Bike Shops: Does Progress Hurt Innovation?

The New York Times: “Some smaller bike companies have sold their bikes online for some time, but now the industry’s largest manufacturers are offering bikes directly to consumers via their web pages. All of this presents the possibility of better service and perhaps even lower prices for consumers. But it has also raised concerns for the future of the neighborhood bike shop.”

“Some of the problem lies with the big bike manufacturers … The biggest companies provide incentives for shops to carry their brands; generally, if 60 percent or more of a shop’s inventory is from a single top-selling brand, the store will get better terms on its credit … These shops can have a hard time making room for small, innovative companies that may interest more cyclists.”

“Even Raleigh bicycles, the fifth-best-selling brand in the United States, was shut out of many stores … Raleigh used to encourage shops to carry its bikes and accessories, but it recently dropped those incentives.” Chris Speyer, a Raleigh executive, comments: “It was not healthy for anyone anymore. It was more like the mortgage crisis than a proper retail relationship.”

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Nike Luxury: It Means Better Service

Business Insider: “For anyone who has recently bought Nike shoes or apparel, or walked into one of its latest stores, this won’t be news: Nike has slid upscale recently … The brand’s promotional efforts skew towards its newest and greatest inventions, as well as its more expensive offerings.”

“More recently, Nike has signaled a different approach to welcoming customers into its stores. Its new store in New York’s Soho neighborhood offers customers the opportunity to make one-on-one appointments with Nike staff … Customers can bring in all kinds of concerns for the staff to help with … The store also has areas where customers can test out its shoes and equipment in an ‘immersive experience.’ It represents a shift in how the company sees brick-and-mortar retail, and is being called a guide for future stores from the brand.”

“Nike clearly believes that an elevated price point also means elevated service, and it’s headed full speed in that direction. As Nike places a larger emphasis on its direct-to-consumer division, it’s also taking greater care of how it is perceived by customers, as well as how it interacts with those customers.”

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Costco Golf Balls: The New ‘Two-Buck Chuck’

The Wall Street Journal: Costco, the warehouse retail giant, first began selling golf balls last fall, under its Kirkland Signature brand that is affixed to a wide range of products and carries discount prices. Available for $29.99 for two dozen, the balls instantly ranked among the cheapest on the market … But what made the balls a hot item among fanatical golfers is the revelation that, by some accounts, they perform like rivals that sell for more than twice as much.”

“That idea sent shock waves through a billion-dollar industry, left Costco out of stock for weeks at a time and caused secondary-market prices for the ball to soar. Its popularity is threatening one of the sport’s long-held consumer beliefs: when it comes to the quality of golf balls, you generally get what you pay for.”

“The balls were made at a factory in South Korea by a company called Nassau Golf, which also manufactures balls for TaylorMade, one of the major equipment manufacturers … the company had an excess supply that it sold to Costco through a third-party trader … According to a Nassau executive based in Europe … both Nassau and TaylorMade, its biggest client, are unhappy with the rise of the $1.25 golf ball and that the company won’t sell excess supply in such large quantities again.”

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Crowd Cow: The New Digital Slaughterhouse

The New York Times: Crowd Cow is “an online service that sells whole cows from small ranchers, divided into manageable orders, usually about 10 to 12 pounds, and delivered to homes as frozen, vacuum-sealed cuts … Rather than putting its own brand on the meat it buys, Crowd Cow advertises the beef’s producers and allows them to tell the stories of their ranches on its website.”

“Joe Heitzeberg, the chief executive of Crowd Cow, which has sold nearly 200 cows online, founded the company with Ethan Lowry. He said their idea was to teach the consumer about the particulars of each ranch.” He explains: “We’re saying it’s like microbrews and wine. There are differences. We want you to understand the differences.”

