Technology: Clicks and Bricks

Retail ecommerce salesLast year, online sales in America reached $188 billion, about 8% of total retail sales. Overall retail sales were flat, yet e-commerce sales are up in the double-digits. Online sales are expected to reach $275 billion by 2015.

Futurists have been predicting this shift for more than a decade. Today, people in their 20’s and 30’s do about 25% of their shopping online. Customers are buying more through their smartphones. Nearly one-third of Americans own a smartphone and fully 70% of them, according to the Economist, use the device to do searches within a store, usually to compare prices. 

Of course, the undisputed leader of online retail sales is Amazon. Last year, their sales were roughly $48 billion, fairly close to total sales at Best Buy. Yet, think how the profitability at the two compare. Amazon has no physical stores but rather a logistics network. And, it has roughly 1/6 of the employees of Best Buy. Certainly shopping online is more convenient, but it’s more than that. Amazon is truly focused on the customer. Larry Downes, writing in Forbes last month, characterized them this way: “Amazon lives and breathes the customer’s point-of-view. It completely engineers its business practices, its systems and its people to support it. When they make a mistake, they admit it and fix it.” You can’t say the same about Best Buy.

However, some bricks-and-mortar retailers do focus on customers. Macy’s, for example, says it is investing $400 million in the renovation of its flagship store on Herald Square in NYC. It will become the largest women’s shoe department in the world. The store will include 22 spots to dine and 300 extra fitting rooms. Its 130,000 sales people have received training in “MAGIC selling”, teaching them to be more helpful and friendlier with customers. Macy’s is trying to join those stores which have become more fun to visit, including Apple’s stores and the Disney stores.


Certainly, changes in retailing will continue. It is likely that physical stores will continue to shrink. However, showrooms that are fun, customer focused and feature products people want to touch, feel and taste before buying will survive. Online operations that focus on the customers will also do well. We, as customers, are certainly the beneficiaries of the new technology – both when we buy online and when we shop at the fun, customer-focused bricks-and-mortar locations.

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Greek Rescue Approved- But Europe Not Out of the Woods

Greek rescue

Today Europe finally reached a Greek Deal. Yet, doubt remains over whether Greece will be able to meet the terms of the accord and what the future holds for the euro zone.

The finance ministers agreed to the long-awaited 130 billion euro ($170 billion) deal that would start to reduce Greece’s debt to 120.5% of GDP by 2020. Private sector creditors will take a write-down on their Greek bonds of 53.5%. In return for the new cash, Greece signed up for cuts in pensions, minimum wage, health-care and defense spending, sales of assets and layoffs of public sector employees. However, even with this latest agreement, concern exists that Greece will not be able to meet its future commitments.

The Greek economy shrank by 7% in 2011, 5% of which was in the last quarter. Analysts expect further declines of at least 4% in Greek GDP in 2012 due to the required austerity programs. These structural reform measures, on top of Greece’s already 20% unemployment, will only deepen Greece’s recession. To make matters worse, businesses are not investing in Greece’s future until the euro is secure. Suppliers are not extending Greek firms credit, which is worsening the current liquidity shortage.

Elsewhere in the euro zone there are glimmers of hope. According to the Economist, Ireland has regained competitiveness, Spain’s new government has been able to reform long rigid labor laws, and Italy has passed a pension reform and is soon to propose labor reforms of its own. Yet, austerity in the short-term causes more unemployment and reductions in spending and GDP. Italy, Spain and Portugal are all expected to see a sharp drop in GDP in 2012.

By the end of February, European leaders are expected to agree on a new, higher “firewall” for euro countries that get into financial trouble. A permanent 500 billion euro ($650 billion) fund, the European Stability Mechanism is expected in July. This could bring much-needed momentum to the euro zone.

Yes, Europe has reached a Greek deal. Yet, the road to recovery for the euro zone will still be long and hard.

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Knicks Star Jeremy Lin: Teaching Us Some Great Lessons

Last night, the Knicks won their seventh game in a row- after struggling all season. The big change has been point guard Jeremy Lin, was until ten days earlier, was sitting on the bench, waiting and hoping to get a chance to play.

Jeremy is unusual in three major ways.  He’s the first Taiwanese-American in the NBA. Only three Harvard grads have made it to the NBA before Jeremy. And, he was undrafted, unwanted and was almost shipped back to the development league two weeks ago. During the NBA holdout last fall, Lin was bunking with his brother; sleeping on the couch in his apartment and hoping for an opportunity to play in the NBA. 

