experience will bring the ecommerce virtual world to the doorstep of the big box retailer.

Sphere: Related Content

NRA Promotes a Dying Industry

Published by clickbroker.blogspot.com.

The New York Times After Florida Shooting, N.R.A. Crowd Sticks to What It Knows reveals the culture underlying its membership.  The Times profiles an aging demographic focused more on fear of being attacked by a younger, stronger assailant than the sport of hunting.  Members at the N.R.A. convention cited doubts about whether to believe Trayvon Martin’s innocence or George Zimmerman’s claim of self-defense.  Worries about losing gun rights long and arduously fought to achieve were also prevalent.

When presidential candidate Mitt Romney addressed the convention about his fake joy of hunting, it showed his disconnect with the culture.  This appears to be a culture of disturbed old men similar to the Tea Party movement.  And just like the Tea Party it also appears to garner its power from corporate contributions – the gun industry and others.

The questions for gun control advocates:  Are more guns being sold to fewer users?  Will the gun culture die off with the aging baby boomers just like golf and the Buick and Mercury boulevard cruisers of old?  Will the new culture of fear cause more Trayvon Martin incidents?

I have no way of knowing the exact reason for increased legal gun sales.  Unfounded concern about President Obama restricting gun rights is a factor.  So might also be laws such as Florida’s “Stand Your Ground.”  But there does seem to be a stock up mentality.

Without getting into the arguments against automatic assault weapons and cartridges that can hold from 10 to 30 rounds, I think liberals should focus more on the gun demographics.  I believe that over time the legal base of gun ownership will fall; freeing state and federal legislation controlling illegal gun ownership to be enacted.  The N.R.A. will lose its stranglehold over the next 10 years.

Lastly, I believe the culture of fear being promoted by the N.R.A. is quite damaging.  My biggest question to George Zimmerman is why did he need to carry a concealed weapon to go shopping at Target?

Interestingly none of the conventioneers interviewed for the article cited gun on gun fear.  They don’t want to confront an armed assailant; they only want to confront an unarmed assailant.  How brave!

Sphere: Related Content

Bleak Future for Luxury Used Cars

Published by clickbroker.blogspot.com.

Many aspirational consumers weigh the choice between a used luxury car and a moderate new car of the same price. With mechanical reliability improving over the years, luxury might actually be affordable. That is if you just focus on the engine and transmission. The expensive nuisance repairs such as power window motors could lead to caution. But I believe the obsolescence and high repair cost of the infotainment systems will lead potential buyers away from used luxury cars.

Luxury was previously the sum of the total driving experience. Power, ride, handling and the sum of the gadgets had to be integrated in a way that made the vehicle more than its individual parts. The Europeans (BMW and Mercedes) were masters at this, and Cadillac (GM) has made great strides in this direction.

Now the newest Apple (APPL) generation of drivers cares more about having an iPhone jack than horsepower and handling. Infotainment is king. Car makers are listening and going many steps beyond. The infotainment systems integrate not only music, navigation and phone, but also air conditioning and other gadget controls. If the screen goes blank, you are sweating and have no sound. The more integration, the higher the repair bills. Now you have to fix the “radio” to get the air to work.

The higher MPG standards will also make it more difficult to distinguish luxury. Many new or improved technologies such as direct injection and turbo charging are moving down to the lowest priced cars much quicker to improve mileage. Most new models are also designed with weight saving high strength steel. This expense previously would have been reserved for more expensive models. Again, this speeds obsolescence of older models.

So if technology is not a major differentiator of levels of luxury, performance is a hard sell, and the best infotainment is available in compacts; what is luxury? I think it can be best described as interior fit and finish. Trouble is that in many cases the interior wears out before the mechanicals.

Middle class buyers are flocking to Hyundai not because their cars are composed like the total experience of the iPad, or extension of body feel of a sports car. The reason most cited in publications is Hyundai provides the most gadgets for the money. If you don’t think performance is dead, try finding a car with a manual transmission.

The generation that trades in their iPhones every year or two does not want yesterday’s technology, no matter how much leather it’s packaged in. Unlike Gucci and Coach (COH), resale value is the key to selling luxury cars.

