Disruptive Innovation

Brick-and-Mortar Stores Are Shuttering at a Record Pace

22 April 2017

From The Wall Street Journal:

American retailers are closing stores at a record pace this year as they feel the fallout from decades of overbuilding and the rise of online shopping.

Just this past week, women’s apparel chain Bebe Stores Inc. said it would close its remaining 170 shops and sell only online, while teen retailer Rue21 Inc. announced plans to close about 400 of its 1,100 locations.

“There is no reason to believe that this will abate at any point in the foreseeable future,” said Mark Cohen, the director of retail studies for Columbia Business School and a former executive at Sears Canada Inc. and other department stores.
Through April 6, closings have been announced for 2,880 retail locations this year, including hundreds of locations being shut by national chains such as Payless ShoeSource Inc. and RadioShack Corp. That is more than twice as many closings as announced during the same period last year, according to Credit Suisse.

Based on the pace so far, the brokerage estimates retailers will close more than 8,600 locations this year, which would eclipse the number of closings during the 2008 recession.

. . . .

The seeds of the industry’s current turmoil date back nearly three decades, when retailers, in the throes of a consumer-buying spree and flush with easy money, rushed to open new stores. The land grab wasn’t unlike the housing boom that was also under way at that time.

“Thousands of new doors opened and rents soared,” Richard Hayne, chief executive ofUrban Outfitters Inc., told analysts last month. “This created a bubble, and like housing, that bubble has now burst.”

. . . .

As retailers rushed to expand their physical footprint, the internet was gearing up to do to apparel companies what it had already done to booksellers: sap profits and eliminate what little pricing power these chains commanded.

Despite the view that shoppers prefer to try on clothing in physical stores, apparel and accessories are expected this year to overtake computers and consumer electronics as the largest e-commerce category as a percentage of total online sales, according to research firm eMarketer.

Helena Cawley, 37 years old, said she used to be a “die-hard” department-store shopper. But with two small children, the Manhattan entrepreneur doesn’t have time to visit physical stores the way she once did. “I buy much more online now,” she said. “With free returns and free shipping, it’s so easy.”

Link to the rest at The Wall Street Journal (Link may expire)

As PG has mentioned before, he takes no joy in bookstore employees or anyone else losing their jobs. However the rapid and continuing reduction in the number of bookstores is part of a very large trend throughout physical retail.

By reason of its high density, mass transit options and (for many) high incomes, Manhattan should be almost the ideal location for physical retail to survive. In many parts of the island, billions of dollars in personal wealth are within a ten-minute walk of a store.

If online shopping is becoming more attractive than physical stores in Manhattan, traditional retail will have an even more difficult time in less densely populated urban areas.

Where Have All the Shop Clerks Gone?

19 April 2017

From Strategy+Business:

We often talk about software and robots taking over jobs and eliminating the need for human labor. It’s common to hear these concerns center around jobs in factories, or in the trucking and taxi industries. Some of these changes may be far in the distance, or may not come about at all due to social and cultural resistance (and the fact that sometimes sci-fi-tinged ideas just don’t come to fruition). In fact, there are lots of jobs open in areas that you would think would be negatively affected by automation. For example, 364,000 manufacturing jobs were open in the U.S.  at the end of February 2017, up 58,000, or 18.9 percent, from a year earlier.

But the reality is that machines — in the form of software, e-commerce platforms, and payment systems — are already destroying jobs in one massive sector: retail.

Retail sales are rising in the United States — up 5.3 percent in February 2017 from the year before. And overall, the U.S. labor market is in very good shape, with unemployment at 4.5 percent and 78 straight months of job growth. The monthly JOLTS report shows there were an impressive 5.74 million jobs open in the U.S. at the end of February.

. . . .

However, the job market in the retail sector is behaving as it would only in times of recession, when retail sales are falling, or when the labor market is weak. In March, when the economy at large added 98,000 payroll jobs, the vast retail trade sector lost 29,000 positions. In February, 30,900 retail jobs were cut. In fact, retail employment is off in four of the past six months, and the sector employed fewer people in March 2017 than in it did in August 2016. According to the JOLTS report, the number of open jobs in retail has fallen significantly over the past year, from 612,000 in February 2016 to 542,000 in February 2017 — a decline of 70,000, or 11 percent.

