The Daily Parker

Politics, Weather, Photography, and the Dog

Amazon abandons its HQ2 site in New York

The company announced today that it has given up on building out its new headquarters in Queens:

[T]he agreement to lure Amazon stirred an intense debate about the use of government incentives to entice wealthy companies, the rising cost of living in rapidly gentrifying neighborhoods, and the city’s very identity.

Amazon’s decision is a major blow for Gov. Andrew M. Cuomo and Mayor Bill de Blasio, who had set aside their differences to bring the company to New York.

But it was a remarkable win for insurgent progressive politicians led by Representative Alexandria Ocasio-Cortez, whose upset victory last year happened to occur in the district where Amazon had planned its site. Her win galvanized the party’s left flank, which mobilized against the deal.

State Sen. Michael Gianaris, a vocal critic who was chosen for a state board with the power to veto the deal, said the decision revealed Amazon’s unwillingness to work with the Queens community it had wanted to join.

“Like a petulant child, Amazon insists on getting its way or takes its ball and leaves,” said Mr. Gianaris, a Democrat, whose district includes Long Island City. “The only thing that happened here is that a community that was going to be profoundly affected by their presence started asking questions.”

In its statement, Amazon said it has no plans to re-open the search for a second campus.

I'm actually glad they pulled out, as I expect so are many people in New York. The concessions Amazon secretly extracted from the state and city were worth more than $3 billion, with only the company's promises guaranteeing 25,000 new jobs in Queens. (Ask Wisconsin what a company's promises are worth.)

Sears lives to die another day

On Thursday, a court accepted Eddie Lampert's $5.2 bn bid to keep Sears running and himself as its head:

Lampert’s purchase, made through his hedge fund, ESL Investments, is intended to keep 425 Sears and Kmart stores open, preserving some 45,000 jobs. It was the only bid submitted in an auction that would have kept the once-mighty department store giant in business and avoid liquidation.

Lampert’s plan was opposed by a committee of unsecured creditors skeptical that Hoffman Estates-based Sears will be any more successful after exiting bankruptcy. The committee pushed for a liquidation, arguing that shutting down the company and selling its assets could recover more of what Sears owes.

Still unresolved is a dispute between Sears and ESL over which is responsible for paying $166 million for inventory received after Sears filed for Chapter 11 bankruptcy on Oct. 15. Although Drain did not have jurisdiction to decide the issue, he gave an advisory opinion in favor of Sears’ claim that ESL is responsible for those liabilities.

The judge’s decision saves Sears from liquidation, but still unanswered is whether Lampert can reinvigorate a retail chain that many consumers have fond memories of, but no current relationship with. Lampert has said he wants to invest in smaller stores and those that are profitable, with a focus on popular categories like appliances and repair services.

I'm not a bankruptcy attorney, so I don't know whether this is a good ruling. I, personally, would have preferred that Sears stay open and Lampert stay far away from it. But at least it's not dead yet.

This shouldn't surprise anyone

The Pension Benefit Guaranty Corporation—read: the government—read: us, as we live in a frickin' REPUBLIC—has taken over the Sears Holdings pension fund because, basically, Eddie Lampert has driven it into the ground:

The agency covers individuals’ pensions, up to certain limits, if an insured pension plan shuts down without enough money to pay all benefits. It estimates Sears’ two pension plans are underfunded by about $1.4 billion. As a creditor, the agency could attempt to recover some of that money through the bankruptcy.

Ron Olbrysh, chairman of the National Association of Retired Sears Employees, said the guarantee means retirees aren’t worried about losing pensions, but they do have concerns about other benefits.

“The pensions are secure through Sears or through the Pension Benefit Guaranty Corp.,” he said. “The big impact if Sears does liquidate is that retirees will lose life insurance.”

