inside track D2
viewpoints D3
whiteboard D4
your money D5
Christopher & Banks loses
third top executive in four
months with resignation
of CEO Lorna Nagler.
Bob Kill talks about the
mixed state of recovery
for Minnesota’s
manufacturers.
GN ReSound helps the
hard of hearing turn up
the volume without
causing a commotion.
Read the fine print: Kara
McGuire helps identify
the common mistakes
coupon-users make.
business+money
S T A R T R I B U N E . C O M / B U S I N E S S • S E C T I O N D • S U N D AY, N O V E M B E R 7 , 2 0 1 0
eric
wieffering
GOP’s wins
bring relief
for many
in business
I couldn’t see Charlie Weaver, but
over the phone I could almost hear
him glowing.
“Iamdoinggreat,”hesaidThursday
morning. “It has been a great week.”
Weaver, a former Republican
state legislator who is executive director of the Minnesota Business
Partnership, gave voice to the sentiment much of corporate America
felt Wednesday. The Democrats had
lost control of the U.S. House, the
Minnesota House and Senate, and
state capitols around the country,
and President Obama had donned
sackcloth and ashes and rued being
perceived as anti-business.
“Perceived?” Weaver asked, incredulously. “It was real. Many of our
members met with him at the White
House to talk about energy, health
care, banking reform. The president’s
attitude was very condescending.”
Weaver’s membership includes the
CEOs of the state’s 100 largest companies, but some of those CEOs and
others declined a similar opportunity
to publicly savor Tuesday’s election
results. Requests for interviews from
state manufacturing, health care and
financial service firms were met with
silence or a polite “no, thanks.” Too
busy, blah, blah, blah.
And maybe too smart. While the
election brings business immediate and measurable relief on a number of issues both at the federal and
state level, perhaps business leaders
also recognize the folly of assuming
it represents a sharp turn back to the
loose-oversight, laissez-faire days of
the past.
Obama’s anti-business label is
not entirely fair. The United States
had already experienced 12 straight
months of job losses by the time he
was sworn in, and his administration
deserves some of the credit for ensuring that the Great Recession did
not turn into something worse.
The investment in General Motors saved hundreds of thousands of
jobs, and in the end the Troubled Asset Relief Program will end up costing taxpayers far less than the generous grants and tax breaks provided to
small businesses over the past year.
The Dow Jones industrial average was near 8,000 when Obama assumed office, and it closed at 11,188 on
Tuesday — a gain of almost 40 percent in less than two years.
But the forced march toward a
A NEW
WAY TO PAY
S TA R T R I B U N E E X C L U S I V E
V Available today at startribune.com for subscribers only.
Photos by GLEN STUBBE • gstubbe@startribune.com
Dominic Venturo, U.S. Bancorp’s chief innovation officer, tested new technology that lets consumers buy items using their cell phones instead of debit
or credit cards. “Just wave and go,” Venturo said after buying a packet of pencils at an Office Depot store in Minneapolis.
Big banks are in a high-stakes race to launch new mobile
payment networks before consumers take their business
elsewhere. Billions of dollars in transaction fees are at stake.
6
By CHRIS SERRES • cserres@startribune.com
D
ominic Venturo strolled to the counter
of an Office Depot store in downtown
Minneapolis with a packet of No. 2 pencils he wanted to buy and his trusty iPhone.
Venturo, chief innovation officer at U.S.
Bancorp, gently waved the iPhone inches in
front of an electronic card reader. Seconds
later, a text message appeared: His $2.58 payment had gone through.
“You see,” he said, holding up the phone in
victory. “No cash. No card. Just wave and go.”
The fact that the transaction went off
without a hitch is no small matter. U.S. Bancorp and other major banks are under intense pressure to introduce mobile payments technology — and to do so quickly — before millions of smart-phone-toting
consumers take their business elsewhere.
Tens of billions of dollars in fee income is
at stake, as banks, retailers and wireless carriers scramble for a piece of the American
wallet.
This summer, Minneapolis-based U.S.