“Most of the beef on Crowd Cow and similar websites is grass-fed, which research has shown has higher levels of healthful omega-3 fatty acids … While even large commercial cattle operations now sell grass-fed beef and many supermarkets stock it, some consumers prefer the beef they get from small producers online … Much of its beef comes in variety packs: A recent sale from Step by Step Farm in Curtis, Wash., featured a $69 package that included four eight-ounce flat iron steaks, two 10-ounce chuck steaks and two pounds of ground beef.”

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Alit Crafts Winery Transparency

Quartz: Mark Tarlov’s “plan is to do for wine what Everlane has done for cashmere sweaters: eliminate distributors and retailers to bring what would traditionally be a $60-100 bottle of wine to online customers for a fraction of the cost. Also like Everlane, he wants to upend the status quo by publicly declaring his input costs—crafting the story of how he spends those dollars into an accessible course in wine appreciation.”

“Wine pricing is generally opaque—more an art than a science. But Tarlov clearly lists the input costs for his on Alit’s website, outlining just what customers are paying for when they fork over $27.45 for a bottle of his 2015 Pinot Noir from Oregon’s Willamette Valley.”

“Alit’s Pinot Noir is still more than double the average price for wine purchased in the US—even if it’s relatively inexpensive for a French oak-aged Pinot from Willamette Valley. But Tarlov is telling customers the investment is directly reflected in the product.”

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Constitutional Crisis: Freedom of Promotional Speech

The Wall Street Journal: “For decades (New York State) has barred companies from tacking on a fee when customers pay with plastic instead of cash. A hair salon now challenges that law, claiming businesses have a constitutional right to impose surcharges—and that behavioral economics provides the theoretical foundation.”

“The salon can already give customers, say, $1 off for paying in cash. So why does it want the ability to add a $1 surcharge for paying with credit? What’s the difference? Enter behavioral economics … the salon argues that surcharges are more effective at changing behavior because consumers suffer from a ‘loss aversion’ bias. More customers will decide to pay with cash, the theory goes, if faced with a ‘loss’ (the $1 surcharge) than a ‘gain’ (the $1 discount).”

“The salon argues that the only meaningful difference between the two pricing schemes is what they’re called—and that’s a matter of free speech. Barring the ‘surcharge’ label but not the ‘discount’ label, the argument goes, violates the First Amendment.”

Update: “The justices’ view of the case seemed to turn on where they stood in a rolling debate at the court about how the First Amendment applies to laws regulating economic matters, an issue that generally divides the justices along ideological lines,” The New York Times reports.

“Some of the more liberal justices said that the law was an unexceptional and permissible economic regulation.” Justice Stephen Bryer comments: “What this statute says is, you can’t impose a surcharge… What’s that got to do with speech?” Justice Anthony M. Kennedy counters: “It’s a matter of how the pricing structure is communicated in the speech.”

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Store Check: Why is TJ Maxx Doing So Well?

Editor’s Note: After reading news stories about the struggles of Macy’s, Kohl’s, Sears and JC Penney, I visited a TJ Maxx yesterday (Norwalk, Conn.) to see why it is doing so well. It’s just an ordinary and ostensibly boring strip-mall store. The location is nothing special. The store itself is not new, but it is neat and orderly, well lighted, and well maintained. The sight lines are clear from one end of the store to the other, and the aisles are wide. Racks are marked, by (low) price signage, and all items are also clearly marked, with prices in large digits. Tags include a comparative retail price.

Name brands are easy to spot. A big sign on the wall lets you know that they have the same brands you’ll find at the mall, for less. Lots of displays with attractive, unusual items (treasure hunt). In addition to extensive men’s, women’s and children’s apparel (most of the store), there’s luggage, handbags, household goods, bedding, beauty care, toys, etc. Everything looks like someone just put it back in its proper place.

Oh, and restrooms are marked with a big sign, and the men’s room was not only clean, but decorated. Checkout, bordered by shelves of impulse items, is a single, long, snaky line, but moves quickly. Sure, there’s a world of complexity under its hood that makes the TJ Maxx experience what it is, but to the shopper, its magic is as plain as a sugar doughnut. PS: I do think their logo could use an update.

