Oct 15, 2018

Axios Future

By Bryan Walsh
Bryan Walsh

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1 big thing: A last chapter at Sears ...

Photo: Gordon Coster/LIFE/Getty

Like the rest of Big Retail, Sears thrived for a century and a half on a low-wage, low-productivity strategy, hiring thousands of workers to wade through mountains of inventory and stock shelves. But its policy of sluggishness finally caught up with it, as the company today filed for bankruptcy with plans to close another 142 stores.

  • As if to punctuate Sears' plummet, major shareholder Eddie Lampert kept up his show of seeking the best for the chain — stepping down as CEO while remaining as chairman.

Why it matters: Brick-and-mortar retail still rakes in a whopping majority — 91% — of shopping dollars. But Sears' fate is the latest and perhaps most dramatic example of how, since 1990, the productivity of department stores has stayed remarkably flat, while online shopping has surged, Axios' Erica Pandey writes.

Background: Sears' bankruptcy filing comes after a decades-long decline, during which a retail empire of about 3,500 stores in the U.S. and Canada and some 350,000 workers shrunk to 700 mostly unprofitable outlets and 68,000 employees. As the company bled assets, it saw a plunge in sales and productivity, which in retail is a ratio of sales to employee hours worked.

  • The company underinvested in sprucing up its stores. Instead, it broke into fashion and beauty, banking and real estate, becoming bloated. Meanwhile, it neglected its flagship brands — its big-selling Kenmore appliances, DieHard batteries and Craftsman tools, the latter two of which Lampert sold off.
  • "Their locations have become obsolete, and their product mix is no longer adequately differentiated," says Herb Kleinberger, a professor of retail at NYU's Stern School of Business.
  • "The missteps arguably go back to the 1980s, when Sears became too diversified and lost the deftness that had once made it the world’s largest and most innovative retailer," Neil Saunders, a retail analyst at GlobalData, wrote today in a note to investors.

Cautionary tales from Sears and Barnes & Noble have big-box retailers spooked.

  • Sears' 20th century competitors — Walmart, Target and Macy's — are pouring money into refurbishing their stores. They're accepting some short-term pain in exchange for longevity, Saunders tells Axios. "At Sears, it has always been about short-term survival."
  • Walmart, Target and Macy's "are not going to be as productive as they once were, and they might never be as productive as Amazon. But they're doing the right things to stay relevant to customers."
2. ... and a rocketing e-commerce
Expand chart
Data: BLS and Progressive Policy Institute; Note: E-commerce data does not include productivity of workers in warehouses and fulfillment centers; Chart: Naema Ahmed/Axios

When Amazon raised its minimum wage to $15 per hour, it was a shot across the bow of traditional retailers — many of whom are barely getting by paying workers $10 an hour, Erica writes.

"Amazon is changing the whole supply chain, and retailers who say, 'Don't wake me up,' are in trouble. Anybody who sticks with their old business model is going to be run over."
— Michael Mandel of the Progressive Policy Institute

As is clear in the chart above, e-commerce is far more efficient per worker. And Stern's Kleinberger says its disruption runs deep:

  • Big-box stores aren't aligned with how younger consumers prefer to shop, he says. In a March 2017 eMarketer survey, 78% of 18- to 29-year-olds said they prefer to shop online.
  • Online shopping has only 9% of the overall retail pie, but some product categories have seen much greater penetration. Amazon has about half the market share for print books, toys and baby products, for instance.

Worth noting: Some brick-and-mortar chains have quickly shifted gears as Amazon continues to disrupt retail — and they're thriving.

  • Williams-Sonoma, the kitchenware company that's popular in malls across the country, has modernized its supply chain and does 52% of its sales online, per market research firm CBRE.
  • Two high-end department stores, Neiman Marcus and Nordstrom, have seen sluggish in-store sales, but their online businesses have grown to 25% of all sales.
3. More on inscrutable robots
Atlas, which triggered the tweetstorm. Giphy: Boston Dynamics video.

Technologists and reporters started a Twitter fire yesterday to criticize consumer robot companies that post videos depicting super-impressive human-like action, but then fail to explain the limitations of their creations.

What’s going on: Boston Dynamics, a revered but very secretive robotics company, published two videos of their walking bots last week, writes Axios' Kaveh Waddell.

The short video of the humanoid robot, Atlas, bounding nimbly up a set of blocks drew the ire of observers tired of seeing flashy demos without technical explanations.

  • As we reported, it’s rarely clear if the robots in these videos are reacting to their environments with a degree of autonomy or if they’re just following a scripted set of actions that would fail if the scene were even slightly altered.
  • "If you placed Atlas in a random hotel room somewhere, I highly doubt it it would be able to get out," tweeted Hal Hodson, a technology reporter for the Economist. "If you told it to walk across Central Park, it wouldn't have a hope."
  • Hodson went on, "I think public comes away from these vids thinking that robots can do tasks like this now. Fact is they can't. And I don't think, from the way the vids are presented, that they are stupid for thinking that. things like number of runs/video, showing/telling perception would help."

This ignited a pile-on:

  • Jack Clark, a former Bloomberg reporter and now a policy executive with OpenAI, said, "Former journalist here — Boston Dynamics' main press strategy for many years was to publish videos and never give interviews or respond to technical questions, so they never tried to help media add more info/context."
  • James Vincent, an AI reporter for the Verge, responded, "I’ve also approached them multiple times and got nothing."
  • Azeem Azhar, an AI expert at Accenture, tweeted, "Yep. Build the buzz. Hide the meat. Befuddle."
  • Boston Dynamics did not respond to a query about the tweets from Axios.

Boston Dynamics isn’t explicitly claiming its robots can do anything that they can’t. It’s just not saying anything at all and letting experts and the public draw conclusions that may reflect better on the company than the truth.

Go deeper: The video that set off the storm

4. Worthy of your time

Screen capture: Vala Afshar Twitter feed

Amazon delivery drivers ineligible for $15 wage (David Dayen — In These Times)

A dozen jumpers (Vala Afshar's Twitter feed)

Dot.com deja vu in China (Phred Dvorak, Liza Lin — WSJ) (subscription)

The anglo-American brain drain (Simon Kuper — FT) (subscription)

The seven U.S. tribes (Stephen Hawkins, Daniel Yudkin, Miriam Juan-Torres, Tim Dixon — More in Common) (h/t George Packer)

5. 1 brewing thing: The coffee war is spreading

Photo: Thomas Trutschel/Photothek/Getty

In August, we wrote about the coffee war in China. Since then, we have noticed new fronts. One is in coffee capsules, writes the Economist.

What's going on: Capsules, which plug into fancy machines to brew instant cups of joe, are the fastest-growing category of coffee — and hot drinks at large, per market research firm Euromonitor International, writes Erica.

  • Nestlé and investment firm JAB Holdings, two of the giants to emerge from a massive consolidation, already control about a third of the $83 billion a year coffee market — but each is trying to edge the other out in the capsule fight.

Driving the news: JAB just delivered a blow to Nestlé with a deal with Italian coffee company Illy to distribute its capsules.

  • JAB has made its mark through high-profile purchases of big coffee incumbents like Keurig and Peet's.
  • Nestlé is not far behind. It owns a number of household names, including Nespresso and Blue Bottle. The Swiss company also has a distribution deal with Starbucks.
Bryan Walsh