A blog about business and economics.

Oct. 9 2014 6:37 PM

Amazon Is Opening an Actual Store

File this one under #innovation. Online retailing giant Amazon is planning its first brick-and-mortar store, the Wall Street Journal reports, and it's going to be a big deal. According to the Journal, the real-life Everything Store at 7 West 34th St. in Manhattan will push the boundaries of commerce with revolutionary in-store services that include:

  • Receiving same-day delivery items
  • Facilitating product returns and exchanges
  • Allowing customers to pick up online orders
  • Highlighting Amazon inventory

The ambitious project is also risky. The Journal notes that operating a physical store could force Amazon to take on retailing costs it thus far "has largely avoided." These include leasing a space for the store and paying employees to work there. The added expenses could prove dangerous to the thin profit margins that Amazon's Jeff Bezos is famous for maintaining.

Amazon has toyed with the idea of a physical store before. Last November, the company opened pop-up shops in U.S. malls to sell its Kindle tablets and e-readers. As it turns out, physical stores for online retailers is something of a trend—some call it trading "clicks for bricks." In 2013, Etsy opened a pop-up store in New York City and eBay teamed up with Kate Spade to create temporary storefronts. Online eyeglasses seller Warby Parker has also experimented with physical locations.

Other online retailers have tried to strike a balance between the physical and digital worlds. Companies like Trunk Club and Stitch Fix, which regularly send their subscribers a sampler of items, are built around the notion of trying to bring an in-store shopping experience to your living room. Either way, nothing says disruption quite like turning our online experiences into IRL ones.

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Oct. 9 2014 12:10 PM

Why PayPal’s Split From eBay Threatens 70 Million Americans

This article originally appeared in Inc.

PayPal’s coming split from eBay potentially threatens eBay, Apple Pay, and all the ungainly legacy tech companies whose investors are now pushing them to break into pieces. But there’s also a large group of people for whom the PayPal-eBay breakup is bad news: anyone who hates banks, particularly the low-to-moderate income people the industry calls “underbanked.

That’s a lot of people. About 70 million Americans, or one in five U.S. households. They’re everyone from students and immigrants to entrepreneurs and business owners. They pay some $78 billion in fees every year to cash their paychecks, take out payday loans, or use debit cards. Some of these people hate banks on principal, or because of sneaky things like overdraft fees; some of them can’t qualify for bank accounts or traditional credit card loans; some of them need to send money to relatives in other countries or use other financial services that banks often don’t provide.

And these 70 million Americans just lost the attention of the executive who was making some of their nonbank financial services cheaper.

That would be Dan Schulman, the incoming chief executive of the independent PayPal. Until last week, he was a senior executive at American Express, where he was leading the credit card company’s strange but surprisingly effective campaign to develop better financial services for underbanked consumers.

Strange: American Express, the company that taught us to refer to credit cards like they’re high-end jewelry (“Platinum!” “Gold!” “Silver!”), has always been an unusual standard-bearer for economy-class financial services.

Surprisingly effective: Since Schulman arrived at Amex in 2010 to “create new fee-based revenue streams for the post-recession environment,” the company has helped drive down industry prices for things like “prepaid” cards, which are something between debit cards and bank-less checking accounts.

Those cards tend to be predatory and full of hidden fees for basic functions ($0.99 just to swipe the card? $1.25 to call a customer service representative? $3 for not using the card??) But those fees have gotten less egregious, and slightly cheaper, in the past couple of years, according to Pew Charitable Trusts—and it’s hard not to give American Express at least a little credit. 

Schulman oversaw Amex’s unveiling of two prepaid cards, Bluebird and Serve, which even financial industry critics acknowledged were pretty good about reducing fees. In 2011, the New York Times’ Tara Siegel Bernard said Serve “appears to right many of the industry’s wrongs.” At Reuters, Felix Salmon called it “a huge improvement, from a consumer perspective, over any prepaid alternative,” and suggested that it might even have some advantages over checking accounts: “The Amex card is never going to surprise you with something nasty and unexpected in the way that checking accounts are prone to doing.”

That’s a lot of good press for a traditional financial services company that, after all, isn’t in the business of being altruistic. But now the man responsible for championing those cards at American Express—and by extension, bigger companies’ efforts to improve their financial products—has taken his cowboy boots and left the building.