Sphere: Related Content

Thoughts for April 2012: Consumerism

Published by clickbroker.blogspot.com.

I have been thinking for the last several months about the waves of consumerism. Over the weekend I visited the Apple store (AAPL) to see if the new iPad was as hot to the touch as reported. The bottom left hand corner of the iPad was uncomfortably hot. The resolution and ergonomics was pure Apple, but Steve Jobs would have never let this product out of the labs. Then on Saturday night I saw a TV commercial touting a $1500 rebate on the BMW 5 Series. Meanwhile, it wasn’t that long ago that Buick (GM) substantially increased the price of their successful Lacrosse. GM’s latest sales figures show Buick may have been a bit too aggressive.

Retailers such as Macy’s (M) have pleased investors by taking advantage of the first wave of consumerism following the Great Recession. Call it austerity burnout or renewed optimism if you like. I see over investor optimism for increased consumer spending with increased employment.

Increased spending with each wave of increased employment has been the historic pattern, just like “housing has never collapsed nationwide.” The Great Recession has suppressed non-skilled and semi-skilled wages permanently, thereby eliminating the aspirational middle class. In this recovery each succeeding wave of consumers will have less spending power than the previous. This is why Apple, BMW and Buick are rushing with various degrees of success to sop up the dollars available – before it’s too late.

Sphere: Related Content

The Illusion of Obamacare’s “Mandate”

Original Post by WallStreetWeather.net

When is a "mandate" not a mandate? When it’s totally unenforceable.

For more than two years Republicans have been questioning the Individual Responsibility Section of the Patient Protection and Affordable Care Act (a.k.a. “Obamacare”). President Obama has insisted that the Constitution’s “necessary and proper” clause allows for the “mandate” that all U.S. citizens have health insurance starting in 2014.

It appears that both sides of the argument are moot. The penalty in the law for not purchasing health insurance is not criminally enforceable. Nor can the government put a lien or levy on any property of an individual who does not purchase health insurance and refuses to pay the penalty.(1) In searching the 974 page PDF document of the law, the word “mandate” is only mentioned three times and in none of these instances is it in the context of individual responsibility.(2)

Never has so much time and money been wasted arguing about something that is an illusion with no basis in reality whatsoever! The “mandate” is nothing but political propaganda. President Obama never wanted to have a “mandate” in the first place. What he got as a compromise with the health insurance industry is a “mandate” that is unenforceable. The President never chose the unenforceability of the requirement to purchase health insurance as a legal defense.

From the Republicans perspective, the penalty is not significant enough to overcome individuals from gaming a guaranteed issue health insurance system. They argue economically it’s cheaper to pay the penalty and only purchase insurance when you perceive significant medical expenses are looming. The counterargument is that a delay in purchasing insurance would not account for a severe accident, heart attack or other urgent care situations that occur before insurance could be brought into effect.

For the sophisticated, it’s a matter of calculating how much of their assets (if any) would be at risk by forgoing insurance. What’s more difficult to understand is why the Administration has never rebutted the Republicans by saying no one is being forced to purchase insurance. Individuals have the free will to choose to purchase insurance or pay a penalty. (And being non enforceable, the penalty doesn’t even have to be paid!) So as you can see, the “mandate” is a mirage.

Another interesting perspective to analyze is the difference between a tax, a penalty, a credit, and a deduction. Is a tax deduction for home mortgage interest the same as a penalty for not taking out a mortgage? Is the $7,500 tax credit for purchasing an electric vehicle the same as a $7,500 penalty for the individual who does not purchase an electric vehicle? I see no difference whatsoever between a penalty for not acting and an incentive for acting. Therefore, in the words of the 26 states, there is no difference between ACTIVITY and INACTIVITY! The current tax code incentivizes and penalizes both activities and inactivities routinely. Yet neither political party is outraged by the abusiveness of the tax code in behavioral economics.

As the Supreme Court begins oral arguments March 26, there appears to be a logical progression to the order that the Court is addressing the issues. The Court will address whether the penalty is a tax first, then the individual responsibility issue, followed by the severability issue, and conclude with the expansion of Medicaid. If it turns out that the penalty is unenforceable, then individual responsibility may not even be an issue.

