Wednesday, January 31, 2018

Hawaii Missile Alert Shows Lack of Civil Will

The false missile alert in Hawaii, we have learned, was the result of a rogue drill. The drill was meant to test the ability of civil defense officials to respond to an alert, but workers and a supervisor weren’t properly prepared for the drill, and the wording of the alert in the drill incorrectly contained a statement saying it was not a drill. Hawaii has temporarily suspended all such drills. Knowing that there was never any true information indicating a danger lightens the situation somewhat but is not as reassuring as it might be.

The problem of the rogue drill was compounded by at least five other problems. There are weaknesses in the user interface of the software used by state civil defense workers to send alerts. The state had no plan in place to retract an incorrect alert, and that was the main reason it took most of an hour to issue a retraction. The Pentagon and White House also obviously did not have a plan to react to this scenario. The governor was unable to respond quickly because he had lost his Twitter password.

The whole situation points to a lack of civil will. The officials charged with a response in this specific situation were not particularly interested in forging an effective response while the masses who did respond to the alert were prevented from getting any meaningful information on the events that were taking place. Secrecy and opacity worked against the government in this episode. An institution created for the purpose of a coherent collective response to a crisis instead became an obstacle that prevented any meaningful response.

There were plenty of people, more than a million paying close attention in Hawaii and beyond, who could have helped sort things out if they had not been kept completely in the dark. More than a dozen crises of 2017 showed how well Americans self-organize when the situation calls for it. In the false Hawaii missile alert, the government was the obstacle that prevented that from happening.

Tuesday, January 30, 2018

After Weak Sales, Future in Doubt at Toys ‘R’ Us

A source connected to Toys ‘R’ Us told a reporter at CNBC that holiday season sales at the bankrupt toy giant were so poor that its bankruptcy financing is being called into question.

We already knew that stock, traffic, and revenue were down during the holiday shopping season at Toys ‘R’ Us, but prices too were lower than planned as the retailer “discounted roughly 10 percent more of its products in holiday 2017 compared with the prior year.”

Deeper in the story is the hint that the two largest toy manufacturers, Mattel and Hasbro, might not support an exit from bankruptcy for Toys ‘R’ Us. These two manufacturers supply most of the products sold in Toys ‘R’ Us despite having a smaller market share in every other distribution channel, so they would lose a significant amount of market presence if Toys ‘R’ Us were to close. Analysts had previously assumed these two manufacturers would support Toys ‘R’ Us no matter what happened, but with the whole toy industry in decline, toy manufacturers are not financially strong enough to prop up a perpetually struggling retailer. The planned liquidation of 20 percent of Toys ‘R’ Us U.S. stores and dozens more at the U.K. subsidiary already put unusual financial pressure on the toy manufacturers.

Targeting Health Care Paperwork

The headline that shook the health insurance sector this morning: “Amazon, Berkshire Hathaway, and JPMorgan Chase to partner on US employee health care.”

While details are few, this is the largest new initiative in U.S. health care in several years. The three employers have 1 million employees, so the new company could, at launch, control 1 percent of the U.S. health care market. The paperwork burden will be the initial focus:

"The healthcare system is complex, and we enter into this challenge open-eyed about the degree of difficulty," said Amazon CEO Jeff Bezos. "Hard as it might be, reducing healthcare's burden on the economy while improving outcomes for employees and their families would be worth the effort."

"Our people want transparency, knowledge and control when it comes to managing their healthcare," said JPMorgan Chase CEO Jamie Dimon. "The three of our companies have extraordinary resources, and our goal is to create solutions that benefit our U.S. employees, their families and, potentially, all Americans."

The new company's goal at first will be to target technology solutions to simplify the health-care system.

