Retailers should look to the past to compete against Amazon

Amazon has engulfed nearly every aspect of retail and is positioned for more. Its North American sales have quintupled since 2010. Between 2015 and 2016, Amazon captured well over a third of all American online retail sales—including 43 percent in 2016. Moves to vertically integrate its supply chain by solidifying an ocean freight license, marketing in-home deliver, and creating a $1.5 billion cargo airline would make the 1920s robber barons blush. Traditional retailers looking to compete against Amazon face even bigger obstacles: Amazon’s market capitalization. In the last 10 years, retailer mainstays Sears, JC Penny and Kohls lost an average of 82 percent of their valueAmazon gained 1,934 percent, allowing it access to the cheap capital the finances its growth.

It isn’t just the company’s world-class logistics traditional retailers are facing—it’s the threat Amazon poses to different retail segments combined with its reputation among consumers. The recent Whole Foods acquisition instantly erased $12 billion in shareholder value from six major food retailers. Meanwhile, consumers love Amazon. It is one of the most trusted brands in America. It controls one of the world’s least exclusive clubs: in 2017, 80 million Americans were members of its Prime 2-day shipping and entertainment program (by contrast, France has a population of about 69 million people).

How can retailers compete with Amazon? It’s an 800-pound gorilla that is beloved by consumers, with exceptional operations and a limitless pocketbook.

This is an attempt to scratch the surface of the tactics and strategies that powered history’s Fortune 100 retailers. The analysis is based off a data set created from Fortune Magazine, industry publications, Capital IQ, and public financial documents. It was then organized across 10 industries, 22 supersectors, and 30 sectors through Russell’s Industry Classification Benchmark (ICB). Drawing on this data, six major insights emerged—each powering the eras’ greatest retailers. Some are obvious, some aren’t. All are required if modern retail executives want to compete against Amazon.

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It’s 2017 and the impossible has happened. I agree with Ross Douthat.

It’s 2017 and the impossible has happened. I agree with Ross Douthat.

Douthat is an op-ed writer for the New York Times. He shouldn’t be. He once argued that people waiting longer to have children is “a decadence that first arose in the West but now haunts rich societies around the globe.” He spent most of 2016 arguing that Trump would not be the Republican nominee, nor would he win the Presidency. After Donald Trump won the Presidential election and explicitly campaigned against Republican policies, Douthat thought to himself, “Democrats need to become more like Republicans.” He wrote anti-gay marriage columns as recently as 2013. For some reason, people take him seriously.

Today he told a Friedman-esq story about a friend’s theory on Trump shaming businesses into not leaving.

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Book Review: Rana Foroohar’s Makers and Takers

In 1946, over a decade before he became the architect of the Vietnam War, Robert McNamara was hired to rehaul the Ford Motor Company. It was in desperate need of help. The iconic corporation was hemorrhaging about $9 million a month. McNamara, an accountant by training who rose to prominence by applying statistical methods to warfare planning, immediately transformed the culture.

Decisions were no longer made from the eye of a designer, or the experience of the line-worker. He immediately developed complex financial metrics to measure a product’s viability. Every penny spent in manufacturing, marketing, design, and engineering had to be justified and rationalized through this analysis. It shifted power from engineers to MBAs. Within three years he doubled the company’s profits. In Makers and Takers, Rana Foroohar argues that this was the end of American global automobile leadership. As crazy as it sounds, the question needs to be asked: Did modern finance destroy innovation?

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Jon Gerner’s The Idea Factory

Bell Labs, the world’s most innovative organization in history, had a simple view on innovation. Whatever improvement came out of their Murray Hill headquarters had to do the job “better, or cheaper, or both” than its predecessor. In thirty years, this philosophy allowed the company to develop semiconductors, lasers, fiber optics, solar panels, the Unix operating system, the C++ programing language, cellular phone networks, and much more. At its peak, America’s monopolistic telephone company was one of the most profitable organizations in the world. In his book The Idea Factory, Jon Gertner makes the case that nearly every single improvement in modern communications can be traced back to one lab, at one company—AT&T. Trillions of dollars in economic growth, millions of jobs, all from one group.

The question is, what can we learn from Bell Labs?