The company says its efforts of the past four years can survive one executive’s departure. American Express is promoting Neal Sample, a former eBay executive whom Schulman hired in 2012, and spokeswoman Leah Gerstner told me that CEO Ken Chenault is still very committed to the “enterprise growth” unit: “There’s no change in mission. We’re still very focused on bringing products to market for those who are underserved.”

The problem is that Schulman was very much the face of that mission. It got him written up everywhere from the Harvard Business Review and Fast Company to the New York Times and American Banker. It sent him to South by Southwest this year, promoting American Express’ glossy Spent documentary about financial difficulties faced by the underbanked. It put Schulman front and center at a red-carpet June event for the film in New York, where he rubbed elbows with Spent narrator Tyler Perry.

People who have worked with the company told me this week that they’re not concerned about American Express immediately abandoning its products for lower-income people. But they are worried that without Schulman as a powerful champion, the marketing budget for those products may slowly slip away.

That might have happened anyway, since it was never clear how sustainable this business was for American Express. The company doesn’t break out numbers for its prepaid cards, which "suggests they don’t contribute meaningfully to the company’s bottom line," RBC Capital analyst Jason Arnold told Bloomberg.

But the marketing dollars were getting Amex something more ineffable, as they’re supposed to do: goodwill, and attention to the cause of "disruptive" financial services.

American Express is hardly alone in trying to disrupt financial services, of course. There are many bona fide startups, including IPO-planning Lending Club and OnDeck Capital, trying to figure out new (but not always cheaper) ways to lend to Americans. In the realm of big companies, Walmart has been as prominent as—though less lauded than—American Express; last week the retailer unveiled its version of a basic bank account for low-income people. 

And yes, Schulman’s move is probably good for PayPal, one of the earliest and most successful financial disrupters. But that company’s interest has traditionally tended to be more in payments—including mobile wallets of the sort that Apple Pay is taking on—than in lower-priced financial products.

It’s possible that Schulman could change that, although he’ll obviously have other initial priorities when he starts his new job. PayPal isn’t making Schulman available for interviews, and a spokeswoman declined to comment.

But that brings us back to the problem with financial services disruption, especially in terms of making cheaper, better products for Americans who don’t have much money to begin with. Those people aren't hugely lucrative customers.

So most businesses would, understandably, rather focus on selling you a better smartphone wallet than on building a better bank account for people who might not be able to afford the iPhone 6. It's just unfortunate that one of the most prominent financial executives focused on the latter is becoming one more in the crowd of people devoted to the former.

Oct. 8 2014 4:21 PM

AT&T Ordered to Repay Customers for $80 Million of Bogus Phone Charges

The Federal Trade Commission notched a win for consumers on Wednesday when it announced a $105 million "cramming" settlement with AT&T. The fine is notable for a few reasons: It's the biggest one the FTC has ever made with a major mobile carrier, and, more importantly, $80 million of it will go to refunding customers who were taken advantage of in the first place.

"Cramming" is what regulators use to describe the illegal practice of stuffing extraneous charges—typically from unauthorized third parties—into customers' bills. These charges are often buried deep in the bill or given vague, deceptive labels such as "service fee" or "other fees" so as not to arouse suspicion. Cramming predates smartphones, but those users are especially vulnerable to it since they tend to make more purchases that unauthorized line items can hide behind. The FTC demonstrates this with an infographic containing "excerpts from an actual AT&T bill."

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Screenshot from FTC

Pretty much everyone agrees that cramming is a big problem. In a report released in July, the Senate Committee on Commerce, Science, and Transportation said cramming was a billion-dollar industry that costs consumers millions each year. At the same time, cramming bolsters revenue for AT&T, Sprint, T-Mobile, and Verizon, as carriers often retain 30 to 40 percent of third-party charges. Earlier that month, the FTC filed a formal complaint against T-Mobile that accused it of reaping hundreds of millions of dollars from phony charges buried in customers' cellphone bills. The FTC says it has pursued seven cases again mobile cramming since 2013.

The FTC is instructing consumers who believe they were charged unfairly by AT&T to submit a refund claim online. As part of its settlement, AT&T is also supposed to notify all current customers who were affected of the deal and the refund program. In other news, trivia text alerts just lost a lot of unwitting but well-paying customers.