Any technology-focused effort could surely find a way to streamline the administrative burden of health care. In its current form, health care data flow is a hodgepodge of papers, fax machines, web portals, spreadsheets, data warehouses, and password-protected files attached to email messages. The office buildings where health coverage decisions are made are larger than hospitals. Data leaks are so common that most Americans have had parts of their health history exposed. Insurers so routinely decline coverage for needed medical treatments that health care costs are the leading cause of bankruptcy among those with or without health coverage, and the potential inability to get medical treatment is one of the all-pervasive anxieties in American life. The bar is set so low, any company determined to take a fresh look at the problem could easily do better.

Though the initial focus on paperwork points to the greatest potential for efficiencies that could put new pressure on health care companies, the sector is equally worried about another detail: the new joint venture will not be expected to make a profit. This is why CVS and several other health care stocks are down 6 percent this morning. It is hard for a profit-making company to compete with one that is just trying to solve a problem.

Wednesday, January 24, 2018

Toys ‘R’ Us Closes 20% of Stores

While we wait for a restructuring plan from Toys ‘R’ Us, the clock is ticking, and the bankrupt retailer had to make some quick decisions about store closings. The store closing plan (PDF) filed last night in bankruptcy court and pending court approval, would close about 180 Toys ‘R’ Us and Babies ‘R’ Us locations, about 20 percent of stores. The store closing list (PDF pages 72-74, 82) includes many locations where the two stores are located together. In total, 79 Toys ‘R’ Us stores, 126 Babies ‘R’ Us stores, and one outlet store will close.

The affected stores are expected to completely liquidate between early February and early April. I have seen photos from December of nearly bare shelves in Toys ‘R’ Us stores, so there will not be as much stock to liquidate as you would normally expect to see in a store closing. It will not be a surprise if workers move the remaining toys to a small area at the front of the store to make it easier for shoppers to find the merchandise.

Deciding what stores to close is not the same as writing a restructuring plan, and only the legal deadlines provide assurance that such a plan is on the way. The store closing plan and the simultaneous letter to loyal customers point to the principles in play as the company tries to forge a plan, but these early documents provide little insight into the practical steps that must follow. Toys ‘R’ Us went into bankruptcy without a plan and then suffered a disastrous December in stores. It is suffering not just from a high debt load and its own missteps, but also from larger trends unfavorable to toys, children’s books, and movie tie-ins. These headwinds make it unlikely that a toy retailer can increase revenue no matter how well-managed it is.

There is little margin for error, then, as Toys ‘R’ Us writes its plan, yet everything we have seen so far has the air of procrastination and resistance – errors that would tend to leave a struggling company too large and too fragile to survive after its restructuring. It is hard for me to imagine how Toys ‘R’ Us can rebuild its customer experience as it says it must while operating for the next five years or longer at a loss.

But those details will follow. For now, closing 20 percent of stores is a step forward that, as the company put it in its letter to customers, gives it a better chance of carrying on.

Toys ‘R’ Us stores closing
ARFort Smith7821
AZParadise Valley 5645
CAPuente Hills5614
CAMission Bay5628
CAYuba City5832
CASan Rafael5829
CAE. San Jose5819
CASanta Ana7081
CTNorth Haven6366
FLSt. Petersburg8735
FLRoyal Palm Beach8702
FLCoral Springs6755
IAS. Des Moines9517
ILHighland Park6026
KYSt. Mathews8914
MITraverse City6079
MIAnn Arbor9270
MOCape Girardeau9519
NYMiddle Village6333
NYGlens Falls6367
OHWestern Hills8929
OKOklahoma City7804
PARoss Park Mall9215
PABeaver Valley9218
SDRapid City9536
TXDallas Galleria9561
TXWest El Paso7028
Babies ‘R’ Us stores closing
ARLittle Rock7712
CASimi Valley6540
CASanta Clarita6581
CAPuente Hills5614
CAWestminster 6463
CAMira Mesa6557
CASan Rafael5829
CAE. San Jose5819
CASan Jose/Alameda9569
CAUnion City6431
CTNorth Haven6366
FLOrange Park6428
FLAltamonte Spring8893
FLBoca Raton6409
FLPort St. Lucie6577
FLRoyal Palm Beach8702
FLCoral Springs6755
ILDes Moines9587
ILVernon Hills9293
KSWichita 6550
KSOverland Park9556
MAFramingham Shoppers World Plaza6450
MIGrand Rapids9260
MIAnn Arbor6442
NJNorth Brunswick6369
NJCherry Hill6379
NJMt. Olive6479
NVNW Las Vegas5674
NVSpring Valley6580
NYEast Hanover6503
NYMiddle Village6333
NYCollege Point6389
NYUnion Square6538
SCN. Charleston8888
TXDallas Galleria9561
VAPotomac Mills8885
VANewport News6439
Toys ‘R’ Us outlet store closing