What’s going on here? In a word, technology. But not in the way you’d think. Algorithms are not yet replacing salesclerks at the mall, and software is not stocking shelves in grocery stores. What is happening is that technology-enabled retail platforms, recommendation engines, and payment systems continue to grow and improve. And as they do, they are making it more convenient and more compelling for more people to do more of their shopping online. Non-store retail sales, which is mostly e-commerce, were up nearly 13 percent in February from the year before. In short, technology and automation are pushing a great chunk of retail sales through channels that are not physical stores. It still requires plenty of human work to fulfill all the orders. But the jobs will increasingly be in warehouses, in logistics and delivery — not in strip malls.

Link to the rest at Strategy+Business

Writers’ Strike II and Digital Ad Growth

19 April 2017

From The Wall Street Journal:

 Hollywood is bracing for a sequel that no one in the industry wants to make: a writers’ strike.

Almost 10 years after a four-month writers’ strike over DVD residuals and digital-platform compensation nearly split the entertainment industry, a new battle is brewing between the Writers Guild of America and the Alliance of Motion Picture and Television Producers, or AMPTP.

The key issues dividing show business this time around include exclusive contracts between writers and television shows, and the guild’s health-care plan, which the television and movie studios feel is too exorbitant.

The current contract is set to expire May 1 and talks have broken off until next week. The WGA membership is expected this week to vote for a strike authorization, which allows its negotiators to call a strike.

The labor tensions are exacerbated by the so-called peak TV era. There is more scripted television in production than ever before thanks to the growth of streaming services and more original programming by cable networks. There will be nearly 500 scripted shows produced this year, according to research by 21st Century Fox ’s FX Networks unit. WGA members say they aren’t benefiting from that growth.

Writers must “participate in the windfall we have created in the last five years,” said “Mad Men” creator Matthew Weiner in a WGA-released video urging members to vote “yes” for the strike authorization.

Executives who were at the helm of the networks 10 years ago warn that a prolonged strike would drive viewers away from television as well as do great harm to the business.

. . . .

A strike would come at a very precarious time for the television and movie industries. Most television networks are struggling to hold on to viewers and adapt to new technologies. Ratings are down for most cable and broadcast networks this season in viewers and the key 18-49 age demographic.

. . . .

While there are more shows than ever, the guild, which represents around 12,000 members, said the average salary of TV writers fell by 23% over the past two seasons.

. . . .

Another WGA bone of contention: Some programs force writers to remain exclusive to a show, making it impossible to compensate fewer episodes with other gigs throughout the year—a requirement also on the negotiating table.

Link to the rest at The Wall Street Journal (Link may expire)

And, for a different view of video consumption, here’s a story from Barrons:

Watch for two key milestones for advertising this year. Digital venues will overtake television as the top draw for ad spending. And mobile, for the first time, will make up more than half of digital.

That bodes well for companies that pull in massive audiences online, especially over smartphones. In the U.S., two stand above all others: Facebook and Google parent Alphabet. Together, they control 54% of digital advertising, up from 44% a year ago. We recommended shares of Facebook five months ago, a few bucks below where they recently traded. Now it’s time for a fresh look at Alphabet, whose shares look likely to top $1,000 in a year, for a gain of over 20%.

In 2017, digital ads will bring in $202 billion—40% of all ad spending, according to industry forecaster Magna. That compares with 36% for television. It’s just a start. Digital spending will continue soaring and will capture a 50% share by 2021, while TV spending will barely expand and its share will shrink to 33%.

. . . .

Nearly all of the recent growth in digital ads has come from search and social media, especially social videos, and small screens are playing a big role. Mobile will reach 52% of digital ad spending this year, according to Magna. By 2021, mobile’s share will balloon to 72%.

Link to the rest at Barron’s

PG says traditional publishers aren’t the only ones being disrupted by developments in the digital world.

Retailers look past apps to the next frontier of digital shopping: Chatbots

19 April 2017

From The Washington Post:

Artificial intelligence is being touted as a tool for addressing some of humanity’s most pressing problems, including climate change and cancer.

But starting this week, you can put it to work for something a little more prosaic: ordering a hoagie.

