A Positive Retail Experience Proves the Need for Bricks and Mortar Stores

October 21st, 2019

I often find disappointing customer service experiences to write about.  Given consumers’ obsession with low costs, many traditional retailers have cut training and staff.  Fortunately, Best Buy appears to have invested in service to differentiate itself.  

About a year ago, we bought our son a cover for his phone.  Knowing how a teenage boy operates, we bought him one that had a lifetime warranty.  I remember thinking there’s some catch to the guarantee we had. 

As expected, he dropped his phone for the umpteenth time and the cover broke.  We finally got around to taking him back to Best Buy this past weekend.  We showed them the receipt, which they said they could have looked up, and he had a new phone cover installed in a few minutes.  It was such a positive experience, we looked at televisions.  After explaining what we were trying to do, a helpful customer service rep in the TV department offered a free in-home consultation. The pleasurable experience dealing with an inexpensive phone cover might lead to a large sale of an in-home theater system. 

To state the obvious, online sales are going to continue to grow, especially if companies are willing to subsidize delivery costs.  But “bricks and mortar” retail still has a place.  Returning or replacing items online can be a tortuous process; that’s why the biggest e-tailer in the world bought a retail store chain and has partnerships with others for product pick-ups and product returns.  The best way for traditional retail to compete is to offer great customer service.  As our world becomes increasingly impersonal, there’s a great opportunity for all businesses to create connectivity through world-class service. 

Common Sense Isn’t So Common

October 14th, 2019

I was traveling with my wife recently.  Displaying chivalry, which I rarely do, I grabbed my wife’s backpack as we boarded the plane.  I had a backpack on and placed her backpack on top of my roll on bag.  As I started down the jet way, the gate attendant said, “Sir, I cannot let you board the plane with three bags.  You’re only allowed two.”  The gate attendant saw me take my wife’s bag.  She knew I wasn’t traveling alone and trying to sneak a bag on.  After giving the gate attendant a quizzical look, I handed my wife her backpack, saying nothing.  The gate attendant checked us in.  As soon as we passed her, I placed the backpack back on my roll on bag. 

I don’t know if the gate attendant was having a bad day or just didn’t like me.  Fortunately, I thought the better of making a comment and the situation did not escalate beyond thirty seconds of annoyance. 

I really wish I made stories like this up.  I understand “the rule” that you are only allowed two carry-on bags per person.    A functioning society needs rules.  A functioning society also needs common sense.  Without both, bad things happen. 

The Manufacturing Slowdown is Here

October 7th, 2019

On July 22, I wrote a blog with the title, “Has the Industrial Recession Already Started?”  Freight companies started warning about a slowdown. 

Recent data from the ISM (Institute for Supply Chain Managers) US manufacturing purchasing managers’ index indicates manufacturing contracted in August and September.  These are the lowest readings of this index since June 2009.  Tariffs matter.  When costs go up, people buy less.  While manufacturing is a small part of the overall US economy, do not underestimate how closely tied many service industries are to manufacturing.  Expect the service sector to see a slowdown soon. 

Job creation has slowed.  During the last three months, an average of 145,000 new private sector jobs have been created in the US versus 214,000 per month in the same period last year.  To continue expanding (absorbing new entrants into the workforce, it is estimated the US needs to create 150,000 jobs per month.  Also, job growth statistics have been revised down for two of the last three months.  On a positive note, labor force participation continues to edge up, indicating more people currently outside of the workforce are looking for jobs. 

Bill Belichick, the incredible coach of the New England Patriots has a few sayings I like.  The first is, “I can only go by what I see.”  The numbers are reality.  The economy is slowing.  I don’t expect a protracted or terrible recession, especially compared to 2008 – 2009, but the economy has slowed.  The second “Belichikism” I love is, “Do your job.”  None of us can control the macro economy.  We do have some control over our own micro-economies.  Focus on doing your job and you’ll be fine.

https://www.cnbc.com/2019/10/01/us-manufacturing-economy-contracts-to-worst-level-in-a-decade.html

https://www.wsj.com/articles/u-s-private-sector-added-135-000-jobs-in-september-11570021586?mod=article_inline

Are We Losing the Ability to Connect with Each Other?

September 30th, 2019

On a recent business trip, I stayed at a hotel that was hosting a conference for a large company.  Signs welcomed attendees.  Attendees had badges and shirts that identified they worked for the company.  I got on an elevator with 5 or 6 people wearing the company’s shirts and the conference badges.  Everyone one of them was looking down at his or her phone. There was not a word to be said or even a friendly smile to the others on the elevator. 

Demonstrating my superior diplomatic skills (or as a friend often says, my ability to “stir the pot”), I asked a man next to me where he was from.  He mumbled something that sounded like Seattle.  I asked if all the others on the elevator were from Seattle.  He said, “I don’t know any of these people.”  I responded, quite loudly, “Aren’t you here to meet these people?”  He gave me a dirty look and shrugged his shoulders.  Everyone else pretended to ignore the conversation and bury themselves deeper in their phones.  Our elevator ride ended.  I think two of the people were so glued to their phones that they rode it back up!

