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National-and-international
How Blue Apron wooed, then disappointed Wall Street

Earlier this year, Blue Apron executives traveled the U.S. selling potential investors on the meal kit company’s coming initial public offering. They talked up triple-digit growth and plans to expand the business to millions more people who like to cook but would rather not shop. Blue Apron’s IPO was going to be a moment to celebrate—validation for the mushrooming food delivery industry.

Behind the scenes, however, all was not well. A new fulfillment center was months behind schedule and still wasn’t ready for prime time six weeks before the IPO. The company had already postponed the listing once in case high marketing costs spooked potential investors. Losing money, Blue Apron was struggling to attract customers amid rising competition, risks it highlighted in a filing. Still, executives and their advisers, led by Goldman Sachs, Morgan Stanley, Citigroup and Barclays, decided to proceed with an IPO.

Today Blue Apron shares are trading at less than $4, down more than 60 percent from the IPO. Capital World Investors, once the company’s second-largest institutional investor, has bolted. And two of the founders, including the chief executive officer, have stepped down. Less than six months after becoming a public company, Blue Apron is widely seen as a venture-fattened startup that wasn’t ready for adulthood.

“If they had the chance again, they may have changed the timing,” says Kerry Rice, an analyst at Needham & Co. “The cautionary tale to other companies is really, can you get all the things you need done before you go public so you mitigate the risk?”

There are three oft-repeated adages in the IPO game: Sell investors on a story you can stick to. Don’t disappoint shareholders in the maiden earnings report. Remember that going public isn’t the finish line—you have to keep impressing investors quarter after quarter.

B lue Apron has disappointed on all three. It had to delay expansion plans and failed to fulfill a promise to get closer to profitability. In the first two earnings reports as a public company, Blue Apron acknowledged losing customers and said revenue would decline in the fourth quarter. The fulfillment center troubles led to more order errors and delays—an ominous sign when subscribers are often one or two bad experiences away from canceling.

It was time for new thinking at the top. During a board meeting last month at Blue Apron’s Manhattan headquarters, Matt Salzberg told fellow directors he was ready to step aside as CEO, according to a person familiar with the matter. Seeking an operations expert, this person says, Salzberg and the board settled quickly on CFO Brad Dickerson, who before joining Blue Apron last year had spent a decade at Under Armour.

“The market has expressed a lot of displeasure since the company’s gone public, and somebody needs to be held accountable,” says Keybanc Capital Markets analyst Ed Yruma. “The accountability stops at the CEO.”

Now it falls to Dickerson to right Blue Apron and reassure investors the meal kit company has a future. That won’t be easy, thanks not just to internal challenges but to mounting competition as well. Amazon.com, whose purchase of Whole Foods Market overshadowed Blue Apron’s IPO, is delivering meal kits in some cities. Meanwhile, Rocket Internet-backed HelloFresh has said it will surpass Blue Apron this year as the No. 1 meal kit company in the U.S.

Blue Apron bills itself as a tech company, touting sophisticated software that manages inventory and workflow in its sprawling fulfillment centers. In truth, the technology supports a mostly human-powered operation: Thousands of men and women chopping veggies, placing ingredients in baggies and packing boxes. Getting the right ingredients into the correct carton is an enormously complicated undertaking and will grow ever more so as the company adds more meals and dietary choices to keep customers happy.

A key part of the pitch to Wall Street was the new fulfillment facility in Linden, New Jersey. Equipped with automated machinery that can get boxes out the door more quickly and reduce human error, the facility was supposed to handle more than half of all production. But because it took longer to train workers than expected, boxes weren’t packed quickly or accurately enough. The delays hurt margins and pushed back new product plans. In hindsight, says Needham & Co.’s Rice, Blue Apron should have fixed the bugs before going public.

During Salzberg’s final months, the operational snafus were largely rectified, margins improved and quality control at Linden ticked up. But one fundamental challenge persists: How to attract and keep customers loyal to a service they don’t really need. It’s not easy persuading people to pay $200 to $560 a month when there are faster and cheaper ways to get fed. To get customers in the door, the company spent heavily on marketing, including one-month-free offers and TV commercials. Dickerson slashed the marketing budget this year in part because declining service made it all that much harder to retain customers.

It’s hard to justify a big outlay when cash is tight. Blue Apron spent more than $100 million in the first nine months of this year just on its facilities. Before the IPO, executives sought additional available credit, according to people familiar with the matter. Some firms declined to lend the company money because it was seen as too risky; others were unwilling to extend as much as was requested, they said. And while Blue Apron originally wanted the IPO to raise as much as $510 million at a valuation of $3.2 billion it settled instead for less than $300 million at a $1.9 billion valuation.

Analysts largely agree that Dickerson’s appointment is a positive sign. His Under Armour stints as CFO and COO show he understands how to grow a low-margin business profitably. Plus, he already has a good relationship with Wall Street, which may be inclined to grant him time to make improvements.

