11
DEC
2015

In the Headlines – December 11th, 2015

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In The Headlines

Amazon’s Prime Threatens Walmart and Target

Amazon PrimeAccording to a new survey, there are now nearly 41 million members of Amazon.com’s Prime. The program keeps attracting more and more members, and new data from Wall Street firm Cowen & Co suggests the subscription service is getting stickier, posing a more intense threat to traditional retailers trying to gain back market share. The survey also suggests Amazon Prime is drawing younger and wealthier shoppers who are now using the website to shop for an increasingly diverse range of products, notably apparel.

According to Cowen’s survey of 2,500 customers, members of Prime—a $99 annual subscription service that offers, among other benefits, free two-day shipping—have an average household income is $69,300, well above the income of Amazon shoppers in general, and some 24.8% higher than Walmart shoppers’ average income and 4% above Target’s. That means Prime is particularly enticing to the higher income shoppers both Walmart and Target are trying to woo.

What is more, the Prime customer is younger, averaging 36.5 years old, versus 42 at Walmart. (Target attracts a younger clientele similar to Amazon Prime.) What more could a retailer want than younger, more affluent shoppers? Prime members are shopping across more categories than they were a year ago (4 compared to 3.6), suggesting Amazon is winning more and more of people’s total spending. Slice Intelligence estimated that 36.1% of all online spending on Cyber Monday, a $3 billion shopping event, happened at Amazon.com.

The conclusions from Cowen’s survey mirrors other reports. Market research consultancy Millward Brown Digital analyzed the buying patterns of more than 2 million online consumers, finding that Prime membership narrows the field of retailers a shopper is willing to consider. The company’s analysis of Prime versus non-Prime members’ cross-shopping behaviors found that less than 1% of Prime members are likely to consider other mass-market retail sites — Walmart.com and Target.com, for example—during the same online session. Also, an Amazon shopper without a Prime membership is 8 times more likely than a Prime member to cross-shop between Amazon and Target.com in the same session.

For Walmart.com, Target.com and other retail sites trying to play catch-up with Amazon, the “conversion rate” of Prime shoppers—that is, the percentage browsing online who actually buy something—may prove the most sobering statistic. It shows that 63% of Amazon Prime members carry out a paid transaction on the site in the same visit, says Millward Brown Digital—almost five times the conversion rate of non-Prime members. That conversion number dips considerably lower for consumers visiting traditional big-box stores’ websites. This study shows 2% of Target.com shoppers purchase something during their online session, closer to the U.S. e-commerce average conversion rate of about 3%. For Walmart.com, that figure is 5%.

In a frightening new development for other retailers, Amazon customers are buying more and more apparel: the number of Amazon customers saying they buy clothes there rose 35% in November compared to a year earlier. Cowen this summer forecast that Amazon would surpass Macy’s as the top U.S. retailer of apparel by 2017.

The Cowen report suggests adoption of Prime keeps on growing, meaning Amazon will keep getting harder and harder for Walmart, Target, and others to catch. Both Walmart and Target reported modest e-commerce growth rates last quarter, as the Amazon juggernaut gained steam.

Citations

1. http://for.tn/1YPHDv3 – Fortune
2. http://onforb.es/1HIt8jH – Forbes


 

Indian Outsourcer Cognizant Shifts its Focus to Consulting

CognizantThe Indian technology firm, Cognizant, has furnished a suite of rooms on the swank penthouse floor of an office building in Midtown Manhattan. The offices feature hardwood floors and vintage furniture that would not look out of place in East Egg. The office’s two terraces have views of the East River and the Chrysler Building. It is a long way from the mundane meeting rooms at Cognizant’s headquarters in Teaneck, N.J., and even farther from the cubicles that fill the company’s offices in India, where three-quarters of its 220,000 employees work.

The Manhattan setup is part of Cognizant’s effort to remake itself as a technology consultant instead of a cheap data-processing workhorse. In India, wages are rising and competition for labor is growing, so hiring tens of thousands of employees each year is no longer a guaranteed way to expand the business. In the U.S., congressional efforts to reduce the number of temporary visas outsourcing companies receive each year would further complicate Cognizant’s traditional business model. And worldwide, corporate clients that once relied on outsourcers to manage big SAP and Oracle databases have begun shifting the work to cloud services that require less hands-on management. New demand for the traditional outsourcing work “has ground to a halt,” says Bloomberg Intelligence analyst Anurag Rana. “IT budgets at best are flat to slightly up.”

