Friday, July 30, 2010

....And Amazon Has Its Own Problems

In today's prior post, I excoriated Barnes & Noble for not being able to deliver on its business model's implicit promise of having books in stock.

As I promised the B&N help desk staffer, I went to Amazon to complete my birthday gift purchase when I returned home that afternoon.

Even there, however, I was met with confusion and, frankly, gross misrepresentation.

I found the book easily enough. And, for once, was actually grateful for the one-day shipping option. Costly though it was (more than the value of the book), I selected it, then proceeded to the payment screen.

Imagine my surprise when the concluding screen informed me that I'd been charged for one-day shipping, but the expected delivery date was six days later!

I next went to a very useful feature on the website, where I was able to type in a phone number and be called instantly by an Amazon help desk employee.

After a heated exchange following the third unique personal identification question, the staffer went offline briefly, then returned to explain the seemingly-contradictory information on shipping of the gift.

She contended that the fulfillment vendor on this book wouldn't have it in stock until five days from now, at which time it would be shipped in one day.

I was, to say the least, not at all happy about this. I told her bluntly that this was grossly and deliberately misleading.

To, on one hand, charge me a huge premium for 'one-day shipping,' and contend that is what it is, then, on the other hand, inform me this means 'one day after the book is in stock,' is just wrong.

What customer orders and pays a premium for next-business day shipping, thinking it means anything else but just that- next day?

Given the option on Amazon's website, I modified the order and replaced the premium shipping with standard delivery. Why double the order's price for no benefit?

I was frankly very surprised at Amazon's obvious attempt to bait and switch on shipping charges. There wasn't any specific warning on the out-of-stock condition when I chose the premium shipping option. Instead, I had to dig further and spend about ten more minutes on help screens and the telephone to arrive at the truth.

However, as the accompanying five-year price chart for Amazon and the S&P500Index indicates, the company has been nicely outperforming the latter for most of the past five years. It's even made the short list of my strategy's equity portfolio recently.

The borderline-fraudulent delivery option pricing/performance is a minor problem, when compared to Barnes & Noble's more glaring issues.

Still, Amazon's recent price cuts on its Kindle give one pause. I wrote in that recent post,

"You have to wonder, with Amazon having so much less control over its Kindle development than Apple does over the iPad, if that difference will have ramifications for its content sales in the years to come.

One thing is sure. The Kindle is in a direct fight with the Nook and other e-reader-only devices, while Apple's iPad floats above them, offering a different set of features which clearly differentiates it and commands the typical premium Apple price."

After my Barnes & Noble experience, I drove to my nearby fitness club to work out. Ironically, as I was moving between weight lifting stations, I heard/saw an interview by the hapless CNBC anchor, Maria Bartiromo, she of the annoying speech impediment, with a senior exec from Amazon.

Maria was tossing softball questions to the Amazon VP who was showing off the company's latest version of the Kindle, priced at an all-time low.

With the company's recent revenue miss only a week ago, and the resulting swoon in the equity's price, you'd think Bartiromo would be well-positioned to grill the VP about the seeming weakness in Amazon's strategy. It is quite obvious, by now, that the company is cutting price on the Kindle to maintain share, while charging less for ebooks (than physical ones), which are forecast by Jeff Bezos to become more than 50% of the retailer's book sales by next year. The recent revenue miss suggests Amazon's margins are being squeezed and its investments in the Kindle will be yielding less than in the past.

A competent business media interviewer would have used these pieces of information to create a much more interesting and potentially revealing interview than the one Bartiromo held with the Amazon senior executive.

But just because Bartiromo failed, typically, to highlight Amazon's problems, doesn't mean they don't exist.

It seems both physical and electronic book retailing have become overly challenging for the vendors engaged in both endeavors.

Barnes & Noble Fails As Brick & Mortar Book Retailer

I had been ruminating on a suitable business topic for today's post, and was considering a macroeconomic topic.

Then I went to buy two books for a friend's birthday, and the topic presented itself. Poor retail bookselling.

