Some Interesting Things You Might Have Missed

Emerald Raised the Money

As I reported in June, Emerald Expositions was raising $400 million through a convertible, preferred stock offering.  Part of it was an offering to its stockholders with its majority owner, Onex, agreeing to take whatever part of the offering those smaller shareholders did not purchase.

I was skeptical in the article that shareholders other than Onex would participate in the offering.  Now we know.  In an 8-K filed on August 13th, Emerald tells us they “…sold a total of 71,446,346 shares of Series A Preferred Stock pursuant to the Investment Agreement and the rights offering, of which Onex purchased a total of 69,718,919 shares, including the shares purchased pursuant to the Backstop Sale.”  The deal is done.

Millennials Buying Old Houses

And why would you care?  Take a look at this article about them buying old, cheap, beat up houses that need a lot of work.  Any of you who have been through a significant remodel, especially with an old house (I’ve done both) are smiling, looking at the pictures of the houses in the article and thinking, “They have no idea what they’ve gotten themselves into.”  I can’t help flashing back to the 1986 Tom Hanks movie, “The Money Pit.

The point is they are going to make choices leaving them with less money and time for the things we’d like them to buy and do.  I’m not saying this is a problem you have to react to right now.  However, the evolution of generations through phases of life is a constant.  In the same way winter resorts are having to figure out what to do as the baby boomers aren’t going big anymore, we’re going to have to consider the changing needs and priorities of the millennials.

How Much Does It All Cost?

Robin Lewis wrote this excellent article on subscription models.  As a lead in, he quotes this first line from one of his earlier articles, ““Bring it to me, just for me, new, now & more often,” and I found myself thinking, “How much does this all cost?”

But that was the wrong question.  What I want to know is how your cost structure is going to evolve.  Forget the hopefully short-term costs associated with Covid 19.  When the working vaccine has been distributed (sooner rather than later would be nice), when social distancing and cleaning inefficiencies go away, when the supply chains are less disrupted where are you going to be spending money?

Consistent with Robin’s quote above, I expect you to be spending it on being flexible- in acquiring product, in moving it around, in getting it to and from the customer, in changing it based on customer expectations in collecting and managing data.  Other costs, such as advertising and promotion, I expect to decline.  You will also have had general and administrative costs decline as you resolve the issue of merging ecommerce and brick and mortar expenses in such a way that they are supportive rather than competitive.

If you don’t do that, well, you won’t have to worry about any other issues.  Ever.

While expenses may rise, I’m thinking that margins will rise as product quality is emphasized and as the overwhelming number of brands and retailers declines.  Completing that process probably requires a normalization of interest rates that is not in our immediate future.

That pandemic accelerated decline in the number of brands and retailers may start to restrain consumer dominance and return some balance to the relationship between consumer and brand/retailer.  At this point that’s sheer speculations on my part.

 

 

 

 

What A Top Epidemiologist Thinks.  Consider the Business Implications

A friend sent me this excellent interview with Dr. Michael T. Osterholm.  He’s not a medical doctor.  See his background here.  Seems pretty clear he’s worth listening to when it comes infectious diseases.  His objectivity and willingness to say what we don’t know impressed me.

I’m supposed to write about business stuff.  The interview may be personally valuable to you, but I liked it because it also suggests some parameters for thinking about your business strategies.

The fulcrum seems to be when and if we get a vaccine.  If we get an effective one, and we can distribute it quickly, and enough people are willing to take it, maybe we get out from under this in, let’s say, a lot of months.  If not, we’re probably looking at years.  In any event, he seems to believe we haven’t seen the worst yet (decide for yourselves).  The longer it lasts, the more the cultural changes and habits of our populations, which includes your customers, will become established.

Here’s the link to the article.

 

What We Can Learn from New Paint Companies?

I imagine it’s happened to all of us.  You need to paint (or if you’re lucky, have painted) a wall/room/house.  You go into the store to pick “the right” paint color and are confronted with literally an infinite number of choices- because they can match any color you want.  As if the paint chips by themselves weren’t more than you could possibly parse.

Home you go with a big bunch of small chips.  After some agonization, you come back and maybe (at a paint specialty store) get some large chips.  Then on the next visit, you get some small sample paint jars and slap them on the wall.  By this time, any thoughts you may have had about being daring and, for example, having a bright accent wall has been bludgeoned out of you.  You just want to get “the right” color.

