Saturday, November 10, 2012

J.C. Penney Digs Deeper Sales Hole

Amazons revenue continues to grow and JC penny and Sears revenue continue to decline. Banks credit to retailers suppliers of goods and services will be difficult to secure as previous credit models are no longer valid. Aivars Lode

The department-store chain, in the middle of a long and painful turnaround under former AppleInc. AAPL +1.73% retail executive Ron Johnson, said its sales fell 27% in the three months ended Oct. 27, a sign the company continues to stumble as the key holiday-selling season approaches.
The drop was worse than Wall Street analysts had feared, and shares in the Plano, Texas-based company fell as much as 10% on Friday before rebounding to finish down nearly 5% at $20.62 on the day.
Penney's sales over the first nine months of its fiscal year have fallen by $2.7 billion, nearly equivalent to the annual revenue of store chain Saks Inc. SKS +0.50%
Penney reported a third-quarter loss of $123 million, or 56 cents a share—narrower than the $143 million a year earlier as the company cut costs and spent less on restructuring.
Mr. Johnson, who joined Penney as CEO a year ago from Apple's vaunted retail operations, said the company wouldn't diverge from the strategy he laid out last January of sharply limiting discounts in favor of broadly lower everyday prices.
But the strategy has hurt customer visits and sales, while new products and in-store boutiques have failed to draw enough shoppers to offset the decline. Same-store sales slid 26% in the quarter, while Internet sales fell 37% to $214 million.
Some of the company's tweaks to that strategy have hurt as well. In August, Mr. Johnson eliminated discounts that Penney had called "monthlong values," or long-running sales on popular seasonal items. It turns out the promotions were popular with Penney's customers, who spent more than $1 billion on such items during the first half of the year. Eliminating monthlong values cost Penney $20 million a week in the third quarter, Chief Financial Officer Ken Hannah said.
Analysts at Deutsche Bank DBK.XE -2.32% recently called Penney's no-promotion pricing strategy confusing to customers, noting that the company advertised 30% off clearance items in an email last month. Deutsche Bank also pointed to a recent in-store $10 coupon, free haircuts for kids and an offer for free family photos this month, saying Penney is "backtracking on its no promotion strategy, confusing customers, and we, therefore, remain skeptical of near-term improvement in business trends."
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J.C. Penney said its sales fell 27% in the three months ended Oct. 27.
Mr. Johnson told analysts on Friday that the $10 "gift" wasn't a coupon and said the company would likely send out similar offers in the future. He also said Penney would take part in the biggest sales day of the year: Black Friday.
"We'll run a sale, and it will be a doozy," he said. Penney has cut prices 40% on average since Mr. Johnson joined.
In more evidence that Penney's transformation and subsequent tweaks have proven confusing to shoppers, some regular customers say they haven't noticed that coupons disappeared.
"I still receive coupons in the mail," said Carmen Torres while shopping at Penney's Manhattan store on Friday. Ms. Torres pulled a $10 "reward card" from her purse, and says she has received similar offers in the mail in recent months.
Another shopper, 32-year-old Theolia Henry, was browsing a clearance rack of blouses. "It reminds me of Macy's M -0.21% but it is cheaper," she said.
Mr. Johnson has been emphasizing brand names in boutiques within Penney's stores. The retailer's game plan involves 100 shops-within-a-store at J.C. Penney, where everything from Martha Stewart merchandise to Levi's jeans are available in separate boutiques. In September, Penney unveiled plans to open more than 500 boutiques this fall with Walt Disney Co. DIS -5.96% products exclusive to the retailer.

Friday, November 9, 2012

Coalition haunted by horror of 1993

Even the politics have relevance to things that are happening here in the USA today and what happened in Aussie in the 90's. Aivars Lode