I’m sure an HR executive planned team building activities during this conference.  There were probably “trust falls” or some other activity in which an overpaid facilitator creates an environment meant to encourage bonding.  How about banning phones on elevators or in meetings?  That might encourage people to interact and bond with each other.  And it’s free. 

The Real Class Warfare is About to Begin: Non-Government vs. Government Workers

September 23rd, 2019

During the upcoming presidential race, we are going to hear more than ever about inequality and the division it creates in the US.  Virtually every candidate for the Democratic Party presidential nomination has talked about increasing taxes on the “rich” to reduce income and wealth inequality.  A few candidates have even proposed wealth taxes.

I have yet to hear a candidate talk about the real inequality in this country: the benefits and pay government workers earn versus the benefit and pay private sector workers earn.  Ohio is proposing adjusting requirements a government worker must meet to receive full retirement benefits.  A description of the proposed changes is below.

Under the changes under consideration, a new, non law-enforcement hire would have to wait until they’re 62 and have 35 years of service credit before they could retire and receive their full pension benefits. That compares to an equivalent new hire now, who has to work until they’re 55 and have 32 years of service.

https://www.cleveland.com/open/2019/09/ohio-may-cut-benefits-for-future-state-employees-as-part-of-public-pension-fix.html

Today, an employee of the state of Ohio that has worked 32 years and earned $50,000 a year can retire at 55 with a LIFETIME pension of approximately $35,000 per year.  A private sector worker cannot touch his 401k plan at the age of 55 (unless it is a hardship) but if he could, it would require a balance of about $880,000 to create the equivalent pension the government employee will receive.  Considering the average 55 year old has less than $200,000 in a 401k account, I’m pretty sure very few will achieve lifetime income of $35,000 in retirement.  https://www.bankrate.com/retirement/average-401k-balance-by-age/

Many municipalities and states have significantly underfunded pension plans.  I won’t even try to fathom the underfunding of healthcare plans.  These government entities have to raise taxes, cut benefits, or a combination of both.  It’s not going to be pretty when private sector workers finally realize a significant portion of their taxes go to funding retirement benefits of government employees.  That day of reckoning is coming soon. 

A Sign of the Times: Oregon Union Wants to Limit Self-Checkout Machines

September 16th, 2019

Last week, the Oregon AFL-CIO announced it is preparing a ballot initiative to limit the number of self-checkout kiosks allowed in a grocery store.  If the union is successful in gaining enough signatures, the initiative will be placed on the November 2020 ballot. They cleverly named their proposal the “Grocery Store Service and Community Protection Act.”

I encourage you to read the entire text of their proposal.  It starts with,

  1.  Grocery stores provide many people with their primary place of social connection and sense of community. This is particularly true for the elderly.
  2. The increasing use of self-service checkouts – where the customer does not interact with a human — contributes to social isolation and related negative health consequences;
http://oregonvotes.org/irr/2020/041text.pdf
https://www.portlandmercury.com/blogtown/2019/09/04/27091112/proposed-2020-ballot-measure-could-limit-self-checkout-machines

I never associated self-checkouts with negative health consequences.  I think my blood pressure rises when I can’t scan something but I think it rises when a store clerk can’t scan something too.  At least in my case, I think the negative health consequences are no different than in a checkout line.  Maybe I’m the exception. 

Automation disrupts jobs.  That has been occurring since tools were invented.  No legislation will stop that.  Instead of fighting technological advances, the union would better serve its members and the public by developing training programs that teaches skills for today’s workplace environment.  But that doesn’t generate headlines.  Especially in an election year, headlines trump substance. 

(Packaging) Appearances Matter

September 9th, 2019

Given my occupation, I pay attention to packaging.  I watch how items are portrayed in advertisements.  I look at items on store shelves.  I pay attention to how items are shipped.

My wife recently ordered pillows and blankets from a high-end retailer.  The package arrived at our house looking like it was meant to go in the garbage.  I know freight companies are notorious for damaging and then repacking packages.  That was not the case in this situation.  The box and tape identified the retailer and it was clear it was not repackaged.  Whoever filled the order (the retailer or its fulfillment company) tried to put too much stuff in one box.  Fortunately, it was pillows and blankets, so nothing was damaged.  Unfortunately, the retailer is more known for its kitchen wares (figure it out yet?).  Do you think we will order plates or other breakable items from this retailer? 

In most businesses, packaging and shipping are treated as cost centers that need to be minimized.  In the age of e-commerce, they are often the only physical point of contact many customers have with a brand or retailer.  I know the world obsesses over hard dollar costs.  The extra few dollars the box would have cost pales in comparison with the lost sales dollars this retailer just experienced.  I believe the old expression is, “Penny wise and pound foolish.”  That statement defines how most companies treat packaging and shipping. 

Will We Ever Learn? Risky Mortgages are Back!

