“Anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that 'my ignorance is just as good as your knowledge.'” — Isaac Asimov
So, let’s start with the basic premise: Consumers are not economists.
This means that normal people who have a job and then decide what to do with their hard-earned money often make decisions that economists don’t expect.
The latest example is when, how much, and why people save money. In short, too much saving means not enough spending means a lack of aggregate demand in the economy, the thinking goes. “Secular stagnation” is another term that might apply.
In a note to clients last week, Deutsche Bank’s Binky Chadha looked at the relationship between interest rates and savings rates, finding that — of course — consumers aren’t exactly acting the way the economists at the Federal Reserve might expect.
Namely, people are saving money despite low interest rates when many economists expected or hoped these folks would spend that money to buy stuff or put it in assets that actually earn some return.
Origins: Coca-Cola was named back in 1885 for its two “medicinal” ingredients: extract of coca leaves and kola nuts. Just how much cocaine was originally in the formulation is hard to determine, but the drink undeniably contained some cocaine in its early days. Frederick Allen describes the public attitude towards cocaine that existed as Coca-Cola’s developers worked on perfecting their formula in 1891:
The first stirrings of a national debate had begun over the negative aspects of cocaine, and manufacturers were growing defensive over charges that use of their products might lead to “cocainism” or the “cocaine habit”. The full-throated fury against cocaine was still a few years off, and Candler and Robinson were anxious to continue promoting the supposed benefits of the coca leaf, but there was no reason to risk putting more than a tiny bit of coca extract in their syrup. They cut the amount to a mere trace.
Allen also explains that cocaine continued to be an ingredient in the syrup in order to protect the trade name “Coca-Cola”:
But neither could Candler take the simple step of eliminating the fluid extract of coca leaves from the formula. Candler believed that his product’s name had to be descriptive, and that he must have at least some by-product of the coca leaf in the syrup (along with some kola) to protect his right to the name Coca-Cola. Protecting the name was critical. Candler had no patent on the syrup itself. Anyone could make an imitation. But no one could put the label “Coca-Cola” on an imitation so long as Candler owned the name. The name was the thing of real value, and the registered trademark was its only safeguard. Coca leaves had to stay in the syrup.
How much cocaine was in that “mere trace” is impossible to say, but we do know that by 1902 it was as little as 1/400 of a grain of cocaine per ounce of syrup. Coca-Cola didn’t become completely cocaine-free until 1929, but there was scarcely any of the drug left in the drink by then:
By Heath’s calculation, the amount of ecgonine [an alkaloid in the coca leaf that could be synthesized to create cocaine] was infinitesimal: no more than one part in 50 million. In an entire year’s supply of 25-odd million gallons of Coca-Cola syrup, Heath figured, there might be six-hundredths of an ounce of cocaine.
The conventional wisdom wrote off the shopping mall long ago, but while no one was looking, the reinvented mall succeeded in attracting new urban and ethnic clienteles.
Maybe it’s that reporters don’t like malls. After all they tend to be young, highly urban, single, and highly educated, not the key demographic at your local Macy’s, much less H&M.
But for years now, the conventional wisdom in the media is that the mall—particularly in the suburbs—is doomed. Here a typical sample from the Guardian: “Once-proud visions of suburban utopia are left to rot as online shopping and the resurgence of city centers make malls increasingly irrelevant to young people.”
To be sure, there are hundreds of outmoded malls, long-in-the-tooth complexes most commonly found in working class suburbs and inner ring city neighborhoods. Some will never come back. By some estimates, something close to 10 to 15 percent of the country’s estimated 1,000 malls will go out of business over the next decade; Many of them are located in areas where budgets have been very tight, with locals tending to shop at “power centers” built around low-end discounters such as Target or Walmart.
But the notion that, Americans don’t like malls anymore is misleading. The roughly 400 malls that service more affluent communities—like those typically anchored by a Bloomingdale’s or Nordstrom—recovered most quickly from the recession, and now appear to be doing quite well.