Bancorp and at least three other giant banks
— Bank of America, Wells Fargo & Co. and
J.P. Morgan Chase — began quietly testing
new technology that lets consumers buy everything from office supplies to toothpaste
with cell phones equipped with special microchips. The trials are the most ambitious
effort yet by the large banks to take advantage
of consumers’ shift to mobile devices.
By this time next year, these large banks
may be handing out microchips for cell phones
in much the same way that they’ve distributed
millions of checkbooks and debit cards.
Phones continues on D10 Ø
Next year, analysts predict, large banks will
begin issuing millions of tiny chips like
these that store bank account information
and can be put in many cell phones, turning
the handsets into mobile payment devices.
« IT’S GOING TO BE A MAD SCRAMBLE TO SEE WHO
DEPLOYS THIS TECHNOLOGY FIRST. »
Richard Crone, technology consultant
Wieffering continues on D2 Ø
Polaris exec defends plan to shift some manufacturing to Mexico
CEO Scott Wine, experienced at running plants south of the border,
notes that rivals already are taking advantage of Mexico’s low labor costs.
6
By SUSAN FEYDER
sfeyder@startribune.com
After Polaris Industries announced it
was closing a plant in Osceola, Wis., and
building a new one in Mexico, Bill Meis
says his customers didn’t hold back.
“There were people who told me
they’d never buy a Polaris again,” said
Meis, sales manager of Frontier Powersports in Fergus Falls, Minn.
Most calmed down, Meis said, when
he asked them to consider that Polaris
isn’t the only recreational vehicle com-
pany that manufactures outside the
United States.
“It’s just the way things are,” Meis
said.
That air of inevitability surfaces when
executives of Polaris talk about the plan
to close the Osceola plant, whose 500
workers make it a major employer in the
town of 2,600. A combination of geography, changing manufacturing methods
and the lure of Mexico’s low-cost labor
market dictated the decision, executives
have said in recent months.
It’s a choice that comes with some
risks, beyond just potential consumer
backlash for exporting jobs when nearly one in 10 Americans are unemployed.
Medina-based Polaris recently disclosed
that it will spend about $2 million more
than initially planned this year to make
the move to Monterrey, Mexico. The
higher upfront costs, part of $25 million
to be spent on the transition, are for security to protect the new plant and its
workforce from a flare-up in violence in
Monterrey by drug traffickers.
But Polaris expects the extra costs —
plus another $35 million in capital expenditures — to be quickly recouped by
the $30 million it will save annually after
the Mexico plant is done next year.
In an interview, CEO Scott Wine said
Polaris will pay its Mexican workforce
one-third of what it now pays workers at
its plants — all nonunion — in Osceola,
Roseau, Minn., and Spirit Lake, Iowa.
Those dramatically lower labor costs
were the reason Polaris rejected the
idea of building a plant in the southern
United States, even though that would
have accomplished the goal of getting
the company closer to faster-growing
all-terrain-vehicle markets in states
like Texas, Arizona and California. The
snowmobiles that gave the company its
start more than 50 years ago have been
Polaris continues on D10 Ø
POLARIS
INDUSTRIES
Business: Snowmobiles,
all-terrain vehicles, motorcycles, personal watercraft.
Headquarters: Medina
CEO: Scott Wine
Revenue (2009):
$1.6 billion
Net income (2009):
$101.0 million
1-year stock return:
+71 percent
D 1 0 • B U S I N E S S • S T A R T R I B U N E • S U N D AY, N O V E M B E R 7 , 2 0 1 0
Polaris CEO
defends plans for
Mexican plant
ø POLARIS FROM D1
Photos by GLEN STUBBE • gstubbe@startribune.com
Dominic Venturo, U.S. Bank’s chief innovation officer, sees mobile payments as a launching pad for other services.
U.S. Bancorp is exploring the idea of a “mobile shopping concierge” that would send coupons based on where their customers shop and what they like to buy.
A NEW WAY TO PAY
and chief strategy officer at U.S. Bancorp.
“Clearly, we’re seeing a younger generation
that uses mobile phones in a new way,” McCullough said. “For them, it’s a personal computer. It’s their home. And they clearly want to
use it for their financial transactions as well.”