Monday, January 15, 2018

A Missile Alert and Civil Angst

The missiles were coming. The broadcast text and television message was clear enough. “BALLISTIC MISSILE THREAT INBOUND TO HAWAII. SEEK IMMEDIATE SHELTER. THIS IS NOT A DRILL.” I saw the message echoed on Twitter and decided the missiles didn’t exist. It was all a mistake, though that was easy for me to say. I was nowhere near Hawaii.

But then, despite the distance, I grew worried when half an hour went by and no definitive correction or clarification came in. Finally, confirmation came in that the alert was the mistake that it appeared to be. Ironically, this news came to me by way of CBC News in Canada. Their contacts in Ottawa may have had reliable information sooner than the American news media trying to get in touch with officials in Washington.

If this was an unsettling episode for me, I learned it was far worse for people in Hawaii. Take shelter — what does that mean if the hazard is a ballistic missile? I heard stories of people sitting on the floor in the garage or getting in the car and heading for the hills. Some fraction of a million people were convinced they were going to die. The roughly 38 minutes they waited must have seemed like a month. Some reported a feeling of isolation and helplessness. It was hard to know what was happening or where anyone else was. There probably wasn’t enough time to respond anyway.

With this as a backdrop, the official response, when it did arrive, was anything but reassuring. The indifference and inaction were striking. The Pentagon never issued a statement. The President learned of the crisis but did not want to interrupt his golf game. The civil defense authorities in Hawaii realized they had issued a false alert within four minutes but took an additional 34 minutes to figure out how to issue a correction. Later the White House issued a statement that appeared to say that missile defense was “a state issue,” a stark contradiction to long-held U.S. policies on national defense. I saw bot accounts reflexively criticize people who asked on Twitter for accurate information on what had happened; “stay out of politics,” the bots suggested, hardly something a human could say to someone who had just experienced the life-or-death question of a missile strike.

There wasn’t much news coverage because of the holiday weekend, but I think this episode will have a lasting impact on the American psyche. The number of people affected was not just the nearly 1 percent of the U.S. population who received and responded to the alert. Their friends and family members and anyone who ever visited Hawaii would be affected, reaching in varying degrees around one fourth of the national population. The collective impact on us is bigger than just the irritation of a fire drill. There is concern at what was revealed by the official response. Everyone is left with the unavoidable question, if this had been a real missile attack, would the national response have been equally indifferent and inept? Did the President know the missiles were not real when he decided to continue to the next hole in his golf game, or did he shrug off what could just as well have been a real attack, perhaps as some detractors suggested because the target was just Hawaii? Is the Pentagon this unable to respond to a crisis on every holiday weekend? In the event of a real attack, would the White House take hours to react, then use the incident as an excuse to blame local authorities? In short, is this a functioning country, or are we all on our own as soon as something goes wrong?

The unsettling answer, if we look at the question honestly, is that we do not know. The angst that goes with that uncertainty will linger in the national conversation for some time.

This did not need to be. In the aftermath of the mistaken missile alert, officials in Washington had an opportunity for moral leadership. It would have been a good moment to reassure Americans that we live in a real country, a country that is able to respond in the event of a crisis. They very pointedly did not take up that opportunity.