The Daily Parker has followed the destruction of America's iconic retailer for years, watching the incompetence and self-dealing of Eddie Lampert the whole time. And here we are. Lampert will slide away from Sears with tens, or even hundreds, of millions of dollars, while the people who actually showed up every day to keep the stores open go bankrupt. Ironically, Lampert gets to do this by declaring bankruptcy. And the banks and investors he's stiffing have known this would happen for years. But they'll still show up in Federal court to argue that their claims to Sears' assets trump (no irony there) the employees'.

There seems to me a simple solution to the problem that Lampert's destruction of Sears epitomizes. Let's just change the law slightly to make officers of corporations liable in civil and criminal actions for the behavior of the corporations they represent. It's not a radical idea: corporations already have the right to act as people under the law. This is a simple balancing.

I don't think it's controversial to say that Eddie Lampert should experience all the consequences of his horrible management of Sears, including going down with the sinking ship. Especially because his management of the company was to drill a hole in the keel and then let his managers fight over how to keep the ship afloat.

When the revolution comes, I hope Lampert—and by extension, his adolescent worship of Ayn Rand—will be first against the wall.

How sellers use Amazon's monopsony power against each other

Via Bruce Schneier, a report on how third-party Amazon sellers use Amazon's own policies to attack their rivals:

When you buy something on Amazon, the odds are, you aren’t buying it from Amazon at all. Plansky is one of 6 million sellers on Amazon Marketplace, the company’s third-party platform. They are largely hidden from customers, but behind any item for sale, there could be dozens of sellers, all competing for your click. This year, Marketplace sales were almost double those of Amazon retail itself, according to Marketplace Pulse, making the seller platform alone the largest e-commerce business in the world.

For sellers, Amazon is a quasi-state. They rely on its infrastructure — its warehouses, shipping network, financial systems, and portal to millions of customers — and pay taxes in the form of fees. They also live in terror of its rules, which often change and are harshly enforced. A cryptic email like the one Plansky received can send a seller’s business into bankruptcy, with few avenues for appeal.

Sellers are more worried about a case being opened on Amazon than in actual court, says Dave Bryant, an Amazon seller and blogger. Amazon’s judgment is swifter and less predictable, and now that the company controls nearly halfof the online retail market in the US, its rulings can instantly determine the success or failure of your business, he says. “Amazon is the judge, the jury, and the executioner.”

An algorithm flags sellers based on a range of metrics — customer complaints, number of returns, certain keywords used in reviews, and other, more mysterious variables — and passes them to Performance workers based in India, Costa Rica, and other locations. These workers choose between several prewritten blurbs to send to sellers. They may see what the actual problem is or the key item missing from an appeal, but they can’t be more specific than the forms allow, according to Rachel Greer, who worked as a fraud investigator at Amazon before becoming a seller consultant. “It feels like it’s a bot, but it’s actually a human who is very frustrated about the fact that they have to work like that,” she says.

The Performance workers’ incentives favor rejection. They must process approximately one claim every four minutes, and reinstating someone who later gets suspended again counts against them.... When they fall behind...they’ll often “punt” by sending requests for more information....

Scary. And an example of why monopolies are bad. As Schenier says, "Amazon is basically its own government—with its own rules that its suppliers have no choice but to follow. And, of course, increasingly there is no option but to sell your stuff on Amazon."

Note that I say this while watching an old TV show on Amazon Prime, waiting for Amazon to deliver a replacement Fitbit band, and on and on.

This is always how it would happen

Given the American tradition of publicly saying one thing and privately doing the opposite, even staunchly-Republican businesses learn to behave as if climate change is real. After the company experienced higher-than-expected losses following California wildfires this year, Allstate's CEO put out a press release urging action on climate change:

In a release, CEO Tom Wilson minced no words on his views of the cause of the devastation, which resulted in dozens of deaths and hundreds missing, as well as staggering property loss.

"It's time to address the impact that more severe weather is having on Americans instead of fighting about climate change," Wilson said. "This year there have been approximately 7,500 wildfires in California, Hurricanes Florence and Michael, and a swath of severe weather across the United States, putting our customers in danger and at risk of losing their homes and hard-earned money.”