And so Cognizant is working to create an image of quality over quantity. The company has 5,500 consultants, up from fewer than 1,000 in 2010, pitching strategic advice on IT, mergers, and customer service to clients such as the New England Health Exchange Network and Singaporean retailer NTUC FairPrice. The company is still adding workers to its outsourcing business but says it plans to slow hiring. “Five years ago it was more, ‘Tell us what to do, and we’ll do it well,’ ” says Cognizant President Gordon Coburn. “Today, we’re sitting at the table helping to generate ideas on how you can improve your processes.”

So far, Cognizant, which was spun off from credit reporter Dun & Bradstreet in the 1990s, has focused on advising clients concerned that digital upstarts could take away their customers. “Our clients are asking the question, ‘Will I be Ubered?’ ” says Malcolm Frank, executive vice president for strategy and marketing. Thanks to the investments Cognizant has made in consulting, he says, the company’s become a good judge of which businesses are at risk. Cognizant, which posted $10.3 billion in revenue last year, is still small compared with consulting heavyweights Accenture ($30 billion) and IBM’s services division ($51 billion). But Cognizant’s shift toward consulting appears to be paying off: Profit is expected to approach $2 billion next year, up from $1.7 billion this year, $1.4 billion in 2014, and $884 million in 2011.

Outsourcing critics are not impressed with Cognizant’s hiring of more full-timers in the U.S. The company’s “whole business model is about replacing American workers,” says Ron Hira, a professor at Howard University and co-author of Outsourcing America. “They’re still using the visa programs for cheaper labor and, in many cases, to directly replace American workers.” Cognizant says it is creating jobs by hiring locally but often faces a shortage of qualified workers.

India’s homegrown outsourcers, such as Infosys in Bangalore and Tata Consultancy Services in Mumbai, are also trying to expand into consulting. In October, Infosys announced the $70 million acquisition of Noah Consulting, an oil and gas industry specialist with offices in Houston and Calgary. Tata in May announced plans to open a design center with the Royal College of Art in London. On Dec. 2, Wipro in Bangalore announced a $78 million purchase of German consultant Cellent. The other companies have not yet had Cognizant’s success. Forrester Research now ranks Cognizant among the top five global consulting firms, along with Accenture, IBM, Deloitte, and PwC. Forrester said in a July report that Cognizant “is gaining traction as an increasingly strong technology-based transformation power.”

Cognizant credits its consultants and an added touch of class. In the Midtown office, Senior Director Jay Chittenipat says Cognizant plans to set up similar schmoozing hubs next year in Amsterdam, San Francisco, Singapore, and other cities. “We want people to think differently,” says Frank, “and look at problems through a new set of eyes.”

Citations

1. http://bloom.bg/1QktwuH – Bloomberg
2. http://bit.ly/1ON1Ixn – The Consultant Lounge


 

The Good News Is . . .

Good News• The U.S. economy generated 211,000 jobs in November, a number that topped expectations and may have turned the final key for the Federal Reserve to hike interest rates later in December. The unemployment rate remained at 5.0%. Wages also grew for the month, though at a slower pace than in October. Average hourly earnings climbed 4 cents, equating to a 2.3% annualized gain. Construction saw the biggest gains among sectors, adding 46,000, while professional and technical services grew by 28,000 and health care rose 24,000.

• The Walt Disney Co., a leading global entertainment company, reported earnings of $1.20 per share, an increase of 34.8% over year earlier earnings of $0.89 per share. The firm’s earnings topped the consensus estimate of analysts by $0.06. The company reported revenues of $13.5 billion, an increase of 9.1%. Management attributed the company’s results to the strength of its brands, higher affiliate fees, increased advertising revenue at ESPN and the ABC Television Network, and higher operating income from program sales.

• Chip maker Microsemi Corporation announced that it had agreed to acquire PMC-Sierra for $2.5 billion in cash and stock. Microsemi agreed to acquire PMC for $9.22 in cash and 0.0771 of a share of Microsemi stock for each share of PMC. The deal is part of a sweeping consolidation in the semiconductor industry. Chip makers are needing to scale up for customers that want to cut down on the number of suppliers. The mergers have also enabled chip makers to cut costs. Microsemi offers semiconductor products for the communications, military, aerospace and industrial markets, while PMC makes chips and software for networks that connect and store big data.The deal is expected to close in the first quarter of 2016.