Geoff Kitney
As they watched Mitt Romney conceding he had lost what had once been seen as the unlosable US presidential election, some Australian conservatives had horror flashbacks to this country in 1993.
Nearly 20 years on, the loss by John Hewson to Paul Keating of what came to be known as “the Fightback election” still haunts the Coalition side of politics.
The bitter experience of that loss still profoundly influences the political thinking of key Coalition team members.
Tony Abbott (a key Hewson adviser) and his shadow finance minister Andrew Robb (then Liberal campaign manager) have memories of that loss seared into their political brains.
It’s an experience which is strongly factored into their strategic thinking today.
The Coalition’s absolute determination not to release detailed policies and the costings that underpin them until as late as possible can be traced back to the early release of Hewson’s intricately detailed and costed Fightback manifesto and the amount of time Hewson gave to a rampaging Keating to rip it to shreds.
This week’s spat over the ham-fisted effort by Treasurer Wayne Swan’s office to use Treasury costings of a handful of opposition policies to put pressure on Abbott over his refusal to come clean about how he will fund his promises is a reverberation of those events nearly two decades ago.
As it turned out, the latest message Labor intended to send about Abbott’s shiftiness got lost in the Coalition’s successful efforts to deflect the debate to the way in which the material was released and away from the issue of its costings.
Senior Labor strategists insist that one lesson to be learnt from the US election is that Romney failed to overcome voter doubts about him and, while he said he had a plan for the future of America, he never produced a detailed plan with plausible costings.
The Gillard team believes that Abbott, trapped in a time-warp fear of producing detailed costings, will be making a grave error if he does what Romney did and not substantiate the detailed elements of his plan for the nation’s future.
Coalition figures retort that Labor “would say that, wouldn’t they”.
They see this week’s events as a sign that Labor is getting desperate to pressure Abbott into releasing policy detail.
A long game of bluff and counter-bluff in the battle of budget numbers can be expected to continue through to the federal election.
Key Coalition insiders concede that the timing of the release of its detailed alternative economic strategy will be a critically important decision.
But they are also counselling against any temptation within Coalition ranks to be panicked by Labor into releasing policy details too soon.
Senior Coalition frontbenchers are working to calm concerns that have been sparked by recent signs of a shift in base voter support back to the Labor Party as Abbott’s ferocious anti-carbon tax campaign has begun to run out of steam.
For example, in Canberra Coalition MPs have been reassured that the Liberal Party’s research shows there are no signs of any significant shift back to Labor in key battleground electorates such as in western Sydney.
MPs are being told that hostility towards Labor and Prime Minister Julia Gillard among the so-called “battlers” remains intense.
Senior Abbott team members say cost of living pressures are potent electoral poison for Labor.
This is not likely to change before the election, even if Gillard holds out until the latter part of next year to call it (still the most likely timing, even though Labor is readying for a possible snap election in March).
The Coalition has detailed cost of living breakdowns for the key battleground seats which show prices for a range of sensitive products and services – ranging from electricity prices to medical costs – have risen by far more than the rate of inflation.
Liberal strategists also insist that the voters in those areas where the cost of living pressures are intense are still extremely hostile to the carbon tax.
They say their research shows that Abbott’s promise to repeal the tax has entrenched support and this is why he has not and will not relent from attacking it.
Labor knows the cost of living issue is hot and dangerous for the party in western Sydney, where any loss of seats would make it impossible for the government to be re-elected.
But it says the political dynamics of the issue are shifting.
They say that in recent months, particularly since the carbon tax compensation money started rolling out, voters who had previously given up on Labor were now prepared to have a conversation about cost of living pressures, their causes and their cures.
Labor believes the “Cash for You” message it uses to sell the carbon tax compensation and an average annual $4000 fall in mortgage costs due to lower interest rates can be translated into a hard-hitting campaign on the cost of living issue.
Labor plans a finely targeted grass roots campaign (using proven US Democrats techniques) to convince voters that it has a cost of living strategy as part of a comprehensive and detailed plan for the future, while Abbott only has slogans.
Of course, both sides are aware that their plans will face intense scrutiny from the experts, who will want to know where the money is coming from.
But in the end it will be the battle for the battlers that really matters.
The Australian Financial Review

Thursday, November 8, 2012

Samsung's Galaxy S3 beats Apple's iPhone in Q3 sales

Will  Samsung drive past Apple as it takes advantage of its loyal customers? Aivars Lode

South Korean electronics firm Samsung's Galaxy S3 has outsold Apple's iPhone 4S for the first time, becoming the world's best-selling smartphone, says research firm Strategy Analytics.
Samsung sold 18 million models, compared with Apple's 16.2 million sales, in the third quarter of 2012.
The Galaxy S3 "has proven wildly popular with consumers and operators," said Strategy Analytics' Neil Mawston.
However, Apple's new iPhone 5 is widely expected to reclaim the top sales spot.
Strong Galaxy smartphone sales helped Samsung report record profits in the three months to September. Net profit was 6.5tn won ($5.9bn; £3.7bn), up 91% from a year earlier.
But analysts say that one reason Samsung's phone was able to wrest the top sales spot from Apple's iPhone 4 was because many customers were waiting for the iPhone 5, which was launched during the third quarter.
The Apple iPhone 5 has already got off to a solid start and "we expect the new iPhone 5 to out-ship Samsung's Galaxy S3 in the coming fourth quarter", said Neil Mawston.
"Apple should soon reclaim the title of the world's most popular smartphone model," he added.
Legal struggle
Samsung and its rival Apple have been locked in a series of ongoing legal battles over patent infringement claims in various countries.
In October, sales bans in the US on Samsung's Galaxy Nexus phone and its Galaxy 10.1 tablet computer were lifted, in a blow to Apple.
Meanwhile, earlier this year, a US court awarded Apple $1.05bn (£652m) in damages, after ruling several of its software and design technologies had been infringed by Samsung.
Samsung has challenged that verdict and called for a retrial.
Analysts say that given the tremendous growth potential of the sector, the two firms' legal battle is likely to continue.