The financial blow would have been significantly worse had Allstate not shrunk substantially in California. The company said it has cut its California homeowners policies by about half over the past decade.

The catastrophe losses, combined with $60 million in unanticipated pension costs that Allstate also reported last night, will have a dramatic effect on 2018 earnings. Sandler O’Neill & Partners today reduced its 2018 earnings estimate by 15 percent to $7.67 per share from $9.03 per share.

I've predicted this for two decades now, that insurance companies would always be the first to promote climate-change remediation and greenhouse-gas reductions, because they get hurt the most by climate change. Good on Tom Wilson; now maybe he can lobby some sense into the Republican Party.

You can stop laughing now. But eventually, we're going to get there. Just not with the current government.

Why Treasure Island died

Crain's has some good reporting on why local grocery chain Treasure Island went out of business this month:

After Christ Kamberos' death, Maria Kamberos became president and CEO and appointed her son, Christ Kamberos Jr., vice president of development. (Frank Kamberos, who is in his 90s, ceased playing an active role in the chain long ago. Whether he remains an owner in Treasure Island could not be determined, but public records show he does retain ownership, along with Maria Kamberos, of the real estate affiliated with the stores.) They renovated the Gold Coast store in 2013 and the Lake Shore Drive location last year, though some shoppers were underwhelmed by the efforts in comparison to the new Whole Foods and Mariano's stores that cropped up after the demise of Dominick's. As recently as October 2017—a decade after opening in Hyde Park, its newest location—Christ Kamberos Jr. said publicly that the company would open an eighth location in a new luxury apartment development in Uptown. (The store never materialized.)

But inside the stores and the corporate office, employees say, operations notably deteriorated at the beginning of 2018.

Inventory deliveries were intermittent for most of 2018, according to six employees, all of whom asked not to be named. Photos provided to Crain's by a senior employee show a loaf of Treasure Island bakery bread with a July 24, 2018, sell-by sticker placed on top of an original July 4 sticker. Moreover, store-level employees say paychecks not deposited immediately would sometimes take days to clear or would bounce.

Personal squabbles; corner-cutting that backfired; treating employees badly; and the rise of Whole Foods and Mariano's. Those things killed Treasure Island.

The end is nigh for Sears

Oh, Sears. You've come to represent much that is wrong with American corporate culture, especially a CEO who embodies the Dunning-Krueger Effect with every syllable he utters.

Crain's Joe Cahill argues that Eddie Lampert, while Sears' proximate cause of death, didn't act alone in its murder:

There's no denying the hedge fund mogul who thought he knew more about retailing than the retailers made critical errors that turned Sears' struggles into an inexorable decline. But Sears started down the wrong path long before Lampert appeared. And its sad fate isn't so much a story of operational missteps as one of missed opportunity. In short, Sears chose to imitate Walmart when it should have tried to pre-empt Amazon.

Like so many established companies threatened by newcomers with innovative business models, Hoffman Estates-based Sears tried to beat the interlopers at their own game, rather than looking ahead to the next big thing. The company that recognized the potential of railroads to support a nationwide retail operation and foresaw that postwar suburban sprawl and shopping malls would redefine retailing for a new generation failed to appreciate the implications of internet technology for the industry it dominated for more than a century.

As for Lampert, he showed no better vision than his predecessors. When he took control of Sears by merging it with Kmart, the combined company still had an opportunity to carve out a strong presence in e-commerce. Amazon had already emerged as the leading internet retailer, but with $8.49 billion in 2005 revenue, it was one-sixth the size of Sears, and barely profitable.

Meanwhile, two other Crain's stories outline the thousands of other victims of this crime: the company's pensioners and all of the malls about to lose their anchor tenants.

Press reports reckon the company has less than 48 hours to live.

