The Daily Parker

Politics, Weather, Photography, and the Dog

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.

Daily Parker bait, times 3

Of course I'm going to blog about these three articles.

First, former George W. Bush speechwriter and lifelong Republican Michael Gerson looks at the culture of celebrity that surrounds the President and says "our republic will never be the same:"

The founders generally believed that the survival and success of a republic required leaders and citizens with certain virtues: moderation, self-restraint and concern for the common good. They were convinced that respect for a moral order made ordered liberty possible.

The culture of celebrity is the complete negation of this approach to politics. It represents a kind of corrupt, decaying capitalism in which wealth is measured in exposure. It elevates appearance over accomplishment. Because rivalries and feuds are essential to the story line, it encourages theatrical bitterness. Instead of pursuing a policy vision, the first calling of the celebrity is to maintain a brand.

Is the skill set of the celebrity suited to the reality of governing? On the evidence, not really.

Second, Crain's business columnist Joe Cahill calls out Eddie Lampert's offer to buy Kenmore for $400m as a call to put Sears into hospice care:

There's plenty to worry about in the latest letter from Lampert's ESL Investments. First, Lampert is offering just $400 million for Kenmore, supposedly the company's crown jewel. When he first floated the idea of buying the household appliance brand in April, estimates pegged the likely selling price at $500 million or more. Maybe the lower bid is intended to elicit higher offers from potential third-party acquirers. Or it may signal that nobody else is interested and ESL is angling for a bargain.

Second, the offer is both nonbinding and contingent on ESL finding a third-party equity backer to finance the purchase. The letter says ESL is "confident" it can find such a backer. In other words, billionaire Lampert isn't willing to risk his own money buying Kenmore. This is consistent with his recent reluctance to raise his bet on Sears Holdings as a whole. As I've written before, he could easily take the company private—at the current market capitalization, the 46 percent he doesn't already own would cost less than $100 million—and capture the full upside of a turnaround. He's shown no interest in doing so.

And finally, on a happier note, the Chicago Tribune lists eight bars where people can go to read:

After living in the United Kingdom, freelance book publicist Jonathan Maunder turned to Chicago’s literary greats to connect to his adopted city. He remembered a night last year visiting Rainbo Club, the bar favored by “Chicago, City on the Make” author Nelson Algren.

“As I stepped out of the bar, a little drunk on both a couple of pints and Algren’s beautiful writing, I stood for a moment under the red neon of the Rainbo Club sign, which was reflected on the just rained on street, and felt a powerful connection to the place I was in and its history,” he said.

[He recommends] Kopi, A Traveler’s Cafe
5317 N. Clark St., 773-989-5674

A friendly, relaxed cafe/bar, which always has people and a good atmosphere (and sometimes accordion players) but never feels overly busy and hectic, in a way that might be distracting from reading.

Given that Kopi is a 20-minute walk from my house, I may just stop in this weekend.

I was a little bummed that the Duke of Perth didn't make the list, though.

The state of American craft brewing

The Chicago Tribune reported today that the largest craft brewer in the United States is now...AB InBev, AKA Anheuser-Busch:

Between 2011 and 2017, Anheuser-Busch bought 10 breweries from coast to coast, beginning with Chicago’s Goose Island Beer Co. and ending (for now) with Wicked Weed Brewing of Asheville, N.C. In between, it picked up breweries in Oregon (10 Barrel), Virginia (Devils Backbone), Seattle (Elysian), Los Angeles (Golden Road), Houston (Karbach) and the metro areas of Phoenix (Four Peaks), Denver (Breckenridge) and New York City (Blue Point).

Anheuser-Busch’s shopping spree appears to have paid off. Last month, industry newsletter Beer Marketer’s Insights reported that the beer giant has surged past Boston Beer and Sierra Nevada in 2018 to become the nation’s top craft beer company in terms of dollar sales.

To be clear, Anheuser-Busch’s craft beer supremacy exists in one very specific metric at the moment; IRI tracks sales in grocery, big box, drug and convenience stores. When factoring in draft and liquor store sales, Beer Marketer’s Insights estimates that Boston Beer remains ahead of Anheuser-Busch in terms of both volume and dollar sales. But the passing of that torch is all but an inevitability during the next year or so.

However, it’s not all good news for Anheuser-Busch’s craft effort.

Its lead horse, Goose Island, had a rough 2017, and 2018 is proving just as difficult. In early August, the Goose Island portfolio was down double digits across the previous three months....

I've said before, part of craft beer's appeal is that it comes from actual craft breweries. And big beer companies don't actually like craft beer—because they can't compete with them.

So, mazel tov to InBev, but I'm going to stick with Revolution, Dovetail, Begyle, and Empircal, all of which brew within a 10-block radius of my house.

You're not wrong, voice-command assistant UIs are horrible

The Nielsen-Norman Group has released recent research on user interactions with intelligent assistants like Alexa and Google Home. The results are not great:

Usability testing finds that both voice-only and screen-based intelligent assistants work well only for very limited, simple queries that have fairly simple, short answers. Users have difficulty with anything else.

Our user research found that current intelligent assistants fail on all 6 questions (5 technologies plus integration), resulting in an overall usability level that’s close to useless for even slightly complex interactions. For simple interactions, the devices do meet the bare minimum usability requirements. Even though it goes against the basic premise of human-centered design, users have to train themselves to understand when an intelligent assistant will be useful and when it’s better to avoid using it.

