Predictions, Observations for 2018
• Expect returns from holiday 2017 to be a big challenge. With the short labor and logistics problems that have begun to emerge, trying to return items in-store — still the preferred method even if goods were purchased online — is likely turn nightmarish. Again, this is an area that retailers have lost sight of in light of having a sharper focus on outbound issues such as delivery and targeting with consumer data. Returns will be retailers’ first and most difficult challenge to address in 2018.
• Expect a burst of bankruptcies early in the year followed relative calm. Following that, retailer financials will have stabilized enough to be able to say we have passed through the storm. The next wave of distress will come from financial mistakes rather than failure to shift to the digital era.
• Store labor is already one of 2018’s biggest retail challenges. Between short sales staff even at some high end stores, and the need for more highly trained staff even at regular and mass retailers caused by the in-store experience imperative, labor looks to be one of the most sizeable cracks in retail’s infrastructure. This was much in evidence this holiday season.
• Logistics and tech breakdowns will be another area retailers will really need to focus on in 2018. With the focus on the in-store experience, some of these crucial back-end functions were overlooked, resulting in several costly crashes over the holidays. Retailers need to refocus on their online offerings as a digital store experience, as opposed to the current utilitarian view taken of websites.
• Expect a growing number of cross-segment, cross-industry mergers. We refer to these as neumarkets with CVS-Aetna as an example. Companies will move beyond traditional retail to blur markets and redefine consumer expectations. Adjacent industries such as entertainment, technology, hospitality and healthcare are potential players to get involved.
• Investments in supply chain – from origination to last mile – will accelerate as retailers try to get their physical assets on par with the investments they have made in digital data and customer insights.
• Reacting to a fear of being left behind, retailers will begin to experiment with cryptocurrencies in ways that will be clunky and potentially disastrous financially. Meanwhile, consumers will shy away from mainstream use of cryptocurrency in favor of the frictionless transaction enabled by mobile commerce.
Greg Portell is lead partner in the consumer and retail practice of A.T. Kearney, a global strategy and management consulting firm.
Target to phase out Instacart
When it comes to Target, Shipt’s gain is Instacart’s loss.
Target Corp. will wind down its partnership with delivery firm Instacart in the wake of the retailer’s acquisition of Shipt, reported the StarTribune.
The loss of Target is not expected to have much of an impact on Instacart, whose other clients range from Costco to Whole Foods Market, since it only delivers for the chain in three of more than 150 markets where its same-day delivery services are in operation, according to the report.
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Regulatory Wrap-Up: Health care, swipe fees and scheduling in the spotlight
Massachusetts: The secretary of state officially certified the minimum wage initiative for the November ballot. The initiative would raise the state minimum wage to $15/hr. by 2022. If needed, activists will have additional time to gather signatures (up to June 19, 2018) should the legislature fail to act on the issue.
Minneapolis, MN: The state chamber of commerce along with other business trade associations pulled out of pending litigation seeking to overturn the city’s minimum wage law. The announcement follows a county judge’s refusal to grant an injunction in the case. Minneapolis-based Graco, Inc. is continuing the case.
Massachusetts: The secretary of state officially certified the proposed paid leave initiative for the November ballot. The proposal would provide a maximum of 16 weeks of paid leave at up to 90% of average weekly wages with a maximum of $1,000/wk. The proposal would also create an employer-financed trust fund to cover the costs of the program.
New York: A hearing was held on the recently released scheduling regulations that are slated to go into effect in the near future. The new rules are applicable to employers as defined under the state’s Miscellaneous Industries and Occupations wage law, which only applies to traditional retailers. Restaurants are covered under a separate statute, the Hospitality Industry wage law. The new “call-in” pay regulations will only impact retailers, while restaurant employers remain subject to the existing state regulations governing “call-in” pay. The 45-day comment period established by the state labor department is scheduled to end Jan. 7. It is unclear what effect, if any, the senate hearing will have on the pending regulations.
New York City, NY: The city council passed a bill that mandates employers allow workers to take up to two unscheduled leave days per year for a “personal event.” The bill also forbids retaliation and applies potential fines to violators. The bill was transferred to the Mayor’s desk for likely signature.