The technology is hardly new. For nearly a
decade, banks and technology providers have
been testing mobile payment systems, and
payments with smart phones are already widespread in Japan and South Korea.
Yet adoption in the United States has stalled.
Mobile phone companies have been reluctant
to spend the $10 to $20 per handset to install
special microchips in handsets that can transmit and receive digital signals. And large retailers, in turn, have been wary of installing thousands of electronic readers — at up to $350
apiece — that accept mobile payments until
they see more consumers with the phones.
Currently, about 150,000 retail locations
have devices that accept payments with mobile phones using so-called “contactless” card
readers that can read devices remotely. This includes such major chains as McDonald’s, CVS
Pharmacy and Office Depot. However, that
represents less than 2 percent of all available
merchant locations nationwide, according to
Boston-based consulting firm Aite Group.
“There has been this real ‘chicken and egg’
problem, where the merchants don’t see a value in upgrading their technology until they
see more devices on the market,” said Gwenn
Bezard, research director at Aite Group.
But U.S. Bancorp and other large banks believe they may have found a way around the
technology hurdles. Instead of waiting for the
mobile phone makers to install the microchips
in handsets, they’ve turned to an outside firm,
DeviceFidelity of Richardson, Texas, to produce their own. Once inserted in a phone, the
chips transform mobile phones into payment
devices that can be used at large retail chains
that have contactless readers.
habits and where they shop. Customers could
“clip” the coupons electronically, save them in
And one day, analysts predict, mobile paytheir handsets, and then activate the coupons by
ments may supplant the more than 1 billion
swiping their phones at the checkout line.
plastic cards currently in American wallets. For
Visa is developing technology so granular
large banks, that’s a significant threat. Banks colthat it can send someone a coupon for shamlect nearly $50 billion a year from retailers from
poo while the person walks through the health
so-called “swipe,” or interchange, fees. They
or beauty aisle of the supermarket.
stand to lose much of that revenue if consum“The banks need to be where consumers
ers buy items on competing mobile payment
are, and that’s on their phones,” said George
systems.
Peabody, director of emerging technologies at
The banks have to move fast. This summer,
Mercator Advisory Group in Maynard, Mass.
AT&T and Verizon Wireless, the nation’s big“They invested years and years and billions of
gest wireless carriers, established a joint venbillions of dollars building their capabilities and
ture with Discover Financial Services. There
their brand. They don’t want to be lost in the
are concerns among banks that these carribackground as consumers shift to mobile payers will develop a mobile payments system
ments.”
that will bypass the one long used by the large
Like all banks, U.S. Bancorp faces revenue
banks, in which transactions are processed by
pressures. The bank has seen its fee income
Visa and MasterCard.
clobbered by a double whammy of decreased
Retailers, too, are getting in on the act.
card transactions, due primarily to the weak
Starbucks already accepts mobile payments at
economy, and tough new regulatory limits on
more than 1,000 of its stores nationwide. The
debit-card and overdraft fees. U.S. Bancorp’s inSeattle coffee chain allows customers to pay for
come from service charges plunged 23 percent
their lattes and espressos using prepaid cards
during the first nine months of the year over
linked to an application on an iPhone or Blackthe same period a year earlier, the bank reportBerry. A special reader scans a bar code dised last month.
played on the phone’s screen.
If consumers migrate to competing mobile
Analysts expect other large retail chains to
payment networks, the bank’s fee income will
introduce mobile applications of their own.
drop even further, analysts warn. “They are abRichard Crone, a technology consultant from
solutely under pressure to act and to act quickSan Carlos, Calif., predicts the top 50 retailers
ly,” Peabody said.
will have a smart phone application that allows
Logistical questions remain. For now, the
for mobile payments by the end of the year. As a
banks have been silent on exactly how they will
result, millions of transactions that once might
get the microchips into the hands of millions of
have gone through bank payment networks will
their customers. However, technology consulinstead be processed directly at the point of sale
tants said they expect the banks will distribute
by the merchants.