Sunday, January 7, 2018

Department Stores Closing

A retail store can close on any day, but there is a season for retailers to throw in the towel, and that season is right now, days after the after-Christmas sales end. The relatively profitable holiday season is over and a nine-month drought follows for retail, so any store that won’t last long enough to get to next Christmas is probably better off closing as soon as it can. My watch list includes the Toys ‘R’ Us, in bankruptcy and variously rumored to be closing 100 or 200 stores or going into liquidation after a disastrous season. I am casting a worried glance at Barnes & Noble, which reported its worst holiday season in years. The mall apparel shakeout is far from over. The early news, though, is that department stores are faring especially poorly.

This may come as a surprise after reports in December saying that department store traffic was up during the holiday season and that discounts were lower than in previous years. It is not always easy to get accurate information so quickly, and one hint comes from Britain, where Debenhams described mistakes in low-end merchandising and startlingly poor attendance at its after-Christmas sale. Its plans are not known beyond its already announced cost-cutting measures, but there are analysts speculating about much more drastic changes.

In the United States, the biggest store closings announced so far are at department store chains Kmart, Sears, and Macy’s. Sears Holdings has announced 64 Kmart and 39 Sears stores (full list [PDF]) to close in March. A few stores will remain open into April. Most Sears stores have auto service centers that will close sooner.

Macy’s is closing 11 stores, part of a plan that has already closed 120 stores in the last two years. These Macy’s stores are prepared to close in early 2018:

  • Laguna Hills Mall – Laguna Hills, California
  • Westside Pavilion – Los Angeles, California
  • Novato (Furniture) – Novato, California
  • Stonestown Galleria – San Francisco, California
  • The Oaks – Gainesville, Florida
  • Miami (Downtown) – Miami, Florida
  • Magic Valley Mall – Twin Falls, Idaho
  • Honey Creek Mall – Terre Haute, Indiana
  • Birchwood Mall – Fort Gratiot Township, Michigan
  • Fountain Place (Downtown) – Cincinnati, Ohio
  • Burlington Town Center – Burlington, Vermont

Store closings at JCPenney are also widely reported, though I could confirm only one location with a store-closing sale. JCPenney had healthy sales growth this holiday season, but it was not enough to say it has bounced back after four years of turmoil.

Where I live, it is unusually cold this weekend, 3°F as I got up this morning. We have seen bad weather five weekends in a row, and this is from large weather systems that have affected the whole East Coast or most of North America. To have the bad weather fall on weekends again and again is bad luck for retail and could squeeze even well-managed retailers.

Wednesday, January 3, 2018

Milk Is the New Cream

This January, as the last two, I am participating in Vegan January. It’s a simple challenge of not eating animal-based food for one month. One part of the appeal of Vegan January is that by avoiding food made from animal products, you automatically skip most junk food.

Yes, I used “appeal” and “skip most junk food” in the same sentence. The American consumer, it seems, is sick of junk food and avoiding it less out of hardened self-discipline than as a matter of honest preference and intuition. I’ve been tracking this trend since the late 1990s, and the changes are hard to miss. People are looking for better-quality junk food, or simply eating less of it. Total U.S. beer consumption has been falling for 25 years, but over the last 10 years, sales from independent brewers are holding steady, picking up a bigger share of the market. Less beer, higher quality. Beef, which was a staple food for many people in the 1990s, is now a specialty food, though stiff price increases and mad cow disease had something to do with that change. For those still eating beef, organic beef has become more common. Milk chocolate is down, while dark chocolate has become nearly as popular. Dark chocolate, obviously, has a better nutritional profile than milk chocolate while costing about the same. Various forms of improved fast food have been popular for five years at a time, but usually this is only a transition period before consumers move on to healthier options.

This pattern can be seen again now with organic milk. Organic milk is in the news this week because market prices have fallen abruptly. As Grace Donnelly highlights this price decline in the Fortune article “Dairy Farmers Experiencing An Organic Milk Surplus As Sales of Almond, Soy Milk Rise”, prices “fell from nearly $40 at the start of 2016 to about $27 late last year,” largely the result of a five-year increase in the number of organic dairy cows.