Oct. 7 2014 5:48 PM

Warren Buffett Is Putting His Money on Hillary

Warren Buffett deviated from business predictions at Fortune's Most Powerful Women Summit on Tuesday to make a political forecast: "Hillary is going to win."

The Oracle of Omaha is a known supporter of both Clinton and President Obama. He reportedly backed Clinton's 2008 campaign and has donated to and helped fundraise for Obama. Buffett also showed his support for Clinton in one of his five tweets since joining Twitter in May 2013:

How sure is the billionaire investor of his hunch? "I will bet money on it," Buffett said. "I don't do that easily."

Oct. 7 2014 5:22 PM

Did Comcast Get a Man Fired From His Job for Complaining About Its Service?

Update, Oct. 8, 11 a.m.: Ars Technica confirmed the account described in this story over lunch last Friday with the man, Conal O'Rourke, in Northern California. O'Rourke was fired from his job at PriceWaterhouseCoopers (PWC) earlier this year after his extended dispute with Comcast. Ars Technica reports that he provided "an astonishing amount of documentation" and is threatening to sue Comcast if the company does not apologize, retract its comments to his employer, restore his job, and pay him $100,312.50 by Oct. 14.

Innovative might not be the first word that comes to mind in describing Comcast. But are we giving the company credit where credit is due? Let's face it, after that harrowing 18-minute customer service call went viral in July, it looked like Comcast had nothing more to strive for—it had reached peak horrible. Yet if reports this week are accurate, Comcast has continued to shine as an innovator in the competitive field of corporate terribleness: It got a customer's employer to fire him for complaining about shoddy customer service.

The full story in all its sadistic glory is at Consumerist, but here's the SparkNotes version. A customer named "Conal" started subscribing to Comcast service in early 2013. There were issues: erroneous charges, bills that never arrived, discounts that weren't applied. Conal considered canceling his service, but decided to stick with it after a Comcast rep promised that the issues would be resolved and threw in some free perks. As another friendly gesture, the company also allegedly sent and billed Conal for $1,820 of equipment he'd never ordered.

This is where it gets crazy. Conal, understandably frustrated, decided to bypass the customer service department and take his complaints straight to the Comcast controller. During the call, he claims, he suggested that a private-sector oversight group look into Comcast's billing and accounting issues. Shortly after that call, Comcast contacted Conal's employer—a large accounting firm that Consumerist reports happened to do business with Comcast. The rep claimed that Conal had name-dropped his employer as leverage during the call; according to the story, the firm opened an investigation against Conal and then fired him from his job.

It's hard to know who's telling the truth here. Conal tells Consumerist that he never mentioned his employer and that someone at Comcast must have looked him up to figure out where he worked. Comcast, for its part, has allegedly refused to release any tapes of the phone calls it made on the matter. That's a little strange: If Conal did invoke his company's name in a threatening way, Comcast could easily prove as much by excerpting the relevant portion of his call. So much for monitoring "for quality assurance purposes." If you want it done right, record the call yourself.

Oct. 7 2014 2:24 PM

The Maker of Apple’s Sapphire Screens Has Filed for Bankruptcy

One of the many features that got hyped about the upcoming Apple Watch was its screen. Made from "sapphire glass"—a dense, hard crystal—the display is supposed to be expensive to manufacture and almost impossible to scratch. In late 2013, Apple signed a $578 million deal with GT Advanced Technologies to produce sapphire material for its products. So it was odd when on Monday, still at least several months away from the 2015 release of the Apple Watch, GT abruptly said it was filing for Chapter 11 bankruptcy protection.

In a statement on the company's website, GT said it had approximately $85 million in cash as of Sept. 29 and was seeking new financing that would "enable GT to satisfy the customary obligations associated with the daily operation of its business." Tom Gutierrez, GT's president and CEO, said in the release that the Chapter 11 filing did not mean the company was going out of business. "We are convinced that the rehabilitative process of Chapter 11 is the best way to reorganize, protect our company, and provide a path to our future success," he said.

It is unclear what led to GT's bankruptcy filing, but at least one theory is that Apple, which had been widely expected to use sapphire for the iPhone 6 screens, made a late decision not to do so. While Apple never disclosed its specific plans for sapphire glass, the iPhone-screen theory gained credence after 9to5Mac observed that machines ordered by GT were specifically designed for "display-grade components, not small pieces of sapphire that could be used for Home buttons or cameras." (Sapphire is already used in the iPhone's Touch ID sensor and camera lens cover.)