On Tuesday, Mastercard announced it has partnered with Subway and two other major merchants to launch “chatbots,” which are robots that simulate human conversation. The Subway iteration allows you to order a custom sandwich for pickup, something of a digital version of walking down the chain’s sandwich assembly line. There’s another from Cheesecake Factory that allows shoppers to purchase and send out gift cards, and a third from online grocer FreshDirect in which customers can place orders for groceries and meal kits. The bots will be found within Facebook’s popular Messenger app, and will be powered by Masterpass, the credit card giant’s digital wallet.

These big-name brands join a growing group of retailers that are experimenting with how chatbot technology can be leveraged for digital shopping. The debut of the bots will provide a fresh test of shoppers’ appetite for what the industry has dubbed “conversational commerce,” the idea of making a purchase or other customer service transaction through A.I.-powered messaging.

. . . .

Consumers are spending more time online, and yet they are concentrating those minutes in a very limited number of apps. Retailers — along with hotels, rental car services, and other businesses — are realizing that the best way to snare your interest online might not be with a killer app of their own, but by creating bots that live in the apps that you already use.

. . . .

Subway, for example, essentially tried to re-create its in-store experience on the small screen. In a demonstration of how the technology works, the bot asks what kind of cheese you prefer, how thick a coat of mayonnaise you want, and so on — all in a very chatty voice. (When it wants you to indicate whether you want your sandwich toasted, it asks, “Wanna get toasty?”)

Link to the rest at The Washington Post

When Amazon starts doing this for books, please send PG a note through the Contact page.

Why e-readers succeeded as a disruptive innovation in the US, but not in Japan

7 March 2017

From The London School of Economics Business Review:

The concept of disruptive innovation has captured the attention of executives around the world. As explained by Clayton Christensen, a disruptive innovation is initially seen as unattractive by mainstream customers and by the leading firms who serve those customers. Eventually, however, those firms lose their leadership positions to new entrants who are willing to develop and improve the innovation in ways that make it more attractive to mainstream customers.

. . . .

One intriguing example of a bundled disruptive innovation is the e-reader. Many American consumers responded enthusiastically to Amazon’s introduction of the Kindle reader in 2007, in part because, in a relatively short amount of time Kindle customers were able to choose from hundreds of thousands of titles. In contrast, Japanese e-readers introduced both before and after the U.S. Kindle launch received a lukewarm response from Japanese consumers.

One obvious explanation was the relative lack (compared to the US) of best-selling novels and other popular books in e-book form. To try and understand the reasons for the disparity in e-book availability between the U.S. and Japan, we interviewed key figures from both the American and Japanese book industry. Our research revealed a number of interesting insights, which we organise into three categories: organisational, environmental and technological factors.

. . . .

In part, the limited availability of e-books in Japan reflected industry perceptions of Amazon’s critical role in the success of the Kindle. Our informants did not believe any single Japanese company could play an Amazon-like role in Japan, in the sense of developing a Japanese e-reader and securing a supply of hundreds of thousands of e-books for that reader. For this reason, publishers and retailers were unwilling to invest large amounts of money developing e-book editions of popular Japanese books.

The availability of Japanese e-books has also been influenced by the interdependence among book retailers, wholesalers, and publishers in Japan. Japanese wholesalers were most likely to be hurt by the introduction of e-books. Publishers and retailers were heavily dependent on the two major wholesalers for sales of paper books. These concerns were amplified by pricing concerns. In Japan, publishers had the legal right to set the prices of paper books, which eliminated price competition for new books. Although the resale price law does not affect the pricing of e-books, Japanese publishers worried about the potential impact of e-book discounting on the performance of wholesalers and other industry players. For this reason, many publishers were reluctant to offer discounts on e-books, despite the success of Amazon’s aggressive discounting in the US.

. . . .

Another factor that emerged in our research involved differences in the perceptions of Japanese and American consumers. Amazon marketed the Kindle as a “library in one’s pocket.” A number of our informants believed that Japanese readers place less value on this benefit because Japanese publishers already sell paperback books in a size that fit easily in a jacket pocket, and book stores are conveniently located within or near major train stations.

Link to the rest at The London School of Economics

Target’s Painful Lesson: Low Prices Beat Hip Products

1 March 2017

From The Wall Street Journal:

Target Corp.’s chief vowed to invest billions to lower prices and remodel hundreds of stores, an admission that the retailer’s focus on trendy merchandise wasn’t enough to attract shoppers.