Organic milk sales started to rise in 2011 and went up for five years before peaking in 2016 and declining through 2017. The dairy sector has barely begun to adjust to the decline.

The way I think of it, Vegan January is the 2018 equivalent of what organic milk represented in 2010. People looking for healthier options chose organic milk as an upgrade, and the obvious next upgrade is to reduce milk consumption or eliminate it altogether, as Vegan January participants are doing this month.

Organic milk was only a brief bright spot in a dairy sector that has seen a 20-year decline. The decline in milk was hard for me to pick up at first, but this far along, it looks a lot like the decline in beer, and it is easy to see that it is part of the same trend. It is not just milk, but all dairy products that are declining. Looking back, the Greek yogurt trend was little more than a blip, no bigger than that of organic milk a year or two later.

In the supermarket, it might look like consumers are switching from milk to coconut milk and almond milk. The real story is simpler: consumption is declining. Coconut milk has been around for ages, but the dairy sector no longer has the market muscle to keep coconut milk out of the diary case. Another way of saying the same thing is that milk sales are no longer large enough to pay for an entire display case in the supermarket. Coconut milk sales are still very small and don’t come close to accounting for the decline in dairy milk.

Those who are over 50 years old may remember the place that cream once held in the supermarket. It was a well-known specialty item, something everyone knew about, but probably not something you would buy every week. This is what milk is turning into. Milk is the new cream. It is almost as expensive in real terms as cream was half a century ago and its nutritional reputation just about matches what people thought of cream around 1970. If trends continue, milk could eventually be occupying the same shelf space that cream had in the supermarkets of the 1970s. Everyone knows what milk is, but most shoppers will buy it only when they need it for a recipe, which is not very often.

Then, of course, an increasing number of shoppers aren’t buying milk at all. The popularity of Vegan January can’t be helping — after you experience a month without buying milk, it’s easy to see that you could do the same thing in any given month. Milk is one of the most expensive junk foods and at the same time, its carbon profile is horrific, so it’s often the first junk food people give up when money gets tight.

My own story of giving up milk was a reaction to the run-up in prices a decade back. Prices never went back down, so for me milk went from being a guilty pleasure to a luxury I couldn’t afford. I stopped paying attention to the dairy case at that point, but when I glance in that direction I can see it has only continued to shrink. In some stores, the gallon jugs are gone altogether. I eventually landed on coconut milk as my go-to substitute for milk, but it would hardly be accurate to say that I switched from one to the other. At the same time that I made the substitution, the quantity of product went down by a factor of 10.

Ice cream has held up better than most dairy products, but it has done so by emphasizing smaller specialty products that can be sold at higher prices. When you’re selling a product by the pint, it is a little easier to mark up the price. Since 2000, consumers have mostly moved from half-gallons to pints when it comes to ice cream, and this means we are eating a lot less.

This year, though, may be the year that non-dairy ice cream breaks out. The So Delicious brand has dominated this category over the last decade, but an experiment by Ben & Jerry’s in 2017 went well, so that other brands are now trying the same approach. Given a direct choice, there is no doubt that many consumers will prefer a non-dairy version of ice cream.

The greenhouse effect of dairy products deserves special mention. Cattle are among the largest sources of methane, which is a more potent greenhouse gas than carbon dioxide, if for a shorter time. Dairy production also generates prodigious amounts of carbon dioxide, mainly because of the huge amounts of food that cattle eat. The net greenhouse effect of dairy products in the United States rivals that of ground transportation — yet given the choice, most people would agree it would be easier to give up dairy products than transportation. In the end, we can’t avoid a climate catastrophe while continuing to eat dairy products in the quantities we do now. For some participants, the climate impact of animal-based food is the main reason for participating in Vegan January.

Let’s not forget, though, that the biggest new year’s resolution in the United States is to lose weight, and that trend too works against milk and dairy products. What other simple lifestyle change lets you lose 1 pound of body fat while saving $14 in grocery spending? Americans are as overweight as ever, so this long-term trend too is likely to lead to a continuing decline in milk along with the junk food category in general.