Citations

1. http://1.usa.gov/IOsIPK – Bureau of Labor Statistics
2. http://cnb.cx/1gct3xa – CNBC
3. http://bit.ly/1RwpCzW – Walt Disney Co.
4. http://nyti.ms/1m48HJ6 – NY Time Dealbook


 

Planning Tips

Guidelines for Understanding Zillow’s Zestimate Value

ZillowZillow’s property-value estimates, called Zestimates, are a popular consumer tool for seeing how much homes are worth. Whether you are curious about how much your home’s value has changed, or wondering if your home’s appraised value is high enough to let you refinance, Zestimates offer information for more than 100 million U.S. homes. But there are several reasons these numbers may not be as accurate as you would like them to be. Below are some guidelines to help you understand where inaccuracies in a Zestimate can occur.

Inaccurate basic information – Three times a week, Zillow’s unique algorithms update its collection of property values, which are based on both public data and user-submitted data. According to Zillow, “the vast majority of Zestimates are within 10% of the selling price of the home.” But Zestimates are only as accurate as the data behind them, so if the number of bedrooms or bathrooms in a home, its square footage or its lot size are inaccurate on Zillow, the Zestimate will be off. Users can correct these mistakes. However, Zillow cautions that updating a property’s details will not result in an immediate change in the home’s Zestimate, and sometimes it will not result in any change at all. Perhaps having a fourth bathroom does not do much for home values in your town, for example. Along with accepting user-submitted data, Zillow deals with the inaccuracy problem by reporting estimated value ranges for individual properties. The smaller the range, the more reliable the Zestimate is because it means Zillow has more data available on that property. Looking at the high and low end of the range will give you a better sense of a home’s possible worth.

Mistakes or omissions in sales prices or property tax records – Zillow factors the date and price of the last sale into its estimate, and in some areas these data make up a big part of the figure. If this information is inaccurate, it can throw off the Zestimate. And since comparable sales also affect a home’s Zestimate, a mistake in one home’s sales price record can affect the Zestimates of other homes in the area. The Zestimate also takes into account actual property taxes paid, exceptions to tax assessments and other publicly available property tax data. Tax assessor’s property values can be inaccurate, though. The tax assessor’s database might have a mistake related to a property’s basic information, causing the assessed value to be too high or too low. Homeowners can report incorrect sales data or tax records to Zillow online.

Upgrades and unique features unaccounted for – Sometimes a homeowner makes improvements to a property, and Zillow has no way of knowing unless your local property tax assessor knows about them. If you make any upgrades that require permits from the city, that information may be passed along to the property tax authorities and entered into the public record, which is where Zillow could learn about it. If you added a permitted fifth bedroom to your home, for example, and the property tax assessor deemed that the upgrade increases your home’s value, that information would probably eventually find its way into your home’s Zestimate. But if your home has a brand-new designer kitchen that did not require any major permits, yet your neighbor’s home, which also has 1,700 square feet, three bedrooms and two bathrooms, has its original 1975 kitchen, Zillow will value both homes similarly even though your home may fetch a higher sale price.

Housing turnover rate – The more home sales there are in your area, the more data Zillow has about how much buyers think those homes are worth. These data make Zestimates more accurate. So if you live in a hopping market in the San Francisco Bay Area, your Zestimate might be more accurate than if you live in a rural town where people stay in their homes for decades and sales are rare.

Major changes to the Zillow algorithm – Zillow updates its algorithm as it comes up with more ways to improve its accuracy. When this happens, Zestimates can change significantly even though nothing has changed about those homes or the real estate market. Most changes are incremental, however, and major changes have only happened once every few years.

Citations

1. http://bit.ly/1y3nEQo – Zillow
2. http://bit.ly/1iE0WRQ – Re/Max Executive Real Estate
3. http://bit.ly/1GZfvkx – Investopedia
4. http://lat.ms/1vyVeN8 – LA Times
5. http://nerd.me/1N3GfzC – NerdWallet.com


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