(1) Click here for the full text of The Affordable Care Act; go to page 162 of the PDF file and scroll down the page to the section: “Subtitle F – Shared Responsibility for Health Care Part I - Individual Responsibility SEC. 1501 Requirement To Maintain Minimum Essential Coverage.”

Additionally, anyone who is not a U.S. citizen is not required to purchase health insurance (and is therefore exempt from the penalty.) There is also a “religious conscience exemption.” (Although they are not specifically named, this exemption from insurance and the penalty would apply to religious groups such as the Amish.) There is also a “hardship” exemption “to be determined by the Secretary of HHS.”

(2) The word “mandate” can be found on PDF pages 529, 695, and 696.

Sphere: Related Content

What if there really is deflation?

Published by clickbroker.blogspot.com.

Hard as it is to believe with high food and energy prices, statistics can tell you anything you want to hear. What can Bernanke actually do about deflation? Common wisdom would say QE3, 4, etc. But QE does not drop spendable money from helicopters as Ben wants us to visualize. It has not even expanded credit; it just lowered the cost of credit. And that is only for the best credits.

The majority of QE dollars have been sterilized by finding their back to the Fed’s balance sheet in the form of excess bank reserves. To Bernanke’s great distress, only Congress can hand people checks. So to quote Al Gore the “inconvenient truth” is that even if Bernanke can convince us that we have deflation, there is absolutely nothing he can do about it.

[JavaScript Games by Michael Steinberg: Color Splat Game, Magic Word Game and Scramble Word Game.]

Sphere: Related Content

Extreme Couponing leads to Bad Health

Published by clickbroker.blogspot.com.

I watch with fascination as TLC’s Extreme Couponers (DISCA) stock up hundred of bottles of soda, frozen sweet treats, energy drinks, protein bars, can goods and other nonperishables that can’t possibly cleanse or provide any real nutrition to the body. As a person who completely divorced myself from processed foods, I wonder what I could eat if they invited me to dinner.

The show starts out each episode with a walkthrough of the participant’s stock pile; their neatly organized warehouse either contained in their basement or garage. Interestingly, in the most recent episode I saw the warehouse had spread to industrial style shelving in the master bedroom. How romantic is that?

These reality stars and their families are either obese or on their way to obesity. They talk about saving so much money that they can eat for free and use the money to go on vacation. While I find the show’s premise and characters entertaining, there is always a degree of sadness watching their health deteriorating. This is especially true seeing parents giving “free” cookies to their obese children and bragging that they will be eating “free” canned spaghetti with “free” tater tots for dinner.

The show is a celebration of processed food and supersizing. But the show could also be thought of as an extension of the lifestyle originated by Costco (COST) and now promoted by Groupon. These companies charge their members for the privilege of buying far more than they need. Savings? At least they are not encouraging customers to dive into the recycle bins for 50 copies of the Sunday coupon inserts.

Admittedly, the game is as important to the couponers as the savings. Some even give a large portion of their stockpiles to charity. But the real lesson of the show is awakening to how out of balance the American food supply is. We have a government subsidizing packaged food to the detriment of fresh food through industrial corn policies. Corn is the foundation of most processed foods.

Regardless of your political beliefs, America cannot solve its healthcare crisis until it solves its food crisis. We need to rebalance our subsidies from frozen to fresh, from industrial corn to table green vegetables and from sugar to fruit. This is not the nanny state, it is the reality. No disclosures. .

[JavaScript Games by Michael Steinberg: Color Splat Game, Magic Word Game and Scramble Word Game.]

Sphere: Related Content

Economic Shorts: Volkswagen and a Billionaire’s Chinese Misadventure

Published by clickbroker.blogspot.com.

While the Treasury and Federal Reserve’s “strong dollar policy” is killing our currency, some empirical evidence might be showing its benefit. Volkswagen will soon be rolling out its new Americanized “supersized” Passat from Chattanooga. The car is to be built for America in America. Previously VW could not compete in the American mass market with German built cars.

CEO Martin Winterkorn spoke of benefits beyond anticompetitive exchange rates: “Trends are set in America … A U.S. factory can capitalize on those trends faster.” Speed to market and agility will drive America’s new manufacturing renaissance.