I spend way too much time choosing and about 14 nano seconds after the project is complete, it’s fine and I never think about it again.  I may not have gotten “the right” color but I sure spent a lot of time doing it.

Some new paint companies are trying to help me.  They offer curated palettes of between 50 and 150 colors.  One of the company names is actually Curator.

It was a decade or two ago when I suggested that snowboard companies should stop picking their SKUs based on what their competitors were doing.  What mattered was what your customer wanted.  More SKUs wasn’t automatically better. 

True- following your competitors’ lead was easy, but it was lazy.  It didn’t answer the question, who are my customers and what do they want?  Mostly, I think we’ve figured that out.  Many of you, I know, have cut your SKU count.  It’s good for inventory management, cost of goods sold, branding and holding margins.  May not help your top line, but it will sure help the bottom line.

Have you cut it enough?

If a paint company believes they can compete with just fifty colors against Benjamin Moore’s 3,500, well, maybe they are on to something.  When you read this article think about how they’ve tried to have colors with a common theme that fit together.  Looks to me like a lot of their colors work with each other.  These companies are betting that the customer will have a better shopping experience with fewer choices with a product I’d have previously characterized as a commodity. 

Can you make your brand special by offering fewer choices?  Perhaps a lot fewer.  You can if you improve their shopping experience.

The Disaster of Negative Interest Rates

On October 31, I posted an article called “What’s Wrong with Capitalism?” After a couple of paragraphs of me ranting and raving there was a link to an article that described what Ben Hunt calls the “financialization of Texas Instruments.  It was disturbing to a few people I heard from and, I hope, to some others I didn’t hear from. 

In the spirit of continue to disturb you in a good cause, here’s another article you should read called, perhaps not surprisingly, “The Disaster of Negative Interest Rates” published by the Mises Institute.

If you’ve never heard of the Mises Institute, named after the economist Ludwig von Mises, you might consider adding their web site to your favorites or even signing up for their free occasional emails.  This is another of my attempts to get you information you really need but won’t find if you rely on mainstream media. 

The point of the article is not just that negative interest rates are a business and economic disaster if maintained too long, but that they threaten the structure and functioning of our republic.  Here’s the link to the article.

What’s Wrong with Capitalism?

Well, uh, nothing actually.  Okay, not nothing.  Some things- sure.  There’s no perfect system.  But the real problem is that what we actually have is less and less like real capitalism.  Adam Smith’s invisible hand and Schumpeter’s idea of creative destruction have both taken it on the chin.  Quantitative easing, low to negative interest rates, too much debt, and the growth of oligopolies and perverse management incentives are knocking capitalism for a loop. 

Follow this link to Epsilon Theory and read Ben Hunt’s article, “Yeah It’s Still Water.”  Please take the time to understand his analysis of what Texas Instruments has done with its cash flow in recent years.  Recognize that this is going on all across the public company space in our industry as well as others.

When you’re done, you might consider signing up for Epsilon Theory’s free weekly emails or putting the web site in your favorites for occasional consideration. 

If Texas Instrument had taken all that cash flow and put it into competitive enhancements rather than share buybacks and management compensation, what might they have accomplished? Our GDP as a country only grows because more people are working (population growth) or they are each making more for each unit of labor (productivity growth).  With population really only growing due to immigration we are dependent on productivity growth.  Unfortunately, stock buy backs, dividends and management compensation don’t contribute anything to it.

Machine Learning Dominates AI Use for Retailers

This is interesting.  It seems to indicate that most retailers are being left behind. You might want to click through to Capgemini and sign up for some of their research.  Anyway, here’s the link.

 

 

What if Our Customers Just Don’t Have as Much Money to Spend?

We spend an awful lot of time trying to figure out how to sell our customers more stuff.  It’s been tougher lately and shows no signs of getting easier.  It’s the internet.  Or over supply and too much retail.  The customer wants experiences.  Poor distribution.  No product differentiation.  Too many brands.  A smarter and more cynical customer.

It’s all of that.  But maybe some of it wouldn’t matter as much if our customers just had more money.  For all of us the millennials, however we define that group, are an important group of customers.  But between lower wages, the gig economy, debt from college, health insurance costs, high rent and the requirement of having cell phones and sundry other necessary gadgets and services, perhaps they just can’t afford what we’d like to sell them.