Now, in the last five games, Lin has averaged 23 points, 10 assists, and 4 rebounds while playing almost 37 minutes out of each 48 minute. He is a worldwide sensation with over 200,000 followers on Twitter and 800,000 on Weibo, the Chinese version of Twitter and Facebook. His #17 jersey is the hottest selling item at the NBA store on Fifth Avenue in Manhattan. A sports blogger, Bryan Harvey suggested that the amazing thing about Lin is that “in a world of infinite data and endless observation, Lin has now broadsided us like an unseen torpedo, fired from a submarine we didn’t know existed.”

But this story is larger than basketball. Eric Jackson in Forbes last week recapped Jeremy Lin’s earlier struggles and now successes. Mr. Jackson believes all of us can learn ten important work principles from the Jeremy Lin story:

  1. Believe in yourself when no one else does.
  2. Seize the opportunity when it arises. 
  3. Your family will always be there for you, so be there for them. 
  4. Find the system that works for you.
  5. Don’t overlook talent that might exist around you today on your team.
  6. People will love you for being an original, not trying to be someone else.
  7. Stay humble.
  8. When you make others around you look good, they will love you forever.
  9. Never forget about the importance of luck or fate in life.
  10. Work your butt off.

Kudos to Jeremy Lin. We thank him for demonstrating important work lessons. Let’s hope his success continues- except, of course, when the Knicks play the Bulls.

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Mortgage Fraud Settlement: Investigations Continue

Mortgage fraud and foreclosureLast week, we all heard about the $26 billion foreclosure settlement between the big banks and federal and state officials. Some have called it a “wrist slap” compared to the hardships faced by 4 million homeowners who have lost their homes and another 3.3 million who are in or close to foreclosure.

At best, this payout will reach about two million former and current homeowners. The banks will grant some $10 billion worth of principal reduction, $3 billion in refinancing, and $7 billion in other mortgage relief. $1.5 billion will be cash payments of roughly $2,000 to some 750,000 borrowers who were treated unfairly. Lastly, $3.5 billion will go to state and federal governments to fund the aiding and counseling of borrowers facing foreclosure.

The banks did not get a blanket relief. But, it does protect them from state and federal civil lawsuits for most foreclosure abuses, excessive late fees and conflicts of interest that caused banks to favor foreclosures over modifications. Going forward, banks will be subject to tougher rules for servicing loans and executing foreclosures.

The settlement also allows further investigation into mortgage abuses which led to the financial crisis. As President Obama outlined in the State of the Union address, he intends to expand the inquiry and produce broader accountability.

Eighty years ago, the Pecora Commission actually produced results, though appointed three years after the Wall Street crash of 1929 and the subsequent Depression. Ferdinand Pecora was appointed by the Senate committee in 1932 and received broad inquiry powers in 1933. Ultimately, his commission’s report ran thousands of pages.

Congress responded to the report by passing three major pieces of legislation. First, the Glass-Steagall Banking Act, which separated commercial and investment banking. Second, the Securities Act of 1933, which established penalties for filing false information about stock offerings. And, third, the Securities Exchange Act, which created the Securities and Exchange Commission to regulate stock exchanges. Nearly fifty years of financial stability followed.

We hope the task force appointed by President Obama is more than election maneuvering and that this is not a meaningless exercise. A modern day version of the Pecora Commission might really make a difference for the future.

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Economy: Private Sector Leading the Recovery

Yes, there has been good economic news since the first of the year; stronger-than-expected employment figures and upticks in manufacturing and services data. Stock markets worldwide have responded. Most bond yields, even in Europe, are down. The Federal Reserve has made it clear that low interest rates will continue for three more years.

Will it continue? Housing seems to have hit a bottom and many households have reduced their debt. However, personal consumption continues to lag and Europe not only has its debt problems, but also many of its economies are in recession. Here in the U.S., we have a budget debacle ahead of us and tax cuts expiring at year-end. And, of course, we need to watch out for black swans that may come from places like Iran. Time will tell what the remainder of 2012 will bring.

In the meantime, it’s valuable to put our current recovery in perspective. The New York Times ran a series of great charts this weekend comparing this recovery to those started in 1991 and 2001. It’s easy to see that private enterprise is providing the bounce. Government spending and hiring is down.

Private investment, not including housing, is now 17% higher that it was at the end of the downturn. But government spending, adjusted for inflation, is nearly 3 percent smaller than it was when the economy hit bottom. Residential investment, which really boosted the two earlier recoveries, is now substantially unchanged. While the housing industry is no longer a drag, it is also not a contributor to the recovery.

Gross Domestic Product (GDP)

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