September 3rd, 2019


Just over 10 years ago, the US experienced a recession like none it had seen since the Great Depression of the 1930s.  Much of the blame for the recession fell on the mortgage industry.  Our brilliant politicians supposedly put checks and balances in place to prevent people from taking out mortgages they could not afford.  Apparently, lenders and borrowers have figured out ways around these regulations.  From the Wall Street Journal:

More than a decade after home loans triggered the worst financial crisis in a generation, the strict lending requirements put in place during its aftermath are starting to erode. Home buyers with low credit scores or high debt levels as well as those lacking traditional employment are finding it easier to get credit.

The loans have been rebranded. Largely gone are the monikers subprime and Alt-A, a type of mortgage that earned the nickname “liar loan” because so many borrowers faked their income and assets. Now they are called non-qualified, or non-QM, because they don’t comply with post crisis standards set by the Consumer Financial Protection Bureau for preventing borrowers from getting loans they can’t afford. (Emphasis added.)

Borrowers took out $45 billion of these unconventional loans in 2018, the most in a decade, and origination is on track to rise again in 2019, according to Inside Mortgage Finance, an industry research group. Such mortgages aren’t guaranteed by government agencies and typically charge higher interest rates than conventional loans. https://www.wsj.com/articles/mortgage-market-reopens-to-risky-borrowers-11566379802?mod=searchresults&page=1&pos=9

As I read this article, I thought about a meeting that occurred early in my career at I.D. Images.  We were talking about rebranding our “error” reports.  Internally, they had developed a bad reputation and we were considering using a different name to report mistakes we made.  We were debating the issue and a colleague finally said, “You can call it what you want but poop is still poop.” 

We can call these mortgages what we want but they’re still not conventional mortgages.  At the peak in 2005, over $600 billion in subprime mortgages were originated in the US.  That didn’t end well in 2007.  We’re a long way from that number, but the trend is not our friend.  Pay attention to subprime mortgage originations.  If they keep going up, it will be time to get worried. 

https://www.researchgate.net/figure/Subprime-Mortgage-Originations-Annual-Volume-and-Percent-of-Total_fig1_46469138

Are There Any Fiscal Conservatives Left?

August 26th, 2019

Last week, the US Treasury Department released its Monthly Treasury Statement.  Our federal government has spent $867 billion more than it has taken in during fiscal 2019 (October 2018 – September 2019 is the fiscal year).  That amount is almost $100 billion more than the comparable period in fiscal 2018.  If you want to learn more, follow this link. https://fiscal.treasury.gov/files/reports-statements/mts/mts0719.pdf

Bear with me while I do a little math.   Gross Domestic Product (GDP) is released quarterly on a calendar basis.  The latest release was for calendar Q2.  Seasonally adjusted annual GDP came in at $21.338 trillion for the quarter ended June 30, 2019.  Seasonally adjusted annual GDP for Q2 2018 was $20.51 trillion.  If I subtract 2018 from 2019, GDP grew $828 billion over that time period.  GDP data can be seen here.  https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey

Over that same time period (July 1, 2018 to June 30, 2019), the government ran a deficit of $919.0 billion according to the data from the US Treasury.  So the government (meaning us, the citizens and taxpayers) borrowed $919 billion to grow the economy $828 billion?  I know some of the money the government borrows is invested in long term assets and some is saved by recipients of government funds.  I also know my analysis is very simplistic, but does anyone else see a problem here?  We are in a good economy.  What will the deficit look like when the economy turns? 

Fiscal conservatism is dead.  The burden of our current consumption will fall on future generations.  They will pay for our sins.   Unfortunately, neither political party appears to have a reasonable conversation about our spending. 

Taxes, Taxes, Everywhere There’s Taxes

August 19th, 2019

France recently passed a 3% digital tax that is supposed to apply to companies with over $845 million in worldwide digital service revenue and at least $28 million of revenue in France.  Online shopping, including Amazon’s marketplace, is included in the definition of digital revenue.  The hope of the tax was to “level the playing field” between large tech companies (especially those headquartered in the US) and small companies.  The US has complained that the tax unfairly targets US companies. 

Guess what?  Amazon just announced it is raising fees for its small business customers in France by 3%!  Shocking!  Did the French government really think Amazon and other large companies would pay more taxes and, as a result, accept a lower profit margin?  Amazon’s small business customers, like the jeweler profiled in the second link below, need Amazon more than Amazon needs them.  Somehow, the French government forgot who had the power in that relationship. 

When costs go up, the end user consumer ultimately ends up paying them.  It might take a while, but eventually companies pass increases on.  Taxes are a cost.  So are tariffs, even if Peter Navarro and President Twitter pretend they are not. 

https://www.cnbc.com/2019/07/11/france-passes-digital-tax-on-us-tech-firms-despite-trade-threat.html

https://www.cnbc.com/2019/08/19/amazon-blames-frances-digital-tax-for-higher-seller-fees.html