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TECHNOLOGY B4, B5 | MEDIA & MARKETING B7 | WEATHER B8
PCs Joining Typewriters
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Harsh Light in Congress
TECHNOLOGY B5
AUTOS B3
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THE WALL STREET JOURNAL.
****
Thursday, November 20, 2014 | B1
Target Regains Some of Its Lost Spark
Retailer Reports Surprise Increase in Profit as Sales in Core Housewares and Apparel Departments Are Best in Two Years
BY PAUL ZIOBRO
Target Corp. may be getting
back some of the mojo that
made it an American shopping
favorite.
The retailer beat its own U.S.
sales forecast, leading to a surprise profit increase, helped by a
good showing at its core businesses of well-designed housewares and affordable fashion, areas
that
have
been
underperforming for a while.
Combined home and apparel
sales came in at the strongest
level in two years, said Kathee
Tesija, chief merchandising officer.
After a boardroom coup
ousted Target’s former chief executive, managers under the
leadership of new CEO Brian
Cornell have been energized to
break from the past and test
new strategies. Target has rolled
out new apparel displays that
use mannequins to 650 U.S.
stores to better tempt shoppers
with its clothing.
The company is also rethinking its approach to grocery, an
area some executives felt had
overshadowed its core.
Target’s sales gain for the
quarter was modest—just 1.2%
at U.S. stores open more than 13
months—but it matched its largest increase in two years. Target
cited strong demand during the
back-to-school and Halloween
seasons. Higher priced goods
like Apple Inc.’s new iPhones and
more expensive beauty lines like
Vichy and La Roche-Posay meant
shoppers spent more per trip.
Online sales rose 30%, contributing to about half the sales gain.
“We’re encouraged that the
pace of U.S. traffic continues to
recover from a very challenging
trend earlier this year,” Mr. Cornell said.
Though fewer shoppers visited Target’s stores in the quarter, the drop was an improvement from steep declines in the
months after hackers broke into
Target systems and stole creditand debit-card information on
millions of customers during last
year’s holiday season.
Shares of Target rose 7.4% to
$72.50, its highest level in more
than a year and its biggest oneday gain since 2009.
The better-than-expected results give Mr. Cornell added
traction as he tries to lift Target
out of a multiyear funk in which
its shoppers became disappointed in its merchandise for
no longer having the type of
cheap-chic fashions and housewares that gave Target cachet
and earned it the “Tar-zhay”
nickname. But he will have to
show that he can maintain this
quarter’s momentum.
Mr. Cornell, who joined from
PepsiCo Inc. in August, is in the
process of formulating his vision
for Target in a world where
more people shop online, expect
big discounts and increasingly
prefer quick trips to small stores
instead of marathon shopping at
Please turn to the next page
Big-Box Race
Change from a year earlier in comparable store sales in the U.S.
1.5%
TARGET: 1.2%
1.0
WAL-MART: 0.5%
0.5
0
0% for
both
–0.5
–1.0
–1.5
–2.0
–2.5
FY 4Q
1Q
2Q
3Q
Photo illustration by Ray Bartkus
Inside Apple’s
Broken Sapphire Factory
BY DAISUKE WAKABAYASHI
Shortly before 7 a.m. Pacific time on
Oct. 6, the chief executive of GT Advanced Technologies Inc. called an Apple
Inc. vice president with bad news: GT,
which was to supply Apple with superhard sapphire screens for its new
iPhones, had filed for bankruptcy 20 minutes earlier.
The filing surprised Apple, because the
companies had been negotiating changes
in their contract to ease GT’s financial
strain, according to a letter Apple later
sent to GT’s creditors. Executives of the
companies had planned to meet the next
day at Apple’s headquarters.
A year earlier, Apple and GT had hailed
a $1 billion plan to build an Arizona factory that would produce 30 times as
much sapphire as any other plant in the
world.
Instead, the alliance turned into a
rare—and public—misstep for Apple,
whose strict management of its global
supply chain has helped it become the
world’s biggest company by market
value. From the making of the
first iPhone in 2007, Apple repeatedly has
pushed its suppliers to
achieve the improbable,
while driving hard bargains on
price and time to market.
The Apple-GT marriage was troubled
from the start. GT hadn’t mass-produced
sapphire before the Apple deal. The New
Hampshire company’s first 578-pound
cylinder of sapphire, made just days before the companies signed their contract,
was flawed and unusable. GT hired hundreds of workers with little oversight;
some bored employees were paid overtime to sweep floors repeatedly, while
others played hooky.