Tuesday, November 6, 2012

Chinese Capitalism

With growth come challenges. I am reminded of the old Chinese curse: may you live in interesting times. Aivars Lode

Since the 1980s, China’s economy has grown rapidly with an average annual growth rate of real GDP at about 10 percent.  Today, the Chinese economy is the world’s second largest and is set to surpass the U.S. to become the world’s largest economy by around 2015 when measured by purchasing power parity.  However, various economic, social, and ecological contradictions have accumulated in recent years and China’s current model of capitalism is unlikely to remain viable beyond the medium term (defined as the next ten to fifteen years).
China’s economic growth has been based on the intense exploitation of a large cheap labor force, unusually high investment rates, and exports to western markets.  As the global capitalist economy struggles with stagnation and crisis, China’s exports will achieve at best sluggish growth in the coming years.
Investment has risen to about 50 percent of China’s GDP.  The excess investment has reduced the rates of return on capital and threatens to undermine China’s financial system as much of the investment has been financed by bank loans and other forms of debt.  A more sustainable level investment is probably around 30 percent of GDP.  However, to lower the investment by about 20 percent of GDP, household consumption needs to rise by a similar magnitude.  Most households depend on wages as their main source of income.  Thus, for household consumption to rise by 20 percent of GDP, a large portion of the national income (between 15 and 20 percent of China’s GDP) needs to be redistributed from the capitalists to the workers.  This is likely to face strong resistance from China’s capitalist class.
In this context, a serious debate has emerged in Chinese society.  A growing number of Chinese intellectuals and social activists argue that China needs to rethink its free market-oriented economic reform.  Public ownership of the means of production needs to be revived and income and wealth need to be redistributedfrom the wealthy to the poor in order to enhance social stability.  These intellectuals and activists are known as the “New Left.”  Many of them are also known as the “Maoists” as they tend to have a sympathetic perspective on China’s Maoist socialist past.
In the early 2000s, the Maoist social base was limited to older state sector workers who suffered the most during the privatization in the 1990s.  But in recent years, with rising economic and social inequality, the Maoists have gained support among the urban middle class as well as a newer generation of the Chinese working class.
Partly encouraged by the growing influence of Maosim, Bo Xilai attempted a moderate social reform agenda while he was the Party Secretary of the city of Chongqing.  Bo Xilai cracked down on organized crimes with connections to the local capitalists, increased investments on social housing, and promoted “simultaneous developments” of state owned and private enterprises (rather than outright privatization as has been practiced in many other parts of China).
Therefore, the recent purge of Bo Xilai is politically significant.  It suggests that the “Communist Party” is determined to push forward with further free market-oriented economic reforms without serious social reform.  While such a course might benefit Chinese capitalists in the short run, it is set to further intensify China’s various contradictions and potentially prepare the conditions for a general social explosion in the not very distant future.
Historical experience from Brazil, South Korea, and Poland suggested that when a country’s non-agricultural labor force increased to more than 70 percent of the total labor force, the working class was likely to emerge as a powerful political and social force, demanding higher wages, social welfare, and political democracy.  China’s non-agricultural labor force currently accounts for about 60 percent of the total labor force and its share has been rising at an annual rate of about 1 percent.  At this rate, China’s non-agricultural share of labor force could exceed the critical threshold of 70 percent by around 2020.  If China’s current capitalist system fails to accommodate Chinese workers’ demands by then, a general economic and political crisis will be highly likely.
Chinese capitalist development has taken place at the cost of massive environmental degradation.  According to the latest Living Planet Report, China’s ecological footprint is already more than twice as much as China’s own bio-capacity.  China’s has some of the world’s most polluted cities and about 40 percent of China’s land has already been degraded.  According to a report prepared by the “2030 Water Resources Group,” China could face a water deficit that amounts to 25 percent of China’s projected water demand by 2030.
Thus, in the next one or two decades, economic, social, and ecological crises are likely to converge in China, leading to the downfall of China’s current capitalist model.  How the crises will be resolved will have enormous implications not only for China’s future but also for the entire planet.
Dr. Minqi Li is an Associate Professor in the Department of Economics at the University of Utah. He is the author of The Rise of China and the Demise of the Capitalist World Economy (Monthly Review Press, 2009).