California: A ninth circuit panel found that state law banning merchants from applying a surcharge to credit card purchases violates the free speech rights of the merchants. The ruling validates a 2015 decision by a lower court but limits the ruling to the five plaintiffs in the case. The state attorney general’s office is considering its options following the ruling.
Labor Department: In response to an earlier executive order from the president, the labor department released a proposed rule allowing for association health plans (AHPs). The rule allows for AHPs to offer insurance options that do not comply with standards established under the ACA, including pooling insurance plans across state lines. Employers have welcomed the new rule, however, critics warn of potential destabilization effects of the rule on the existing ACA insurance marketplaces.
Federal: In late December, the U.S. Government Accountability Office released a report finding that states continue to lose billions of dollars in revenue as a result of their inability to collect sales tax dollars from their residents, via online transactions from retailers with no collection obligation in a given state. The study also noted that many of the legislative solutions empowering states to compel collection beyond their borders could result in significant compliance costs for many small sellers.
Ohio: The American Catalog Mailers Association sued the Ohio Department of Taxation in state court over the state’s new physical nexus sales tax collection law that went into effect Jan. 1. Under the law, internet and catalogue retailers that have no presence in the state, other than “applications downloaded onto the customer’s computer or cell phone,” must still collect the state’s sales taxes. The law applies to sellers with over $500,000 in sales per year into the state.
KORUS: The Trump Administration and trade representatives from South Korea began discussions on the potential update of the five-year old KORUS free trade agreement. It is likely that many of the more contentious discussions will center on automobile manufacturing. It remains to be seen how much of a priority the administration gives the KORUS discussions and how it will navigate the ongoing dispute with North Korea that is dominating much of the dialogue in the region.
Federal: The Trump Administration has signaled it is likely to take action on various trade-related issues that have been under discussion for several months. Most notable to retailers may be actions taken related to imported steel, solar panels and washing machines. The U.S. International Trade Commission has determined that increased imports of both solar panels and washing machines are “a substantial cause of serious injury to the domestic industry” which now gives the President the legal basis to restrict those imports.
Immigration Florida: A ballot initiative, if approved by the state’s constitution revision commission, would mandate employer participation in the federal E-Verify work authorization program. In the past, the state’s business community has opposed mandatory E-Verify for private employers.
• With most state legislatures convening this month, there will be significant legislative reaction to the spate of sexual harassment stories in the news. It’s highly likely that many states will address their laws concerning non-disclosure agreements (NDAs) for discrimination claims. Many feel that these agreements deter victims from coming forward with accusations. Additionally, the new tax law eliminates the deduction of settlement payments if an NDA is involved. This is another example of how the public discourse can drive political and policy outcomes.
• As the Trump Administration and Congressional Republicans search for their first big agenda item in 2018, hopes by some for entitlement reform appear to be waning. Senate Majority Leader Mitch McConnell has indicated that the Senate will not pursue reforms leaving the 2018 agenda an open question. Operators should still continue to leverage significant opportunities for progress on key issues at the agency and regulatory level.
• With tax reform completed, the administration would prefer to focus on trade issues that align with Trump’s “America First” campaign promises. Continued action on NAFTA, initial discussions on revamping KORUS and potential actions on specific imported products will create an opportunity for Trump to push a platform of aggressive international actions in defense of American interests. Retailers will need to pay close attention, particularly to the discussions and actions related to specific products, as potential tariffs and the inevitable international response to them could cause significant market disruptions.
• The employer community needs to pay close attention to how states, particularly high-income tax states which tend to be blue, react to the new tax bill. Many are discussing tax shifts – moving the tax burden from individual income taxes, a large portion of which are no longer deductible, to payroll or other employer-related taxes that are deductible. The bottom line is that the debate on taxes will continue in some large states very important to operators.
Legislature Status for Week of 1/8/18
• The United States Senate is in session this week
• The United States House is in session this week
• Thirty-four state legislatures are meeting actively this week:o AL, AZ, CA, CO, DE, FL, GA, IA, ID, IN, KS, KY, MA, MD, ME, MI, MO, MS, NC, NE, NH, NJ, NY, OH, OK, PA, RI, SC, SD, TN, VA, VT, WA, WV
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