Chief Executive Brian Cornell defended his brick-and-mortar-centric strategy Tuesday after Target reported sales and profit declines for the holiday quarter, and gave an even gloomier outlook. The company said its 2017 profits would fall as much as 25% below what Wall Street had forecast.

The warning sent Target shares skidding 12% to $58.87 in Tuesday afternoon trading. The shares have now erased nearly all the gains since Mr. Cornell took the reins in August 2014 in the wake of a massive customer-data breach.

. . . .

The changes come more than a year after rival Wal-Mart Stores Inc. began pouring money into revamping its stores, lowering prices and expanding its e-commerce operations—changes that reversed a sales slump. Target has also been squeezed by the expansion of Amazon.com Inc., which shares many customers and products with Target.

. . . .

Analysts at Credit Suisse said the retailer essentially admitted it has pursued a flawed strategy to avoid competing on price. “The announcement represents confirmation of the company’s difficult position and it’s unclear if there is a winning strategy at this point given how far behind it is from competitors like [Amazon] and even [Wal-Mart] now.”

. . . .

Analysts predict that Target will continue to lose market share to Amazon and other online sellers if it doesn’t do more to adapt to the digital age. In a recent study, Goldman Sachs found that Target customers are more likely to have an Amazon Prime membership than those of Wal-Mart and other discount retailers.

Link to the rest at The Wall Street Journal (Link may expire)

Brave New Booksellers: The Rise of E-reading

20 February 2017

From CKGSB Knowledge:

On November 18, 2007, the book business looked more or less the way it had for decades: an industry dominated by a handful of conglomerates that produced a set of products that hadn’t changed much since the 1940s and distributed those products through a familiar set of sales channels.

The next day, Amazon introduced its Kindle e-reader and everything changed. Not all at once, of course – the Seattle company’s first e-reader retailed for $399, and after selling out in 5.5 hours, remained out of stock until April 2008 – but over the next few years, the numbers grew at the same pace with which many digital innovations, from the Internet to social media, have taken off: by 2014, half of all Americans owned either an e-reader or a computer tablet, and 28% had read an e-book in the prior 12 months, according to a survey by the Pew Research Center.

All over the world, a similar shift has been underway – slower in markets where bookstores and book sales are regulated, such as France and Germany; faster in more open markets, such as China, where more than 2 million digital book titles are now available and nearly half (44%) of all books sold are sold online, according to a report by German Book Office Beijing.

. . . .

So was publishing’s digital revolution just a successful format change, like the invention of the paperback in the 1940s? Not entirely. Digitalization has also driven a much more profound story about how books are made and sold. From production to distribution, virtually every aspect of the publishing business has changed over the past decade.

To begin with, thanks to e-books and print-on-demand technology, the actual process of printing a book has changed. David Kudler, a small publisher in the San Francisco Bay Area, says that e-books and print-on-demand technology have been transformative. “When I first got into publishing, printing was real simple. You got the book ready about six months before you wanted it to go to press, and you sent it off to China – that’s where the good presses were and that’s where the people who knew how to really put together the book were. And whether you were in Europe or in North America you waited the six months that it took for that book to show up in the stores again.”

The growth of e-books and publishing on demand also helped drive changes in how books are sold. In the US, physical bookstores now represent roughly a quarter of all book sales. Since 2007, US brick-and-mortar bookstore sales have fallen from $17 billion to $11.17 billion in 2015, according to US Census figures. All told, 69% of US books are sold online, according to AuthorEarnings.com.

Link to the rest at CKGSB Knowledge and thanks to Dave for the tip.

What News-Writing Bots Mean for the Future of Journalism

17 February 2017

From Wired:

When Republican Steve King beat back Democratic challenger Kim Weaver in the race for Iowa’s 4th congressional district seat in November, The Washington Post snapped into action, covering both the win and the wider electoral trend. “Republicans retained control of the House and lost only a handful of seats from their commanding majority,” the article read, “a stunning reversal of fortune after many GOP leaders feared double-digit losses.” The dispatch came with the clarity and verve for which Post reporters are known, with one key difference: It was generated by Heliograf, a bot that made its debut on the Post’s website last year and marked the most sophisticated use of artificial intelligence in journalism to date.