Earlier this year, shares of GT Advanced Technology had risen somewhat shakily to new highs of nearly $20. After Monday's announcement, the stock plummeted 95 percent from its opening price of $11.06 to less than $1. Raymond James analyst Pavel Molchanov wrote in a less-than-optimistic report that while the bankruptcy came as a surprise to just about everyone, "What we are comfortable predicting is that the equity is almost certainly worthless and will end up being delisted." Things are looking a tiny bit brighter today, with GT's stock up 100-plus percent on heavy trading volume. Then again, that's not saying much when you started the morning at $0.90.

Oct. 6 2014 5:59 PM

Nation Surprisingly Aware of Who Janet Yellen Is

In its latest News IQ Quiz, Pew Research Center decided to assess what Americans know about the people who set their monetary policy. Specifically, Pew wanted to know how aware Americans are of the person in charge of the people who set their monetary policy. Here's how Pew presented its question:

screen_shot_20141006_at_4.21.51_pm

Screenshot from Pew.

If you answered "Janet Yellen," congratulations! You, wise Moneybox reader, are among the 24 percent of people in our nation who can identify the current Fed chair among four options on a multiple-choice question. Pew reports that 17 percent of people chose Alan Greenspan, 6 percent picked Sonia Sotomayor, and 5 percent opted for John Roberts. Forty-eight percent did not guess on the question.

While 24 percent recognition doesn't exactly say great things about public awareness of the Fed, it's also not terrible, considering that Yellen was only confirmed in January and the Fed itself is notoriously taciturn. When Pew asked a similar question about Ben Bernanke in 2008, it was a full two years into his appointment as Fed chief, and 35 percent of people answered correctly. (The other choices in that quiz were Alan Greenspan, Paul Volcker, and Henry Paulson; 27 percent of respondents picked Greenspan.)

Of course, the percentage of people who ID'd the Fed chair correctly would almost certainly have been smaller if Pew hadn't jogged memories with four multiple-choice responses. Case in point: In 2007, Pew found that only 36 percent of people could come up with "Vladimir Putin" when asked to name the president of Russia as an open-ended question. When three choices were given (Putin, Mikhail Gorbachev, and Boris Yeltsin) that figure jumped to 60 percent.

Oct. 6 2014 2:29 PM

Hewlett-Packard Is Giving Up on “Better Together.” Will Other Tech Stalwarts Follow?

Hewlett-Packard, the multinational sellers of PCs, printers, and enterprise software, said Monday that it is splitting its business down the middle. HP's information technology operations—software, data storage, computer services—will be bundled into Hewlett-Packard Enterprise and keep current HP CEO Meg Whitman at its helm. Its PC arm will spin off as HP Inc. and hang onto the current HP logo, with Whitman as chairman of the board and Dion Weisler as chief executive. In the previous year, revenues in the to-be-separated components of HP were so great that each one alone would have ranked among Fortune's 50 largest U.S. companies.

The transaction, which is expected to be completed by October 2015, is being billed as a key part of the five-year turnaround plan Whitman unveiled in 2012. "The decision to separate into two market-leading companies underscores our commitment to the turnaround plan," Whitman said in a statement. "It will provide each new company with the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics, while generating long-term value for shareholders."

While that may be true, it's a remarkable change—or you could say turnaround—in stance for Whitman, who had previously insisted that the various components of HP were "better together." The decision to break up the company comes one week after eBay had a similar change of heart and said it would spin off its payments arm, PayPal, into a separate publicly traded company. Both Whitman and eBay CEO John Donahoe cited fast-paced change as chief among the reasons to split. HP is one of several technology veterans that has struggled to keep up as customers turn from personal computers to mobile devices and cloud computing systems.

Analysts are split on whether HP's decision is the right move. Several told Reuters that the separation process could be disruptive and seemed to come from "weakness, not strength." At investment firm Morningstar, analyst Peter Wahlstrom wrote that "we believe this is strategically the right move." As part of the split, HP will lay off 5,000 people. Shares of Hewlett-Packard were up around 5 percent to just over $37 on the news as of early afternoon.