To suggest malls are dead based on failure in failed places, would be like suggesting that the manifest shortcomings of Baltimore or Buffalo means urban centers are not doing well. Like cities, not all malls are alike.
Looking across the entire landscape, it’s clear the mall is transforming itself to meet the needs of a changing society but is hardly in its death throes. Last year, vacancy rates in malls flattened for the first time since the recession. The gains from e-commerce—6.5 percent of sales last year, up from 3.5 percent in 2010—has had an effect, but bricks and mortar still constitutes upwards of 90 percent of sales. There’s still little new construction, roughly one-seventh what it was in 2006, but that’s roughly twice that in 2010.
Shopping in stores, according to a recent study from A.T. Kearney, is preferred over on-line-only by every age group, including, most surprisingly, millennials, although many of them research on the web, then visit the store, and sometimes then order on line. The malls that are flourishing tend to be newer or retrofitted and are pitched at expanding demographic markets. These “cathedrals of commerce” in the past tended to reflect the mass sameness of mid-century America; those in the future focus on distinct niches—ethnic, income, even geographical—that are not only viable but highly profitable.
The discount retailer’s efforts to jazz up its stores and improve its merchandise are already paying off as customers trade up for more expensive stuff.
Target TGT 0.33% reported better first-quarter results than Walmart WMT-0.69% , showing that its effort to get its “Tar-zhay” aura back is working.
Since Brian Cornell became CEO last year, the retailer has been looking to better cater to middle-class and upper-middle-class shoppers by borrowing some moves from the department store playbook. It’s put mannequins on the floor to showcase clothes and added beauty sections staffed by associates who give advice.
An even bigger project is to reinvent Target’s dull food assortment, which is expected to be completed next year. That includes more focus on organic and natural food and less on processed food younger shoppers and more affluent consumers are increasingly avoiding.
Target had lost its way during the recession, trying to compete head on with Walmart on price and letting a lot of its merchandise become indistinguishable from rivals. Target may be mass merchandise retailer, like Walmart, but its shoppers are five years younger on average than its rivals, and make approximately 23% more ($68,957) per year, according to new data from Kantar Retail. That means it has to offer something different, whether it be occasional collaborations with top designers like Lilly Pulitzer, or hip cookware or organic baby food.
Macy’s has a similar strategy that includes a plan to make 150 of its nearly 800 stores more upscale.
Since its turnaround started going strong last year, Target’s efforts have seemed to paying off. In-store shopper traffic rose last quarter even as online sales gained 38%. And more importantly for Target, customers are spending more at a time when many retailers including Walmart, Macy’s M -1.26% , and Kohl’s KSS -0.99% have reported mediocre sales.
Target’s performance was “driven by a lower level of promotional activity this year and a trend in which our guests are trading up to higher quality and premium branded items,” Target’s chief merchant, Kathryn Tesija, told Wall Street analysts on Wednesday.
During the quarter, Target’s gross profit margin rate edged up almost one percentage point to 30.4%, largely because it discounted fewer products. What’s happening is that Target is selling fewer items overall but at higher prices. Customers bought 3.6% fewer items per trip, according to the company, but paid 5.1% more.
Twin Peaks attributes its success to a basic understanding of the sexes. “Men are simple creatures and so you don’t have to get too crazy to get them in the door,” Kristen Colby, the director of marketing for Twin Peaks franchise, told the Huffington Post earlier this year. She said that beer, sports, and beautiful women are all it takes.
An internal branding memo provided to ThinkProgress from a current employee at a Twin Peaks restaurant, who preferred to remain anonymous over fears about losing their job, backs up that claim. That employee said the memo was distributed to all the franchises nationwide, as well as handed out to waitresses.
According to the document, the restaurant wants to target guys “who love to have their ego stroked by beautiful girls,” and promises to provide an environment “that feeds their ego with the attention they crave.” They describe their typical customer as someone who likes “attention from beautiful girls and being recognized in front of the guys,” as well as someone who doesn’t want to be asked what he’s thinking:
Whole Foods made one mistake that blew the door open for competitors: not doing enough to shed its expensive, “Whole Paycheck” image.