When Jeff Bezos bought the Post back in 2013, AI-powered journalism was in its infancy. A handful of companies with automated content-generating systems, like Narrative Science and Automated Insights, were capable of producing the bare-bones, data-heavy news items familiar to sports fans and stock analysts. But strategists at the Post saw the potential for an AI system that could generate explanatory, insightful articles. What’s more, they wanted a system that could foster “a seamless interaction” between human and machine, says Jeremy Gilbert, who joined the Post as director of strategic initiatives in 2014. “What we were interested in doing is looking at whether we can evolve stories over time,” he says.

. . . .

It works like this: Editors create narrative templates for the stories, including key phrases that account for a variety of potential outcomes (from “Republicans retained control of the House” to “Democrats regained control of the House”), and then they hook Heliograf up to any source of structured data—in the case of the election, the data clearinghouse VoteSmart.org. The Heliograf software identifies the relevant data, matches it with the corresponding phrases in the template, merges them, and then publishes different versions across different platforms. The system can also alert reporters via Slack of any anomalies it finds in the data—for instance, wider margins than predicted—so they can investigate. “It’s just one more way to get a tip” on a potential scoop, Gilbert says.

The Post’s main goal with the project at this point is twofold. First: Grow its audience. Instead of targeting a big audience with a small number of labor-intensive human-written stories, Heliograf can target many small audiences with a huge number of automated stories about niche or local topics. There may not be a wide audience for stories about the race for the Iowa 4th, but there is some audience, and, with local news outlets floundering, the Post can tap it. “It’s the Bezos concept of the Everything Store,” says Shailesh Prakash, CIO and VP of digital product development at the Post. “But growing is where you need a machine to help you, because we can’t have that many humans. We’d go bankrupt.”

Link to the rest at Wired

The New York Times wants to save itself by becoming like Netflix

16 February 2017

From recode:

You probably know someone who makes sniping remarks like: Old media is dying! They were too stupid to notice the internet! They’re snobs and stuck in the past!

The real story is much more complicated, journalist Gabriel Snyder said on the latest episode of Recode Media with Peter Kafka. In the latest issue of Wired, Snyder wrote about how one of the highest-profile media companies in the world, the New York Times, is “claw[ing] its way into the future.”

“The reason old media companies have so much trouble adapting is not because they don’t know what to do or even that they should do it, it’s [that] the internal politics of it are so difficult to navigate,” Snyder said. He noted that career advancement at the NYT is a “slow-moving treadmill” that rewards loyalty over fresh ideas.

And that’s not to mention the more obvious, public face of the newspaper’s struggle: Where the money comes from.

“Even today, the vast majority of the revenue comes from old streams at the New York Times,” Snyder said. “It comes from the print circulation, even their print advertising. The industry fell off a cliff last year, but it still generates a lot of money. You can’t just turn that off, and if you do, it’s at your peril.”

The NYT initially tried to convince readers to subscribe to separate products based around opinion columns, daily news, crosswords and cooking, but each of those was met with “varying levels of un-success,” Snyder said. So, instead, it’s now thinking it can emulate the Netflix, HBO or Amazon subscription model — packing more and more into one subscription product to increase its perceived value.

Link to the rest at recode and thanks to Joshua for the tip.

PG says the best way to succeed during an era of continuing disruptive innovation is to increase actual value rather than attempt to increase perceived value.

Perceived value sounds like a desperate idea from marketing.

Digital Book World Indie 2017 Wrap-Up

24 January 2017

From author Ron Vitale:

The state of indie publishing is in flux. Is print coming back? Are indie authors losing sales? And with the rise of more competition from traditional publishers, what is an indie author to do?

Based right outside of Philadelphia, I took the train up to New York and went hoping to find answers at Digital Book World Indie 2017. Truth be told, one of the main reasons why I went was to hear Data Guy talk in the Tight Insights: The Indie Universe Quantified session. I wanted to see his data on the big screen. I could have listened to him for hours.

. . . .