Our ideology has always been that computers should adapt to humans, not the other way around. The promise of AI is exactly one of high adaptability, but we didn’t see that that when observing actual use. In contrast, observing users struggle with the AI interfaces felt like a return to the dark ages of the 1970s: the need to memorize cryptic commands, oppressive modes, confusing content, inflexible interactions — basically an unpleasant user experience.

Are we being unreasonable? Isn’t it true that AI-based user interfaces have made huge progress in recent years? Yes, current AI products are better than many of the AI research systems of past decades. But the requirements for everyday use by average people are dramatically higher than the requirements for a graduate student demo. The demos we saw at academic conferences 20 years ago were impressive and held great promise for AI-based interactions. The current products are better, and yet don’t fulfill the promise.

We're not up to HAL or Her yet, in other words, but we're making progress.

The whole article is worth a read.

Too many things in my inbox

I probably won't have time to read all of these things over lunch:

Share that last one with your non-technical friends. It's pretty clever.

Three items, implicitly related

Item the first: Bruce Schneier discusses how Russian censors have tried to shut down Telegram, an encrypted communications app:

Russia has been trying to block Telegram since April, when a Moscow court banned it after the company refused to give Russian authorities access to user messages. Telegram, which is widely used in Russia, works on both iPhone and Android, and there are Windows and Mac desktop versions available. The app offers optional end-to-end encryption, meaning that all messages are encrypted on the sender's phone and decrypted on the receiver's phone; no part of the network can eavesdrop on the messages.

Since then, Telegram has been playing cat-and-mouse with the Russian telecom regulator Roskomnadzor by varying the IP address the app uses to communicate. Because Telegram isn't a fixed website, it doesn't need a fixed IP address. Telegram bought tens of thousands of IP addresses and has been quickly rotating through them, staying a step ahead of censors. Cleverly, this tactic is invisible to users. The app never sees the change, or the entire list of IP addresses, and the censor has no clear way to block them all.

A week after the court ban, Roskomnadzor countered with an unprecedented move of its own: blocking 19 million IP addresses, many on Amazon Web Services and Google Cloud. The collateral damage was widespread: The action inadvertently broke many other web services that use those platforms, and Roskomnadzor scaled back after it became clear that its action had affected services critical for Russian business. Even so, the censor is still blocking millions of IP addresses.

Whatever its current frustrations, Russia might well win in the long term. By demonstrating its willingness to suffer the temporary collateral damage of blocking major cloud providers, it prompted cloud providers to block another and more effective anti-censorship tactic, or at least accelerated the process. In April, Google and Amazon banned—and technically blocked—the practice of “domain fronting,” a trick anti-censorship tools use to get around Internet censors by pretending to be other kinds of traffic. Developers would use popular websites as a proxy, routing traffic to their own servers through another website—in this case Google.com—to fool censors into believing the traffic was intended for Google.com. The anonymous web-browsing tool Tor has used domain fronting since 2014. Signal, since 2016. Eliminating the capability is a boon to censors worldwide.

Meanwhile, back in the U.S., a Federal judge has cleared the path for AT&T to purchase Time Warner, which will create one of the largest companies the world has ever seen.

All of this is scary to a lot of people. Which is why charlatans are on the rise once again.

We live in interesting times.

Past performance is no guarantee of future results, craft beer edition

Ballast Point, a former craft brewery that sold out to Constellation Brands for $1 billion in 2015, hasn't given the buyers everything they had hoped for:

Ballast Point has plummeted back to earth after its meteoric rise, though, a sales decline that reflects early missteps after the merger and the slowing growth of craft beer in general, according to industry experts and Constellation executives. The San Diego-based brewer of Sculpin IPA faces numerous challenges in its quest to grow as national craft brand, but perhaps none more significant than this: There are almost 6,500 breweries in the U.S. today — at least 2,000 more than when Constellation bought Ballast Point.

“We have a great high-end Mexican portfolio and wanted to get into craft. We entered in a big way with Ballast Point. … This is really an example of where we’re headed right here in terms of executing our strategy,” said Marty Birkel, Ballast Point president, in an interview at the new Chicago brewpub.

Michigan-based Founders Brewing Co., best known for its lower-priced, lower-alcohol All Day IPA, was roughly the same size as Ballast Point in 2015, but could end up shipping twice as much beer to wholesalers this year. Founders CEO Mike Stevens called the Ballast Point decline a “perfect storm” of high price point — a six-pack of Sculpin regularly sold for $15 — and what he believes to be a fading trend in fruit-flavored IPAs.

“They were obviously just screaming to the top of the peak, riding that price point, riding their fruit IPAs. … Right when that (deal) went down, we kind of all knew that they were going to have to fix the price points because the consumers were going to lose interest,” Stevens said.

Given that "small" and "craft" are two of the things people who drink beers from small, craft breweries want, and that these things go away when a conglomerate buys them, none of this should surprise anyone. And yet, the culture at large companies almost compels this kind of behavior.

At least Constellation isn't trying to kill its acquisitions, as InBev and MillerCoors have been accused. And craft breweries continue to flourish, both here and abroad. So all is not lost...just Ballast Point.