An iconic Chicago brand comes home

I'm not sure how I feel about CH Distillery buying the Malort wormwood liqueur brand:

Since the 1970s, Malort has been distilled in Florida, though its primary market has remained Chicago. Many Malort enthusiasts would agree that the liquor’s powerful aftertaste assaults the taste buds, a phenomenon that’s ironically helped grow the brand’s popularity on social media and in Chicago bars.

Why would Tremaine Atkinson, founder of CH Distillery, want to purchase Malort?

“Oh my gosh, why not? … I love everything about it. I hate everything about it. It’s such a great iconic Chicago thing,” Atkinson said Thursday. “It fits at the psychic level, the business level and the cultural level.”

Atkinson, 54, said he first tried Malort when a friend bought him a shot after moving to Chicago some 20 years ago. His reaction was not atypical.

“I drank it and said, ‘Why did you do that to me?’” Atkinson said.

Atkinson compared the flavor to taking a bite out of a grapefruit and then drinking a shot of gasoline, then acknowledged that’s actually a fairly tame description compared to some found on the internet.

That sounds about right. I've had precisely one shot of Malort in my life, which is approximately the correct number. I say "approximately" because the correct number is, in fact, zero.

But like the Cubs choking in October, it's very much a Chicago thing. And now it's coming home.

Bad day for Lagunitas Brewing

The Petaluma*, Calif., based company, which has a major production facility here in Chicago, laid off 12% of its workforce:

The workforce reduction will affect every department in the company, which operates a production plant in Chicago and a taproom in Seattle, CEO Maria Stipp said in a prepared statement. Lagunitas employs about 900 people at its Petaluma headquarters, which will take the brunt of the more than 100 layoffs.

The decision to downsize comes 17 months after Dutch brewing giant Heineken International acquired full ownership of the homegrown brewery company, which has long been a supporter of local nonprofits through beer donations and fundraisers at its Petaluma taproom.

The layoffs were not wholly unexpected given cutbacks at other craft brewers with growth slowing in the estimated $26 billion-a-year U.S. craft sector. The sector had incredible growth in recent years, with production rising as much as 20 percent annually as recently as 2014. But in recent years the increases have been in the low single digits.

Who could have predicted that Heineken would want profits more than protecting its workers?

*Petaluma is a million times better than its sister city, Megaluma.

STBX Mayor Emanuel

Getting off the airplane yesterday, I discovered that Chicago Mayor Rahm Emanuel is hanging them up:

After nearly three decades of intense public life, from Chicago to the White House to Congress and back again, it was time for this “empty nester”—the term Emanuel kept dropping, to move on. Likely with a huge push from his wife. The prospect of the upcoming election, which Emanuel insisted he “without a doubt” would have won, wasn't the deciding factor.

In the interview, Emanuel also said he’s “probably not” going to get involved in the race to succeed him. He added that he intends to pursue projects such as Elon Musk’s proposed underground express train to O’Hare International Airport and admitted that his departure could hurt the city’s bid to lure Amazon’s HQ2 and a promised 50,000 well-paying jobs.

“I love this job,” he told me. But “you haven’t sat in the cockpit. I know what this job demands. I have to be honest with the public as to whether I have everything this job takes.”

One thing that took a toll was the city’s incessant and horrid gang violence. “That wears on your soul,” he said. Though the city under his leadership has improved Chicago Public Schools, remade much of its economy and stabilized its finances, his big regret is that public safety does not exist “in all parts our city. . . .That tears at me.”

Another thing clearly was personal, though.

Emanuel spoke about how he yanked his family to Washington only to move them back here after he won the mayor’s job. That forced some difficult choices, he said, like the time “I had to leave my son’s bar mitzvah early to go to the White House to count votes” on the bill to enact Obamacare.

Now that the kids are gone, “We’re empty nesters. We’re still young enough to write another chapter.”

In today's issue of Crains, along with the Emanuel interview is a similar statement from a local former CEO. Pete Kadens, who led Green Thumb Industries, a Chicago-based (technically Canadian) company that grows medical marijuana, insists he really did want to spend more time with his family.