How are indie authors going to compete and thrive against huge conglomerate corporations? At the end of the first session, Porter Anderson reminded all of us that when photographers needed to streamline their services, they came together to form a co-op. Professional services (developing the film, marketing, etc.) could be provided by reputable and vetted individuals while the photographers could stay out longer in the field, shooting. Anderson, in his understated way, turned to the audience and said, “Now it’s all on you.”

The biggest take home message from Digital Book World Indie is so simple that I almost missed it while preparing for the next talk. When we as indie authors unite, we have strength. We are the sum of our individual skills.

. . . .

While I sat in the conference room listening to the talks, I had my phone out, sharing information with members of a private Facebook group. And throughout the day, I kept checking in on Michael Anderle’s 20BooksTo50K Facebook group. I joined the 20BooksTo50K group back in December when there were 1,200 members. Less than a month later, there are more than 3,450 members. Fellow indie authors who are sharing their launch plans, screenshots from their sales dashboards, asking for advice on covers they are having designed and talk through the most in-the-weeds details about email lists.

. . . .

The mismatch between the experts at the conference and the brain power available from within the room itself could not have been more pronounced over the course of the day.

. . . .

The second most important lesson I learned at DBW Indie is that traditional publishers, to quote Jane Friedman, “are kicking ass in marketing.” Judith Curr’s (President & Publisher of Atria Books, a division of Simon & Schuster) talk brought that home to all the authors in the room. Not only are publishers creating apps such as Crave, but they are performing A/B tests with their advertising, targeting the appropriate readers with the ads as well as sending out thousands of ARCs in advance to build reviews online.

Judith Curr came to speak to a room full of indie authors with an olive branch, asking us to consider traditional publishing. The word “hybrid” floated throughout many of the sessions and authors were pitched not only by Curr, but by Kobo, Wattpad, Ingramspark and, if you wanted, one-on-one with iBooks. Opportunity flowed throughout the day.

The challenge that I see is that without the deep (for now) pockets of traditional publishers, indie authors will continue to struggle. Although traditional publishers have amazing teams to produce extremely high quality products, the opportunity for indie authors comes in our being able to control our own careers. We have choice. With knowledge, there is power. In today’s publishing, we could license our print book rights, but retain our ebook rights and publish as we like. We have bargaining power that did not exist a few years ago.

Link to the rest at Ron Vitale

Here’s a link to Ron Vitale’s books. If you like an author’s post, you can show your appreciation by checking out their books.

PG doesn’t know Mr. Vitale, but PG does know something about large conglomerates, including publishing conglomerates, pre-internet and internet marketing and technology in general.

Conglomerates are large collections of people and money that are not all the same. Some do reasonably well at attracting capital and running some of their businesses. Others do dumb things all the time.

If you want to rapidly accomplish something innovative, a conglomerate is not the way to go. If you want to attract and keep creative employees, a conglomerate is not the way to go.

No smart entrepreneur tries to start anything inside a conglomerate. Apple would have been killed in the crib inside a conglomerate. So would Amazon and Google.

As a group, publishing conglomerates are among the slowest and least innovative members of the conglomerate class. PG worked for one of the largest (RELX Group, previously known as Reed Elsevier) for three unhappy years and knows of what he speaks.

Specific points mentioned in the OP:

  • Apps such as Crave from big publishers. Do you know how easy it is to build an app? Ten-year-olds build apps. There are over two million apps on Apple’s App Store. PG looked at the most popular book apps on Apple’s App Store. The first page includes a large number of apps. Crave was not among them. Three out of the top five apps were from Amazon.
  • A/B tests for advertising. PG wasn’t one of the Mad Men, but his boss at a very large advertising agency would have qualified. Needless to say, PG’s adventures in advertising occurred centuries ago. A/B tests with advertising were a routine practice during Mad Men days.
  • Sending out ARCs in advance to build reviews online. Publishers have been doing this forever. Smart indie authors have email lists, social media accounts, etc., and use them to do the same thing.

PG agrees with the OP that authors should get together and share ideas, support each other, etc.

However, there’s a key difference when indie authors get together and when traditionally-published authors get together.

When an indie author hears or reads about a great idea for marketing, he/she can implement it immediately and see the results (good or bad) in a few days or weeks by watching their KDP dashboard. When a traditionally-published author hears the same idea, it’s a different experience.

To pirate a saying, an author needs a big publisher like a fish needs a bicycle.

 

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