Could HP's split signal the end of an era for tech stalwarts? Jim Kelleher, director of research at Argus Research, wrote in an analyst note that HP's announcement "will ripple through the industry" and "may sound the death knell for the 'one-stop shop' technology model." He also expects pressure will increase on IBM to divide into a services business and a software and hardware one. "Even if IBM does not act immediately to change its structure, calls for a shake-up will not go away," Kelleher wrote. "There are more and more activist investors anxious to shake up even companies formerly seen as sacrosanct."

On the other hand, this is not the first time that HP has spun off part of its business. In 1999, it released the division that became Agilent to better keep pace with the Internet boom. Considering how many people think we're now living through a second tech bubble, the spinoff timing might not be so surprising.

Oct. 3 2014 6:01 PM

Warren Buffett’s Latest Deal Has Officially Made Car Dealerships Cool

Are car dealerships a good investment? Warren Buffett thinks so, and that's good enough for the market.

Buffett's Berkshire Hathaway on Thursday agreed to buy the Van Tuyl Group, the fifth-largest auto dealership in America with $9 billion in sales. For Buffett, it expanded a transportation portfolio that already included planes (NetJets) and trains (the Burlington Northern Santa Fe Railway). Once the acquisition is completed, the dealership will be renamed Berkshire Hathaway Automotive.

Since news of the sale broke, shares of auto retailers have traded up; when Warren Buffett buys a car dealership, everyone else gets on board. Shares of AutoNation and Penske Automotive Group, among others, spiked after the announcement. But over at BloombergView, auto-industry consultant Edward Niedermeyer is questioning the wisdom of the market's quick reaction:

Perhaps the biggest reason to think twice before following the Oracle is that the U.S. auto market is returning to its traditionally sustainable sales peak of between 16 million and 17 million units per year. While auto sales have been one of the few bright spots in the retail sector during a slow economic recovery, there's no reason to think that will last. Much of that growth is due to the expansion of auto credit, particularly through subprime lending and longer loan terms, so there may not be much juice left in the tank for further growth.

On the other hand, Buffett isn't stopping his auto investments at that. "I fully expect we'll buy a lot more auto dealerships over time," he told CNBC. In the meantime, go ahead and make all the Planes, Trains and Automobiles jokes you've got.

Oct. 3 2014 1:23 PM

Bruges Will Cut Traffic With … an Underground Beer Pipeline

Reprinted from

This article originally appeared in Wired.

In the years since the De Halve Maan brewery opened a bottling facility outside Bruges in 2010, the company’s faced a tricky logistics problem. It still brews beer at its original site downtown, just as it has for nearly five centuries. To get all that delicious beer to the new factory for filtration, bottling, and shipping, it uses trucks. Trucks that burn fuel, spew carbon, and clog the city’s cobblestone streets (which surely froths all that beer).

No more. The city council has approved the brewery’s unusual but clever plan to save time and money while reducing emissions and congestion. It will build a pipeline to ferry the good stuff across town, underground. Yes, you read that right: a beer pipeline.

Instead of making the three-mile drive in one of dozens of tankers that traverse town each day, the award-winning beer will flow through a 1.8-mile polyethylene pipeline, making the trip in 15 to 20 minutes. The pipeline will move 6,000 liters of beer every hour, De Halve Maan CEO Xavier Vanneste told Het Nieuwsblad.

As CityLab points out, Cleveland’s Great Lakes Brewing Company uses underground tubes to move beer between its brewery and its pub, across the street. But this is a longer journey, one with real environmental consequences, and the Belgian pipeline surely will have a bigger impact in terms of reducing traffic and carbon emissions. “In time, this innovative investment plan would reduce the amount of transport by heavy goods vehicles by 85 percent,” says Franky Dumon, the alderman for spatial planning who approved the project on behalf of the city council. “It is a win-win situation for everyone.”

De Halve Maan gets to move its beer swiftly and efficiently, without giving up the medieval site that draws more than 100,000 visitors every year. Bruges doesn’t have to spend a dime, since the brewery guarantees it will cover the installation and road repair costs. There are no public cost estimates for building the pipeline just yet, but De Halve Maan says it will minimize tearing up public streets with “computer-guided drilling techniques.”

The residents of Bruges will be happy to get all those trucks off the street, but we assume they’re at least kind of hoping for a burst pipe and streets filled with free beer.

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