As sales of organic food boom, consumers have figured out that they can buy it for cheaper at Whole Foods’ competitors.
A bag of quinoa is $9.99 at Whole Foods, but $4.99 at Trader Joe’s. Meanwhile, gluten-free cheese pizza is $7.49 at Whole Foods vs. $4.99 at Trader Joe’s, according to dcist.com. Consumers view Trader Joe’s as high-quality but inexpensive.
Meanwhile, Whole Foods is seen as being too expensive. The grocery chain responded by lowering some prices; however, JPMorgan analysts say the company isn’t doing enough to market bargains.
This means customers most likely don’t realize that Whole Foods is getting cheaper.
Competitors like Trader Joe’s, Aldi, and Kroger are able to offer cheaper prices by selling private labels instead of brand names.
More than 80% of Trader Joe’s products are in-house, meaning that customers can’t get them anywhere else and the grocer can sell them at lower prices. The creativity of the in-house products is also important. Some of the most popular products include Chili-Lime Chicken Burgers, Cookie Butter (a cookie-flavored nut butter), and corn and chili salsa.
SAN FRANCISCO — There are two ways for start-ups to take on Amazon, the reigning monarch of American online shopping.
One is to mount a frontal attack: Raise hundreds of millions of dollars from investors, build huge warehouses and a complex delivery infrastructure, establish deals with thousands of merchant partners and aim, through sheer brute force, to compete with Jeff Bezos’ behemoth on the very qualities that have made Amazon peerless — selection, speed, customer friendliness and price.
The other way is to do something out of left field. While ceding some advantages to the Bezos machine — admitting that it may never beat Amazon on price, say — a start-up could cleverly marshal new technologies to attack the giant on more favorable ground. For instance, as I argued in December, a new breed of on-demand companies like Postmates and Instacart is challenging Amazon on same-day delivery by using smartphone-routed workers to pick up goods from local stores and efficiently cart them to customers.
In the last few months, two retail veterans have been working on companies that explore these different avenues of breaking into online commerce. Ron Johnson, who, with Steve Jobs, created Apple’s lucrative physical stores, has been working on something out of left field — a selective online store called Enjoy, which, for no additional cost, will send an expert to hand-deliver tech products and spend an hour helping people set up and learn to use their new things. The service, Mr. Johnson said, is a smartphone-era take on his past at Apple — an effort to create the friendliness of an Apple Store in people’s homes and offices.
Then there’s Marc Lore, an e-commerce veteran who in 2010 sold his company, Quidsi, to Amazon for about $550 million. Mr. Lore’s new service, Jet.com, represents a frontal assault on Amazon. Mr. Lore has raised more than $200 million — a staggering sum before even opening up shop — to create a nationwide e-commerce giant to compete with Amazon on selection, service and, especially, price. Jet’s promise is simple and, if the company can keep it, potentially momentous: to offer the absolute lowest price on just about everything, from paper towels to oatmeal to tennis rackets, guaranteed.
I’ve been chatting with Mr. Johnson and Mr. Lore about their ambitions, and testing each of their services in early, prerelease form. While their companies are completely different — and, like all start-ups, face long odds in reaching a critical mass of users — they each represent potentially transformative ways to shop online. Their efforts suggest that online commerce remains a huge area of innovation and opportunity — and that Amazon, as big and indomitable as it sometimes seems, doesn’t have the whole thing locked up.
“E-commerce today is primarily logistics and convenience — you order today and, boom, get it tomorrow,” Mr. Johnson said in a recent interview at Enjoy’s headquarters, a bustling warehouse in Menlo Park, Calif. That model, he said, would remain a primary way people buy things, but smartphone-powered local delivery networks have also opened up a potential new way of shopping that Mr. Johnson calls “personal commerce.”