I'll begin with this post concerning Barnes & Noble. You can see from nearby the five-year price chart of B&N and the S&P500Index that the former has been in free fall for the period. It now stands down more than 60% from five years ago.
Perhaps my experience is a partial explanation.
With little time before the birthday in question, and a recent Wall Street Journal review of two books by an author in hand, I figured B&N could supply me with the books instantly, due to its physical inventory, whereas Amazon might not come through in time (more on that in the next post).
The staff at the B&N help desk was polite, but couldn't make up for the store's deficiency. They had, he said, a single copy of the recently-reviewed volume, and none of the earlier work by the same author.
When I finally located the minuscule 'Nature' section, it took me more time than it should have to locate the book in question. I'm still not sure how the section was organized, but it didn't seem to be by title, as usual. In any case, in typical inventory management system fashion, there were three copies on the shelf, not the one predicted.
I took a copy and proceeded to the checkout counter to pay for it. Upon being asked for an affinity card, I handed my expired one to the clerk, who confirmed that it was no longer active.
But he didn't bother to ask if I wanted to renew it. Amazing! A $35 (if my memory is correct) add-on fee, and the guy didn't even try to resell me on the value of the card.
So much for choosing to give my custom to Barnes & Noble due to their physical inventory of books. Nowadays, the most visible display kiosk, upon entering the store, is the chain's Nook e-reader. Forget relying on them for an actual broad inventory of reasonably topical and popular books.
Not to mention sales skills.

Thursday, July 29, 2010

Microsoft, Ballmer & Holman Jenkins, Jr.

Yesterday's editorial in the Wall Street Journal by Holman Jenkins, Jr., finally echoed my series of posts castigating Bill Gates, Steve Ballmer and the overall management of Microsoft.

I won't bother to provide all the links. Just search under any of three labels- Microsoft, Steve Ballmer or Bill Gates.

While Jenkins didn't touch the topic of self-breakup, he did note that Ballmer had held himself to the task of creating a third major business, besides operating systems and applications, at which he has notably and miserably failed.

Like me, Jenkins noted,

"At bottom, this is a corporate governance problem."

I've also discussed the retreads and nobodys on the firm's board, the better to kowtow to the CEO.

His solution is one I can second, if the firm won't break itself up. Jenkins suggests they raise the ordinary dividend so high as to require the creation of a successful new business, in order to fund it.

Forced repatriation of shareholder wealth via cash dividends- I like it.

CNBC's Jim Goldman Departs & A Look At His Gaffe Involving Apple's Steve Jobs

I noticed last week that CNBC's long time technology reporter, Jim Goldman, was missing in action. A quick Google search revealed that he had left the network recently for a VP job at public relationships firm Burston Marstellar.

In the process of that search, I discovered this webpage containing the video of Goldman, Dennis Kneale and 'Fake Steve Jobs,' a/k/a Dan Lyons of Newsweek.

It's priceless.

After viewing it, I began to wonder whether Goldman had become damaged goods. I reflected on his interviews over the years, and have to admit, he mostly tossed softballs. Once he mistakenly took on Carol Bartz without solid facts, and she ripped him a new one, as well.

However, in a larger sense, Dan Lyons' revelations of Goldman's complete and consensual digestion and public regurgitation of the Apple party line concerning Jobs' health issues in 2009 may have reduced, if not eliminated his credibility.

Makes you wonder about other CNBC reporters, doesn't it? Because it fits nicely with the network's tendency to softball interview CEOs and generally say nothing that might affect interview access to and/or advertising from large corporations and financial sector personalities.

Wednesday, July 28, 2010

Rating Agencies Go On Strike

Yesterday's Wall Street Journal contained an informative article in the Money & Investing Section by staff writer Dennis Berman entitled Note to Credit Raters: Evolve or Die.

It was only by reading Berman's well-reasoned piece that I even knew that the major agencies had refused to rate a batch of securities which required those rating in order to go to market. This temporarily froze the issuance of the securities, and spurred a similarly temporary SEC ruling to allow such issuance sans ratings.

But the gauntlet has been thrown down. Stung by the recent FINREG bill, the major ratings agencies tried to scare the markets and Washington into relenting on changing the rules by which they operate. Apparently they will now incur substantial liability for their ratings, instead of the free speech exemption they have historically enjoyed.

I must say that I agree with Berman. The agencies' action was all bark and no, or very little, bite.

While I in no way agree with almost any of the basic premises of and changes made by FINREG, I do share the view that there has been a mindless tyranny of rating agencies.

In today's world, it's unclear that the agencies still contribute sufficient economic value for their work. Further, so many institutional investors foolishly relied solely on ratings from S&P, Moodys and/or Fitch that it helped bring about the financial sector meltdown, primarily involving over-rated securitized mortgages, often passed through Fannie and Freddie.

If only to break the moronic reliance on these ratings, a regulatory change is healthy. Yes, probably even leading to agencies being paid by the consumers of the ratings, not the securities or firms which are the subjects of the ratings.