GT’s meltdown underscores the promise and peril for Apple suppliers. An Apple deal can generate billions in revenue.
But it also means
adapting to huge
fluctuations in
demand, at
razor-thin
profit margins and little
room for
error.
“This is not easy
money,” said an executive of a longtime
Apple supplier in Asia.
GT Chief Operating Officer Daniel
Squiller told the bankruptcy court that
Apple had turned his company into a
captive supplier, “bearing all of the
risk and all of the cost.” GT couldn’t
make a profit at Apple’s “dictated pricing,” he said.
Apple put blame for the deal’s failure
“squarely at the feet of GTAT’s own management,” according to the letter to GT’s
creditors, which Apple allowed The Wall
Street Journal to review. “We never wa-
4Q
1Q
2Q
3Q*
*Ended Oct. 31 for Wal-Mart (excludes fuel sales); Ended Nov. 1 for Target
Sources: FactSet (Target); Wal-Mart
The Wall Street Journal
vered from our commitment to make the
project successful.”
The Cupertino, Calif., company turned
to GT while seeking to solve a big problem with iPhones: scratched or broken
screens. Sapphire is one of the hardest
materials on earth, now typically produced synthetically, in furnaces that reach
more than 3,600 degrees Fahrenheit.
It also is expensive—more than five
times the cost of glass.
Apple consumes one-fourth of the
world’s supply of sapphire to cover the
iPhone’s camera lens and fingerprint
reader. Early last year, the company began looking for a much larger supply, to
cover the iPhone’s screen.
GT made furnaces for producing sapphire. According to Apple’s letter to the
creditors, GT told Apple in March of last
year that it was developing a furnace that
could produce a sapphire cylinder, known
as a boule more than twice as large as
Please turn to page B4
Forever 21’s
Cavernous
Stores Pose
Challenge
BY SUZANNE KAPNER
Teen retailer Forever 21 Inc.
has been thinking too big.
For a dozen years or more,
the fast-growing chain has won
over young shoppers and pressured rivals thanks to its trendy
fashions and bargain prices, with
jeans for as little as $7.90 and
cardigans for $8.90. Now,
though, it is grappling with a
special problem: gigantic stores
that it has had trouble filling
productively, say people familiar
with the company.
The closely held retailer
doesn’t report sales or profits,
which makes it difficult to get a
formal picture of its performance. But people who have
seen the figures say sales excluding newly opened or closed
stores hit a negative patch
within the last 18 months after
growing strongly for much of the
past decade.
Forever 21’s mistake was to
expand into giant stores that in
some cases were double or triple
the size of previous locations before it had the merchandise to
fill them, the people familiar
with the company say.
To help fill them, Forever 21
pushed into categories such as
menswear, footwear, lingerie and
plus sizes. The stores were still
too cavernous, and the merchandise felt repetitive, according to
former executives, customers
and analysts.
Results have improved in recent months, according to the
people familiar with the company, though there is some disPlease turn to the next page
JetBlue to Add Bag Fees, Cut Legroom Amazon Robots Get
JetBlue will begin charging passengers for each checked bag, a strategy
that has boosted revenue for rivals.
Baggage revenue for every 1,000 miles
Checked bag fee
ﬂown, per passenger, in the ﬁrst half of ’14
1st / 2nd
American
$4.93
Delta
$4.26
Alaska
$3.74
United
JetBlue
Southwest
$3.10
$25 / $35
$25 / $35
$25 / $25
$25 / $35
$0 / $50
(current)
$2.10
$0 / $0
$1.55
Note: American includes US Airways.
Sources: Bureau of Transportation Statistics (revenue);
the companies (baggage fees)
JetBlue, which until now has allowed fliers to check at least one
free bag, earned just $2.10 in
bag fees per passenger flown
1,000 miles, far less than the
$4.26 per passenger collected by
rival Delta Air Lines Inc.
JetBlue said Wednesday that
it would introduce basic fares
next year that don’t include a
complimentary checked bag, as
part of three new fare classes.
The two higher classes will include free bags and other perks.
Composite
JetBlue Airways Corp. is
adding baggage fees and cutting
passenger legroom to improve
its lagging financial results, concessions by one of the last holdouts against industry tactics
that have frustrated many fliers
but boosted the nation’s airlines.