Mr. Johnson began noodling around with the idea that would become Enjoy early in 2014, about a year after he was dumped from a disastrous run as chief executive of J.C. Penney. He became intrigued, he said, by the possibility of reimagining Personal Setup, a service he created at Apple that offers free in-store assistance to people who buy new products.
“I remember when we launched that, Steve said, ‘Are you sure you can do that? Your stores are busy,’” Mr. Johnson said. “But I thought it was the right thing to do. And within a matter of weeks of launching it, well over half the purchases were being set up in a store.”
Enjoy, which has recruited several former Apple employees, aims to offer a similar kind of setup, but at a time and place of the customer’s choosing. Among other things, Enjoy’s representatives will show you how to transfer your data from your old smartphone to your new one, train you to shoot and edit video on a GoPro, or explain how to add music to your Sonos audio system. As I saw in my own session with an Enjoy rep, the company will even teach you how to fly your new drone.
Enjoy is starting small. The company, which has raised around $30 million from investors, is starting out in just the San Francisco Bay Area this week and in New York City next Wednesday. Enjoy does not compete with Amazon on selection; it offers only about a dozen or so high-margin tech products for sale, among them laptops, GoPros, drones and, in an exclusive deal, smartphones and tablets purchased from AT&T.
Mr. Johnson believes that by limiting selection, Enjoy can offer free delivery and setup. Because it only needs to stock high-end products, the company hopes to squeeze enough out of each purchase to cover delivery and personal consultation.
Enjoy’s big bet is that it can stock, route and schedule appointments efficiently enough to justify its staff of traveling experts — all of whom, in an interesting twist, are salaried employees and not hired on contract, a model used by many other logistics start-ups, including Uber.
Enjoy is in stark contrast with Jet, which, when it opens to the public in early July, does not aim to start small. Right out of the gate, it makes a huge promise: “You should never find an item that’s more expensive on Jet than anywhere else,” Mr. Lore told me this week.
Mr. Lore says he believes he can keep that promise thanks to an unusual business model. Like Costco, Jet will charge an annual membership fee, in this case $49.99. That fee is intended to free Mr. Lore from making any profit on each item — and thus pass all potential savings to customers.
I’ve been using Jet for about a week and a half, and have found it a work in progress. The site’s selection, search functions and product descriptions are not polished, and it is missing useful features like reviews and recommendations. Mr. Lore said many of these shortcomings should be fixed by the time Jet goes public.
Right now, Jet is working well enough to bolster Mr. Lore’s basic claim — on dozens of items I searched for, Jet was cheaper, sometimes unbelievably so, than Amazon, Walmart or anywhere else online. For instance, a 40-pack of Duracell AA batteries on Amazon sells for $16.99. On Jet, the same pack is $13.70. If you add more items to your cart, Jet reduces the cost further. So, by ordering the batteries as part of a larger cart, I cut the price down to just under $11, about a third less than Amazon’s price.
I noticed this effect on multiple orders across a wide range of household staples I usually order, from cooking oil to aluminum foil to shampoo to baby diapers. Jet’s sticker prices are low, but when I created large carts, the prices shrank even more. My child’s diapers, ordered in bulk, cost me 21 cents each, compared with 29 cents at Amazon.
Still, there are some disadvantages: Jet’s fastest items ship in two days, slower than Amazon’s next- or same-day shipping, and a huge number of its goods ship in three to five days. It also does not offer an Amazon Prime-like free shipping service; you pay $5.99 for all orders under $35, after which your order ships free.
These limitations suggest that Jet is going after an audience that’s different from Amazon’s — one that is less affluent, less hooked on impulse buying and more interested in discounts. “For most households, the proposition of paying $50 to Jet and saving $200 for the year, that’s a no-brainer thing,” Mr. Lore said.
What’s most fascinating about the e-commerce industry is that neither Mr. Lore’s frontal attack nor Mr. Johnson’s flanking maneuver is an obvious loser. Amazon is almost 22 years old, and every year it captures an ever-greater slice of national shopping. And yet, in the overall scheme of American commerce, it is tiny.