If housing bust billionaire John Paulson got fooled in the Chinese stock market, amateurs don’t stand a chance. Paulson & Co has lost more than $500m after selling its entire holding in Sino Forest, the Chinese forestry company fighting allegations of fraud. I have read many recent stories of Chinese companies reporting different results to American investors than Chinese regulators.

No disclosures.

[JavaScript Games by Michael Steinberg: Color Splat Game, Magic Word Game and Scramble Word Game.]

Sphere: Related Content

Is Bloomingdale’s Macy’s Ugly Duckling?

Published by clickbroker.blogspot.com.

Strange question in the title readers might think. After all Bloomingdale’s is Macy’s (M) upscale branded department stores. But anecdotally it appears that Macy’s is following Target’s (TGT) restructuring to concentrate on its core brand. Dayton Hudson shed its moderate and upscale department stores and renamed itself Target. Now all the resources are dedicated to one core brand.

Macy’s became national through a series of acquisitions, bankruptcies and other reorganizations. Then they went through the process of rebranding most of their stores into Macy’s. Finally, the company was renamed from Federated to Macy’s. Only two brands remain – Macy’s and Bloomingdale’s.

Recently I visited Bloomingdale’s for the first time in a few years in a very upscale mall. Tacky is a kind description. The Macy’s store in the same mall was immaculate; Macy’s higher end merchandise overlapped Bloomingdale’s. Macy’s was crowded and Bloomingdale’s was empty.

Bloomingdale’s had not been updated for many years. The “classically modern” signature black and white tile was clearly dated. The carpets were stained and worn; the mauve-colored Formica in vogue about two decades ago on the checkout counters was faded and peeling.

Macy’s was loaded with merchandize while Bloomingdale’s was thinly stocked. Some parallels existed. Salespeople at both stores wore solid black business casual and both stores contained sale racks. Why the disparity in investment?

This same mall also contains pristine Nordstrom (JWN) and Saks (SKS) stores. Why would the upscale shopper not shop at Bloomingdale’s competitors?

No disclosures.

[JavaScript Games by Michael Steinberg: Color Splat Game, Magic Word Game and Scramble Word Game.]

Sphere: Related Content

Where does Kohl’s fit in?

Published by clickbroker.blogspot.com.

The aspirational hierarchy used to be Saks (SKS), Bloomingdales (M) and friends, then Macy’s (M), followed by JC Penney (JCP) and Kohl’s (KSS), and then Target (TGT), Wal-Mart (WMT) and Kmart (SHLD). I can’t even place the aspirational desire for Sears (SHLD). During good economic times the hierarchy was easy to maintain, with cheap material and labor costs and free spending consumers.

The story of this past year has been higher material costs and disappearing cheap labor from so-called developing nations. The profits of higher priced retailers are supported by the brand value of the merchandise they sell. No surprise in Wall Street’s enthusiasm. The trouble comes in the middle and lower tiers.

Given that a $60 shirt does not cost double that of a $15 shirt to manufacture, brand equity plays a big role in profits. This gives a midline retailer a great deal of flexibility to challenge both the higher and lower ends. To a certain degree Macy’s is making it more difficult for Target, Wal-Mart and Kmart to present quality bargains. Target’s high end in clothing overlaps Macy’s low end.

For sure there are cultural differences in the customers that Macy’s and Wal-Mart attract. But there is probably a lot of overlap in Macy’s and Target’s customers.

So where does this leave Kohl’s? They have much nicer stores than JP Penney and the big box discounters. But if Macy’s is stretching down to Target, the middle ground that Kohl’s is fighting for is no longer needed. Many of the brands Kohl’s carries can be found at Macy’s for the same or lower price.

Frankly, Macy’s survival instinct in the highly competitive space has surprised me. They have proven far more flexible than I had imagined. Shopping Macy’s discounts and coupons gives more value than Kohl’s.

I believe that Kohl’s survival is based on coddling its middle age customers who are intimidated by Macy’s.

[JavaScript Games by Michael Steinberg: Color Splat Game, Magic Word Game and Scramble Word Game.]

Sphere: Related Content