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The New Company You Are Building as the Competitive Environment Changes (and Changes, and Changes)

Over years, I’ve written various articles about the evolution of our market and how we need to change to address it.  I’d decided it was time to pull all those ideas together in one, hopefully, thought provoking, insightful, action motivating piece.

Then a friend sent me Robin Lewis’s outstanding article on just this issue and I had no idea if I was relieved I didn’t have to write it or disappointed I didn’t get it done sooner.

Mr. Lewis’s article is called “First, The Bad News. Then 2019: Tough, Tougher or Toughest,” so don’t feel like you’ve escaped my occasionally urgent and cautionary tone on this issue.  He’s not precisely all sunshine and rainbows either.

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What’s Jeff Reading? Buying by Algorithm and Spoofing the Customer as a Marketing Tool

Back in July, I read an article called, “High-skilled white-collar work? Machines can do that, too.”  It talked about companies (Stitch Fix among them) using algorithms to design product and decide what and how much to buy when.  Here’s the link.

Two days ago my research department (whom I always hear from if I don’t give her credit) sent me an article on how the discount shoe retailer Payless, as marketing stunt, tricked people into paying up to $600 for pair of Payless shoes “…through an elaborate — and expensive — advertising prank to attract new customers and change the perception that the company sells cheap, unfashionable shoes.”  The article notes, and I want to make it clear, that Payless didn’t actually make anybody pay those prices and let them keep the shoes for free.  Here’s that link.

I try to take some time to think before writing.  That’s why you’ll often see a reaction from me well after an event happens.  My brain seems to require time to process outside of the urgent frenzy that can accompany an event.

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I Believe in Cycles- Even for Retail

I believe in cycles; there will be another recession (sooner rather than later is my personal belief).  There will be another major stock market correction at the end of which will be glorious buying opportunities.  We are coming to the end of another debt super cycle (see the book This Time is Different; Eight Centuries of Financial Folly).  After we get our comeuppance for all the stuff we wanted but didn’t want to pay for, the economy will be able to grow faster again.  I believe in long term social cycles (see the book The Fourth Turning) and that after our current period of social chaos we will find compelling reasons to  join together again.

I don’t believe this time is different.  Even for retail and despite the changing of shopper attitude, the internet, the customer being in charge, and the fact that we’ve been over retailed for a long, long time.

This was brought into focus when my research department offered up “With each department store that closes, a world vanishes” from The Washington Post.  The author, Micheline Maynard, started working as a gift wrapper at a department store in the 1970s.

I was stopped in my mental tracks when she wrote, “The store manager was like the mayor; everyone perked up when he strolled through, surveying his domain, bending to pick up bits of invisible fluff from the carpet. Department managers often had college degrees, and earned salaries and perks that made them the store’s upper middle class. Buyers from the designer section were the people who took the vacations you yearned for — they made glamorous trips to New York and Europe, coming back with look books and fabric swatches, letting us lower-ranking employees see the colors that would be popular next season.”

“These stores made an entire lifestyle possible for people who worked in them. Conversely, it was important for customers to see us as symbols of what they could attain, too. Customers were part of our community; our job was to sell them things that would highlight their good taste and let them share the sense of satisfaction that we felt after selling something special. That went both ways.”

“The store was a place for learning as well as teaching. I counseled customers not to put their crystal goblets in the dishwasher, to protect their thin rims.”

I doubt any retailer reading this is telling customers not to put their crystal in the dishwasher.  But she is describing precisely the relationship we as retailers want to have with our customers today.  Maybe think hard about that for a moment before moving on.

Somehow, we seem to see this as new.  Cleverly, we think, we’ve figured out that we need to provide our customers not just with a product, but with an experience.  Sounds like that’s what Micheline was doing starting in the late 1970s.  And while we’re at it, I’d note that they were focused on customer service, education and creating a relationship between the store, its staff, and the customer.

Perhaps, in a time of rapid economic growth and general economic prosperity, before the internet, improvements in logistics and supply, the speed of change and a dramatic oversupply of “stuff,” we could forget some of this.  Now, as the cycles turn, it’s back with a vengeance.

The tactics are different.  I’d say they are harder and costlier to implement as the expectation for “experiences” has increased.  I’d further say we’re not entirely sure what those tactics are yet.  The speed of change requires a different organization structure and mindset.  The retailers who evolve a process for creating experiences often without breaking the bank will have a leg up.

Still, it seems that “The more things change, the more they stay the same.”  I am just full of platitudes today, aren’t I?

Here’s the link to the article.