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How do you rebuild America? Stop treating government like a start up.

It’s news to no one that America’s middle class has been devastated by computers and globalization. With income inequality on everyone’s mind, it’s now the billion-dollar question policy makers face over the next twenty years. The standard solution follows something like this: The entire economy seems to be stagnant, except for Silicon Valley. Government needs to copy that and become more like a start up. People gravitate to this because it makes sense on a superficial level.

But society has different goals than a 5 person team fresh out of Y-Combinator.

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Change Management is the tactical implementation of strategy

Change Management is a vague concept. It has been around for about fifty years, but there it lacks an 100 percent agreed upon definition. A cynic would say it’s almost like people built an entire industry without fully understanding what it is they were claiming to do.  John Kotter, who popularized the term, originally considered it an 8-step linear process. PROSCI, the largest and most well known change management firm, defined it as “the discipline that guides how we prepare, equip and support individuals to successfully adopt change in order to drive organizational success and outcomes.”

These are partially correct, but holistically wrong. Change Management is just the tactical implementation of strategy. Continue reading

The Revolutionary Logic Behind Chip Kelly’s Madness

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hip Kelly is an interesting man. He was an unassuming former D-1AA defensive back who became a successful offensive coordinator and found himself the most wanted college football coach in America. In his first game as the head coach of the Oregon Ducks, his team managed just 153 yards and scored only 8 points. A season ticket holder wrote him asking for his money back. Kelly mailed him a personal check for $439.

Like I said, Chip Kelly is an interesting man.

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And We Wonder Why the GM Recall is a Diaster

On July 22, 2014 General Motors announced they would recall an additional 800,000 cars, bringing their annual total to 29,000,000. According to The New York Times the cars have been called back for a number of problems including: “seats, air bags and turn signals, parts that may not have been welded together properly, and a loss of power steering.” General Motors knew about the problems since at least 2004. They did nothing. In fact, they threatened consumers who asked questions about malfunctions after their spouses and friends died driving the cars. 13 deaths have been linked to GM’s failure.

Pundits everywhere are talking about the value of leadership at GM, if there’s any question about the value of their leadership please, do yourself a favor and read this article from 2012. GM’s answer to declining millennial sales was to hire a Marketing Director whose solution was to “infuse itself” with the same insights that “made MTV reality shows like “Jersey Shore” and “Team Mom” breakout hits”.

Translated: Someone in GM thought it was a good idea to copy television shows that are universally regarded as absolute shit, the scorn of the nation, an embarrassment to everyone involved. 

Look on the bright side people. Millennials may be driving a $16,000 death trap, but at least it looks great in “techno pink,” “lemonade” and “denim.”

This seems relevant:

A corporation ages like a person. As the years go by and the founders die off, making way for the bureaucrats of the second and third generations, the ecstatic, risk-taking, just for the hell of it spirit that built the company gives way to a comfortable middle age…If the business is wealthy and strong, the executives who come to power in these later generations will be characterized by the worst kind of self confidence: they think the money will always be there because it always has been.
Rich Cohen, The Fish that Ate the Whale

Why Outsource?

When you throw away the books and the theory and look behind the curtain to see public and business strategy being implemented something becomes clear: most people have no idea what they are doing.  They may speak the language and look the part, but deep down most decision makers do what they think a person in their situation should do. Why outsource production? Because that’s what the book says to do.

Last month Esther Kaplan published a phenomenal article in VQR titled Losing Sparta. In it, Kaplan reviews a recent decision by Philips to close an award winning light fixture manufacturing plant in Sparta, Tennessee. What’s fascinating and important about this story is that there was no business case to outsource the plant’s production. It had it all. It was a days ride from most U.S. markets. It had a brand new production line that could be switched and retooled in minutes. It was named one of the best factories in America by Industry Week. Yet by 2010 the plant was closed and all of the production was shipped to Monterrey, Mexico.  Now manufacturing lead times at the plant have ballooned from ten days to eight weeks. Phillips lost nearly a third of their market share  in the products previously produced in Sparta.

Why did Philips decide to outsource? The answer is quite simply a lack of critical thought at the executive level. Kaplan explains:

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