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Amazon Holdouts: Not ‘Prime’ Customers

The Wall Street Journal: “Seventeen percent of U.S. primary household shoppers … say they never shop on Amazon … While the percentage has steadily declined over the past five years, roughly 22 million American households didn’t use the retailer this year. Those Amazon holdouts tend to be older than U.S. shoppers overall, with an average age of 57 versus 49, respectively … and they tend to earn less—$45,700 in annual income, compared with $62,800 among all shoppers. They are less likely to have or live with children.”

“For some it was their income or living situation, for others it was simply their preference or convictions … Lack of access to web-enabled devices, or living in places where it is difficult to receive packages, are key reasons people avoid e-commerce … Seanna Tucker, a 26-year-old content strategist in St. Louis, said she had never been a big Amazon shopper, but decided to avoid it on principle a couple of years ago after a dispute between Amazon and publishers over book pricing.”

“In recent years, both Amazon and its competitors, like Wal-Mart Stores Inc., have worked to bring more shoppers online and boost sales with membership programs, like Amazon Prime, which provides perks like video streaming and free, fast shipping for an annual fee of $99 … Meg Hoehn, a mother of two and teacher in Minneapolis, said she and her husband used to have a student membership to Amazon Prime but decided against renewing it, in part to become more financially responsible.” She explains: “We bought a ton of stuff on there … It was too convenient and too easy. We spend less money because we don’t have Prime anymore.”

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GNC Addresses Its Prices Crisis

The Wall Street Journal: “In October, the acting chief executive of GNC Holdings Inc. made a confession: The big vitamin retailer had ‘a badly broken business model.’ Its prices were too confusing and constantly undercut by online competitors. Sales were plunging. Behind the scenes, executives had decided the only way to fix things was to start over. So on Wednesday, GNC will close its 4,400 U.S. stores to overhaul its pricing system, which featured as many as four different prices on some labels.”

“When the stores reopen the next day, labels for GNC’s protein powders, herbal remedies and nutritional supplements will feature just one price. There will still be discounts, but about half of the company’s products will start at lower prices than before, while a quarter of the prices will be higher … While heavy promotions, especially during the holiday period, have become a sophisticated calculus, the nature of setting retail prices has become more complex. Online stores can set algorithms to change prices by the hour and nearly every shopper is armed with a smartphone, making the market transparent.”

“At GNC, executives gathered input from outside consultants, ran tests in 10 markets and had to get the support of outside vendors as well as its franchise owners. The company eliminated gaps between web and store prices, moved to end a discount-card program and determined new prices by comparing products it carried against similar ones at competitors.”

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Primark & The Art of Bargain Shopping

The Wall Street Journal: “Shopping at Primark stores, stylish Brits know, requires strategy and skill. As many retailers struggle, the destination for trendy $5 sweaters and colorful $3 T-shirts is planning to expand in the U.S. beyond the handful of stores it currently has in the Northeast. The store doesn’t sell online, but operates in nine countries outside its home in the U.K. and Ireland. Its six U.S. stores include one at the original site of Filene’s Basement in Boston.”

“To visit Primark is to navigate throngs of people. They hunt through crammed racks for jeans that look almost like a pair spotted on the runway but at a fraction of the price, with the fear that they may disappear into another shopper’s arms in minutes … Primark stores are large, and product moves quickly. The largest store, in Manchester (UK), occupies 155,000-square feet over three floors.”

“On a recent tour around London’s flagship Primark store on Oxford Street, David Latham, commercial director of Primark, said products are generally organized into three categories. First, there are ‘basics,’ such as plain T-shirts and undergarments that might go for around £2. Then, there are ‘essential’ items like denim roughly in the £8 range. Finally, there are fashion items, which likely have higher price points and more in-demand looks. He recommended mixing and matching across these three categories. Savvy locals, said Mr. Lathan, come into the store ‘three to four times a week’.”

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