the chips directly to consumers at bank branch“Mobile payments is a disruptive technology
es, or through the mail. “Banks gave away toastthat could level the playing field between banks
ers and teddy bears,” Crone said. “Why not miand non-banks,” Crone said. “It’s going to be a
crochips?”
mad scramble to see who deploys this technolOnce the handsets are in the hands of conogy first.”
sumers, big-box retailers and fast-food chains
Bill Gajda, head of mobile for Visa, predicts
will face increased pressure to install the card
that mobile phones will evenreaders, predicts Deepak Jain, cotually resemble consumers’ acfounder and chief executive oftual wallets. People will have
ficer of DeviceFidelity. “You’re
smart phones loaded with a mix
going to see consumers walk inof store loyalty cards, like that ofto McDonald’s, see the technolofered by Starbucks, mixed with
gy, and then ask, ‘Why don’t they
mobile payment offerings from
have this at Burger King?’ ” Jain
the large banks and credit card
said. “Once mobile is available,
companies. “We’re at a transition
it will accelerate adoption on the
point,” Gajda said.
merchant side.”
For retailers, the key attracHowever, banks have to get
tion of mobile payments is speed.
their mobile payment systems up
Clerks don’t have to wait for shopquickly if they hope to compete,
pers to fish around in their walanalysts warn.
lets for their debit cards, and then
The wireless carriers have a sigwatch as people try to swipe their
nificant advantage over the banks,
cards correctly and enter PIN
because they already have access
numbers into card readers. Transto their customers’ mobile phone
actions that might have taken a
numbers and bank account informinute or more to process can After swiping his iPhone at the register, Venturo received a message saying
mation, Crone, the technology
take just a few seconds with a cell the transaction had gone through. He then checked his account balance with
consultant, argues. That makes it
phone, resulting in shorter lines U.S. Bancorp.
easier for wireless carriers to sign
and more sales, analysts say.
up people for mobile payments
For the iPhone, which does not have a slot than the banks, which have to enroll customers
Seeking Gen Y
for the microchips, the banks are testing a spe- one person at a time, Crone said.
For the banks, the race is about more than cially designed sleeve with a memory card that
Many people may not want to go through the
just preserving billions of dollars in transac- slips over the phone.
trouble of getting microchips from their banks
tion fees. It’s also about attracting and retaining
Later this month, hundreds of U.S. Bancorp if the wireless carriers introduce mobile payyounger customers who are far more attached employees will begin testing the new mobile ment networks of their own, he said.
to their mobile phones than their elders.
payment technology in stores and fast-food resBezard of Aite Group compared the race to
A recent survey by Boston-based strategic taurants across the country. If the trial is suc- introduce mobile payment technology to the inconsulting firm Mercatus LLC found that al- cessful, U.S. Bancorp may begin distributing troduction of wireless technology. At one time,
most 80 percent of those between the ages of 18 chips to customers in less than a year, bank of- consumers had to buy separate WiFi cards for
and 34 will use mobile financial services within ficials said.
their laptops. Now, the technology is already
five years. When given a choice, younger peoinstalled in most computers, making the cards
ple are more than twice as likely to leave their New services
unnecessary.
wallets at home than their mobile phones, reU.S. Bancorp executives said they see mo“What the banks are doing now could very
cent surveys have found.
bile phones as a launching pad for a host of oth- well be obsolete six to 12 months from now,”
Banks that fail to continually upgrade their er services that, they hope, will build custom- Bezard said. “The mobile payments world is
mobile banking services risk losing “Genera- er loyalty. For instance, the bank is exploring moving that fast.”
tion Y,” or the children of the baby boomers, the idea of a “mobile shopping concierge” that
said Mac McCullough, executive vice president would send coupons tailored to their customers’ Chris Serres • 612-673-4308
ø PHONES FROM D1
a dwindling part of its business for several years. ATVs now make up 65 percent of
the company’s sales.
“We had some outside consultants
come in, and their initial thought was
maybe Tennessee or Texas. Then, when
we ran the numbers to compare costs, it
wasn’t even close,” Wine said of the decision that was two years in the making.