Hanging over his efforts is a question Blue Apron has never satisfactorily answered: Will meal kits ever become a mass-market phenomenon?

Kurt Schnaubelt, of AlixPartners, suspects they’ll always be a niche business because meal kits lack “stickiness and repeat customers.” Not even Blue Apron’s most loyal customers order a box every week, Rice says. Though the company has said it wants to expand beyond the meal kits, it can’t do that until it fixes the existing business. And that might take years—assuming Blue Apron survives that long.


National-and-international
In the age of Amazon, Walmart is changing its legal name

NEW YORK — Wal-Mart Stores Inc. is changing its legal name effective Feb. 1 as it shifts away from physical stores in the age of Amazon’s increasing dominance,

The world’s largest retailer, based in Bentonville, Arkansas, said Wednesday it will change its legal name to Walmart Inc. from Wal-Mart Stores Inc.

It said the move underscores its growing emphasis on serving shoppers in different ways beyond just physical stores but also online, on their mobile devices and through pickup and delivery. The company has been making inroads in narrowing the gap between itself and Amazon by making big investments in its online business. It tripled the number of items sold online from a year ago, overhauled its free shipping strategy and is expanding such services as allowing shoppers to pick up online grocery orders curbside at the stores. That has helped drive strong e-commerce sales gains in the past several quarters, most recently 50 percent growth in its fiscal third quarter.

It operates more than 11,600 stores and clubs under 60 different banners worldwide.

“Whether it’s in our stores, on our sites, with our apps, by using their voice or whatever comes next, there is just one Walmart as far as our customers are concerned,” wrote Doug McMillon, Walmart president and CEO, in a blog post Wednesday.

The discounter’s formal legal name when it incorporated on Oct. 31, 1969 was Wal-Mart Inc. It was changed to Wal-Mart Stores Inc. on Jan. 9, 1970, the same year it went public. It will continue to trade on the New York Stock Exchange as “WMT.” It’s been using the current Walmart logo in its operations since June 2008.

But for employees who still want to do the “squiggly” in the Walmart cheer where they move their hips when they get to the hyphen, there is nothing to fear.

“Getting our blood flowing and choosing not to take ourselves too seriously is still part of our culture,” McMillon wrote Wednesday. “It’s important to have some fun at work, so for our associates in countries where your cheer calls for the squiggly, keep doing it!”


Chris-salese
Loan Ranger
Napa's Loan Ranger Chris Salese: Mortgage data goes public

As we begin to wrap up 2017, there’s already been a few interesting changes announced in leadership across several high-profile positions within our financial agencies.

In addition to Jerome Powell taking over for Janet Yellen as the next Federal Reserve chief, there’s now Mick Mulvaney filling in as the Consumer Financial Protection Bureau’s (CFPB) acting director after the recent resignation of Richard Cordray.

I know some of you are thinking, ‘Who are these people?’ and many of you are probably saying “Why do I care?’, but it’s time to start following along.

For example, on Oct. 15, 2015, the CFPB finalized a significant amendment to Regulation C, which went relatively unnoticed until now.

Regulation C implements what’s called the Home Mortgage Disclosure Act (HMDA) that requires certain institutions to collect, report and disclose information about their mortgage lending activity.

This information is intended to help show whether financial institutions are serving the housing needs of their communities.

It also is supposed to assist with the identification of potentially discriminatory lending patterns and enforcement of anti-discrimination laws.

Therefore, the Dodd-Frank Act of 2010 amended HMDA to add new data and authorized the CFPB to require additional information from certain institutions to make this practice allegedly even better.

One area that will change is the required government monitoring information.

For data collected on or after Jan. 1, 2018, the HMDA Rule amends the requirements for collection and reporting of your ethnicity, race and sex on this section of your home loan application.

It has been expanded to capture additional data on both your race and ethnicity with more than a dozen options you can now choose from.

The revised HMDA rule also adds new reportable data including age, credit score, automated underwriting system, property value, points and fees, borrower-paid origination charges, discount points, lender credits, loan term, prepayment penalty, non-amortizing loan features and interest rate.

These are all likely to be of great interest to regulators and potential litigants.

In effect, those who originate loans and those that review loans for quality and accuracy now, will have additional fields to complete or review, which could cause delays in your file.

In summary, the new HMDA rule requires your lender to report more data than is presently required. The new and modified data will enable regulators and private parties to analyze your lender’s business practices in much greater detail.

For instance, your age could potentially be analyzed in conjunction with pricing, ethnicity, or geographic data in order to identify potential instances of discrimination.

While Mick Mulvaney works to unwind the CFPB as much as possible, your lender is already gearing up for these rule changes.

Even though these new fields within your home loan application will require more time to complete than before, the data obtained could be invaluable if used the right way.

However, the increased public view into these previously less detailed lending practices could actually lead to unintended consequences such as higher fees to you.