Berman made a nice case for the agencies trying desperately to scare markets and regulators into submission, lest they realize how potentially antiquated and valueless the agencies have now helped to make themselves.

Tuesday, July 27, 2010

GM's Shameful Finance Company Purchase

It was big news in the business media last week that GM bought AmeriCredit.

The stated reason from GM's press flacks was that the company is suffering lost sales without a captive finance subsidiary.

This is, of course, a lie.

It would be a trivial thing for GM to select from among many lenders a few which would be granted exclusive access, in exchange for revenue sharing and pre-agreed credit terms for customers.

So it's not about lost sales. It's about GM getting greedy with your tax dollars. After all, the company hasn't repaid the bailout billions it received. True, chairman Ed Whitacre staged a big press show to highlight a partial payment of the money. But it's far from all repaid.

Thus, this purchase is, in fact, the US taxpayer paying for a shiny bauble that Whitacre has convinced his overseers that he has to have.

The reasoning is basically,

'But Mommmmmmmy, all the other kids- Ford and Chrysler- have captive finance units. I want one, too! Or I won't eat my vegetables!'

Oh, did we discuss AmeriCredit's subprime business? That GM wants that segment to sell cars to lower-end consumers?

Hmmm...but wouldn't that be jumping back into the predatory lending pool that everyone agreed caused the 2007-08 financial sector meltdown?

Bob Lutz, one-time senior exec at Ford, GM, and Chrysler, as well, defended GM's acquisition on CNBC the other day. A newly-minted "contributor," he never the less received a decent grilling from, I believe, Melissa Francis. Lutz' replies were disingenuous, poorly-constructed and wholly unconvincing. He, too, pulled the 'Great Depression' card, claiming that letting GM file for bankruptcy would have destroyed the US economy. Ergo, GM must be allowed to buy AmeriCredit.

Flawed, but, then, I guess nobody ever accused Lutz of being logical.

Guess it's safe to go back to subprime auto lending now. And guess you, as a US taxpayer, are the guinea pig in this experiment.

Of course, none of this government favoritism for GM over, say, Ford, and subsidization of bad investments was necessary. And, no, it wouldn't have led to a depression.

All that was required, as I wrote at the time of the GM bailout and faux-bankruptcy, which favored the UAW over secured senior creditors, i.e., bondholders, was to have put GM into Chapter 11 while offering one-time cash payments to workers.

Thus, the shareholders would have lost their money, creditors would have retained standing, Congress could have had its social policy by paying workers- including lower-level managers- and the money-losing parts of GM would have gone away.

Meanwhile, the court would have endorsed the trustee's reorganizing GM into either a smaller, manageable going concern, or salable parts.

None of this required law-breaking moves to put the UAW in front of secured lenders, or risk tens of billions of US taxpayer money bailing out a poorly-run private sector firm.

However, having eschewed this route, two administrations have now put taxpayers in the ludicrous position of favoring one car maker over others, and funding its return to subprime lending, as well.

Monday, July 26, 2010

Recessions & Deficits: Then & Now

This morning's Wall Street Journal provided a sobering comparison of the US government's approach to the last two major recessions.

Under Ronald Reagan, the deficits following the Carter-era recessions were:

1982 4%
1983 6%
1984 5%
1985 5%
1986 5%
1987 3%

In contrast, the recent, current and projected deficits for this administration, from OMB sources, are:

2009 10%
2010 10%
2011 9%
2010 6%

Of course, the recent projections for future years are, if history is a reasonable guide, lowball estimates. Thus, the rough average of the current administration's deficits are/will be easily twice that of the Reagan years.

The Journal editorial notes,

"The 1981-82 recession was comparable in severity to the one Mr. Obama inherited and reached similar heights of unemployment. The deficits that resulted from that recession were the source of huge political consternation, with Democrats, the press corps and even some senior Reagan aides insisting that only a huge tax increase could save the country from ruin."

Remember David Stockman's infamous trip to the woodshed?

But Reagan didn't raise taxes, he lowered them. The resulting economic boom, derided by those parties which the editorial described as consternated, fueled US growth and government revenues for the following 15 years.

Now, however, we have much higher tax rates, being increased at the margin and by whole new taxes, accompanied by the largest amounts of federal spending ever seen outside of WWI and WWII.

As the Journal editorial concludes, it's a revealing comparison from the experimental lab of prior and current OMB-sourced deficit scorecards.