The turnabout by JetBlue—
which has long touted generous
legroom and a free-bags policy—
shows how far the industry has
come in extracting profits at the
expense of customer comfort
and perks. The move leaves
Southwest Airlines Co. as the
last big U.S. carrier to let all fliers check at least one bag free.
JetBlue shares jumped 4.1% to
$13.24 Wednesday in Nasdaq
trading, hitting a 52-week high.
Big U.S. carriers, led by American Airlines, have moved to
“unbundle” fares in recent years,
sometimes offering seats at a
lower base cost but tacking on
charges for previously free amenities like checked bags. Carriers
also have added more seats and
shifted to bigger planes—a lowcost way to expand known as
“up-gauging.”
Those initiatives, coupled
with bankruptcies, consolidation
and a tight rein on capacity,
have helped boost the airline industry to record profits.
In the first half of this year,
Extra Baggage
The Wall Street Journal
The airline, didn't disclose the
charge for checking a first bag.
JetBlue also said that, starting in 2016, it will increase the
seats on its Airbus A320 jets to
165 from 150. The move will reduce average legroom by almost
5% to 33.1 inches per seat, which
JetBlue said is still the highest
average among U.S. carriers on
narrow-body jets.
JetBlue said its new steps and
improvements in other projects
would increase annual operating
income by about $450 million by
2017, including $200 million
from the new fare classes and
$100 million from the new seats.
JetBlue also said it expects to
save about $1 billion on capital
spending through 2017, in part
by deferring orders for 18 planes
from Airbus Group NV.
Industry watchers have expected the changes since JetBlue
said in September that President
Robin Hayes would succeed
Chief Executive Dave Barger in
February. Analysts have pressed
the carrier for bag fees and
tighter seating.
Mr. Hayes said in an interview
that the changes will improve investors’ returns without scaring
away customers. “We’re very
proud of our customer-first
model, but we need it to deliver
a similar level of return as other
models,” he said.
Still, bag fees are a risk for a
carrier that has so publicly derided them. One JetBlue commercial in recent years depicted
passengers outraged when a
New York cabdriver tried charging them $25 for putting a bag
in his trunk. “If you wouldn’t
take it on the ground,” the ad
said, “don’t take it in the air.”
—Susan Carey
contributed to this article.
 The frequent-flier-mile world is
about to be rocked...................... D1
Ready for Christmas
BY GREG BENSINGER
Amazon.com Inc.’s robot
army is finally falling into place.
The Seattle online retailer has
outfitted several U.S. warehouses with squat, orange,
wheeled robots that move
stocked shelves to workers, instead of having employees seek
items amid long aisles of merchandise, according to people familiar with the matter.
At a 1.2-million-square-foot
warehouse in Tracy, Calif., about
60 miles east of San Francisco,
Amazon this summer replaced
four floors of fixed shelving with
the robots, the people said.
Now, “pickers” at the facility
stand in one place and wait for
robots to bring four-foot-by-sixfoot shelving units to them,
sparing them what amounted to
as much as 20 miles a day of
walking through the warehouse.
Employees at some robotequipped warehouses are expected to pick and scan at least
300 items an hour, compared
with 100 under the old system,
current and former workers said.
An Amazon spokeswoman declined to comment.
The robots are the fruits of
Amazon’s 2012 purchase of Kiva
P2JW324000-4-B00100-1--------XA
BY JACK NICAS
Systems Inc. for $775 million. In
May, Amazon Chief Executive
Jeff Bezos told investors at Amazon’s annual meeting that he
planned to deploy 10,000 Kiva
robots by year-end, up from
1,400 at the time.
After the acquisition, Amazon
stopped selling Kiva robots to
other companies—Crate & Barrel
and Gap were customers—to focus on developing them for its
own needs. Primarily, that meant
tweaking the software so the robots could move about a warehouse without running into one
another or other objects, said
one of the people.
At the heart of the robot rollout is Amazon’s relentless drive
to compete with the immediacy
of shopping at brick-and-mortar
retailers by improving the efficiency of its logistics. If Amazon
can shrink the time it takes to
sort and pack goods at its
roughly 80 U.S. warehouses, it
can guarantee same-day or overnight delivery for more products
to more customers.
The robots could also help
Amazon save $400 million to
$900 million a year in so-called
fulfillment costs by reducing the
number of times a product is
Please turn to page B4
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