Sunday, July 9, 2017

Sears and Kmart Seek Smaller Stores

The announcement that Kmart and Sears will be closing another 43 stores was no big surprise — more retail stores have closed in the United States this year than any year ever — but hidden in the details there was another trend that might surprise some. The company as it shrinks is planning on not just fewer stores, but also smaller stores. Many stores, that is, will be shrinking in place. I saw that happen a few years ago when a mall Sears store was reduced to one floor. That location has since closed completely, but Sears indicates that we can expect to see more stores that keep the same main entrances but have less space inside. Stores are simply too large and complicated for shoppers to figure out. After a century of ever-increasing retail space, are we ready for smaller, more focused stores? My guess is that we are.

Monday, July 3, 2017

In Search of the New Hot Dog

If what I am seeing in advertising is any indication, hot dogs have completed the transition to a one-day-a-year food for most of the people who eat them. Brands that haven’t advertised all year have been in saturation mode for the past six days in an attempt to get their share of this year’s hot dog market. It is a surprisingly fast transition in cultural terms. I can easily remember when I ate hot dogs regularly, sometimes five days in a row until the package was empty. A sharp price increase broke that pattern for me, and many other consumers were dissuaded by a series of manufacturing scandals. I no longer buy hot dogs at all, and I haven’t seen one since last summer. Hot dogs have become a gimmick. No one would consider them a practical thing to eat, but they symbolize the Independence Day holiday more than any other food item. Hot dog manufacturers in the recent advertising emphasize that hot dogs have been improved this year. I feel certain the improvements are greatly exaggerated, but regardless of any number of minor changes, hot dogs are not the easiest form of food to handle safely. Given that, there is a serious problem with eating them so infrequently. Eaters are relatively likely to find that they can’t stomach a couple of hot dogs this time around. The bad experiences make people vow to eat even fewer hot dogs, and that, in turn, makes stomach distress even more likely next time around. What is needed to save the hot dog from this downward spiral is a new kind of hot dog, one that turns the tradition on its head. The traditional hot dog was made from the worst scraps of meat — a mix of brains, skin, and internal organs that was too awful to be used in any other way. This was cheapened still more a quarter of a century ago by mixing in such extras as soy protein isolate, gum, concentrated wood smoke, and chemicals. What’s needed now is a hot dog that is designed first and foremost not to make anyone sick — made with no meat at all, no soy, no chemicals or wheat gluten. I’m not sure exactly what it would be made of, but it is surely not too much to ask. The physical form of a hot dog is so nondescript — just a tube shape filled with goop hardened by cooking until it is just barely solid — and the flavor so nonspecific, there must be fifty ways to make them that don’t lean on high-risk ingredients at all. An exact flavor match is not necessary — indeed, the new hot dogs will need to look, smell, and taste different enough that the people who got sick on the hot dogs of 2017 can be persuaded to try again in a future year. Such is the ritual importance of the hot dog on the 4th of July and so great is the risk of annually eating the current output of the hot dog factories that this hot dog redesign is almost inevitable.

Thursday, June 29, 2017

Staples Goes Private

Staples has agreed to a $7 billion buyout. The paper-and-toner retail giant will be privately owned after shareholders approve and the deal closes. The buyout is not bad news in itself for the retailer, but the deal is a measure of the troubles at Staples and across the office-supply sector. Down the road, private ownership could pave the way for a rapid shutdown, bankruptcy, or more rapid store closings if the new owners cannot find a profitable niche for the company in a post-paper world.

Sunday, June 25, 2017

Italy Liquidates 2 Veneto Banks

Authorities in Italy have spent the weekend working out how to liquidate the two insolvent banks in Veneto that observers have been worrying about all year. The failed banks are Banca Popolare di Vicenza and Veneto Banca. Though not affiliated, the two banks are being liquidated together because they are facing the same regional economic problems and are in about the same financial condition.

“Good” assets — which are not quite so good as that term usually implies — are being transferred today to Intesa Sanpaolo. Having committed to liquidate the two Veneto banks while protecting depositors and keeping branches open, the government had few good options. A proposal by a hedge fund consortium was widely reported earlier in the month but rightly ignored. The hedge funds were seeking a controlling interest in the two banks but were willing to cover only a tenth of the capital shortfall. Such a plan would have postponed today’s liquidation by a few months at best, and it ran the risk of degenerating into litigation and chaos. Intesa Sanpaolo will apparently act as the government’s agent in managing and liquidating some of the assets it is not purchasing.

In retrospect, it would have been better if the two banks had been wound down five years ago. As it is, the bank liquidation will cost taxpayers an estimated €17 billion, of which €5 billion is being paid today. It was only two years ago, though, that auditors discovered problems in the loan portfolios and misselling of bonds, and not until last Friday that the European Central Bank referred the two banks for liquidation. Government lawyers then spent the weekend drafting a decree for the liquidation and transfer.

Ultimately not all of the branches will be able to stay open, but Italian regulators would prefer to have them close more quietly at another time rather than during such a visible crisis. Intesa is chipping in an estimated €60 million to protect bondholders, funds that would have been legally difficult for the government to provide. The fate of bondholders was an important political consideration because the banks fraudulently sold bonds to thousands of retail depositors, telling them that the bonds were certificates of deposit.

Tuesday, June 20, 2017

At Subway, Kiosks Over Ingredients

Embattled fast-food giant Subway had a plan to reverse its five-year decline by boosting the quality of its ingredients. Food quality has declined since the chain’s peak in the 1990s while the market has been moving in the opposite direction, and regular customers have been going elsewhere in search of a healthier lunch. As of a year ago, the plan at Subway was for the rollout of new ingredients to start this summer.

Well, forget it. Subway faces other problems that include the death of its founder and the jailing of its spokesmodel, and executives decided better food was more than the restaurant chain could take on right now. Instead, Subway’s major initiative this year will be in-store kiosks where customers can tap out orders on a touch-screen, copying the success of this approach at Panera. Subway is also rolling out a mobile app that provides the same functionality. You’ll get the same dull fare, but faster than before.

Maybe it’s the right move. The digital ordering platform should cut in-store operating costs, eventually providing the financial wiggle room needed to address the bigger issue of food quality.