Osceola, which will close by 2012, was
picked because unlike Polaris’ other plants,
it doesn’t assemble vehicles. It produces
components, more of which will be outsourced, in some cases with suppliers closer
to the Roseau, Spirit Lake and Monterrey facilities. The change will allow for faster and
cheaper delivery of parts and allow Polaris to
be more flexible and adjust production more
quickly to changes in market demand.
“The concept of lead time is very important,” Wine said. “It affects the amount of
cash you have to have tied up in inventory.”
The two U.S. facilities will be remodeled so they each can assemble, paint and
weld every type of Polaris off-road vehicle, not just certain models as they do now.
The company will invest about $6 million
at the Roseau plant to make the changes.
Polaris will join a host of other U.S.
manufacturers that have established facilities in Mexico. Manufacturing accounts
for the largest portion of U.S. direct investment in Mexico, rising 9 percent to
more than $24 billion last year, according
to the U.S. Commerce Department. U.S.
automakers have had plants in Mexico for
several years. In addition to Polaris, other
manufacturers that have announced plans
to move facilities to Mexico in the last year
include Whirlpool Corp. and Dell Inc.
The fear of violence hasn’t caused any
major businesses to pull up stakes, although it has put some on edge. More
than 25 percent of companies responding
to a survey earlier this year by the American Chamber of Commerce of Mexico said
they were reconsidering investments in
the country because of safety concerns.
Although manufacturing in Mexico will
be new for Polaris, it won’t be for Wine.
Before joining the company in 2008 he
worked at United Technologies, where
he ran plants in Monterrey, Matamoros
and Victoria. Before that he worked for
Danaher Corp., where one of his jobs was
running a plant in Mexico City.
Polaris’ Mexican plant also is part of a
broader strategy by the company to expand
its footprint beyond North America. This
year Polaris enhanced its distribution network in Europe and entered the Chinese and
Brazilian markets. Overseas sales made up
about 16 percent of Polaris’ total revenue last
year, but the company hopes to increase that
to about 25 percent in the next few years.
Side-by-side ATVs, which allow a passenger to sit next to the driver, are a key
part of Polaris’ growth plans in North
America and overseas. Core ATV sales
have fallen in the past few years for Polaris and the industry as a whole, but sales
of side-by-side vehicles have continued to
increase. The company estimates that the
overall side-by-side market has a five-year
compound annual growth rate of about 11
percent. At Polaris, side-by-sides have
offset soft sales of core ATVs, recently
fueling most of the 49 percent increase in
sales for the off-road vehicle segment in
the third quarter.
Honda leads the overall ATV market, but
Polaris is No. 1 in side-by-sides, with North
American market share approaching 40
percent, according to James Hardiman, an
analyst with Longbow Research in Independence, Ohio. But the competitive landscape is changing. Earlier this year Bombardier Recreational Products Inc. (BRP) began producing its first side-by-side ATV at
a plant in Juarez, Mexico, where it has produced single-rider ATVs and personal watercraft for about four years.
“They’re putting themselves in a position
to have a cost advantage on us,” Wine said.
BRP already leads Polaris in snowmobile
sales, and its Sea-Doo brand is No. 1 in personal watercraft, a business that Polaris exited in 2004 after several years of losses. BRP
spokesman Chaz Rice said the Canadian
company has been pleased with the initial
response to the new side-by-side ATV, the
Can-Am Commander. “Some people had deposits on it for more than a year,” he said.
The most powerful Commander model
has a 1,000cc engine designed to appeal to
sand dune riders in the South and Southwest,
the same fast-growing markets Polaris wants
to target. That market is what led Thief River Falls-based Arctic Cat Inc. to start making
its own engines at a St. Cloud plant because
previous supplier Suzuki Motor Corp. in Japan didn’t want to make them.
Polaris’ most powerful side-by-sides
have 800cc engines, and the company declined to say whether it’s working on a
1000cc machine. But it does believe that
realigning its manufacturing, including the
move to Mexico, will keep the company on
the right path.
“We’re making this decision from a position of strength, and because we want to
make sure we’re still strong five, 10 years
from now,” Wine said.
Susan Feyder • 612-673-1723