“Morning Boys.  How’s the Water?”

A few days ago, I posted an article called “Maybe There’s More to This Than Just Trying to Meet Demand.” Among other things, I ask you to take a little time and a deep breath and think about what the future looked like.  Towards the end I repeated a Mark Twain reputed quote; “It ain’t what you don’t know that gets you into trouble.  It’s what you know for sure that just ain’t so.”

A day or two later Sam Rines, the Chief Economist of Avalon Advisors published one of his occasional notes with a few charts asking, “What if a vaccine does not alter the overall trajectory of the economy?”

Here’s a link to that note.  Talk about hiding in plain sight and things you know that just ain’t so.  Remember, we were in a recession before the pandemic.  The Great Recession took us years and years to get over.  So somehow, we’re going to get a vaccine, which we have to assume works and enough people take, and suddenly the economy is going to be okay.  Better?  Hell yes.

But the virus may have scrambled the economy in ways we don’t completely know yet, so why are we imagining that resolving the pandemic means suddenly the economy will be strong?  Could it just sort of limp back into the recession we were already experiencing but be further beat up by a gigantic pandemic hangover?

How did I manage to confuse my personal pandemic recovery, where I can go to a bar, take my wife to dinner, have friends and family over and maybe even consider a vacation, with the economy recovering?

What does it mean if they are two separate issues?  Think about it.

Two young fish, out on a morning swim, bump into an older fish. He says: ‘Morning boys, how’s the water?’ The younger fish nod in appreciation and swim on. A few minutes later, one looks to the other and says: ‘What the hell is water?

We’re all swimming in that water, but sometimes it’s hard to notice it.

 

Sweatpants, Women Only, Vermont Resorts, Cities Like Skateparks? Four Articles Worth a Few Minutes

NOTE: I recognize there are paywalls and not all of you can read these.  Often though, you can get a few free articles every month.

About four weeks ago I got a new shoulder so I’ve been quiet for a while. This had been coming on for decades. It’s healing fine but leaves me with only one arm to type with. Happily, I’m discovered dictating in Word. We’ll see how that works.

This shoulder is what made me give up snowboarding about five years ago. We’ll see if things change next season.

Meanwhile, there’s a lot going on, and with the drugs out of my system I’m hoping to address them coherently.

I’m going to start with some articles I’ve discovered.  Between the virus, the weather here in the Northwest, and my shoulder I’ve had lots of time to read.

From the New York Times Magazine last August comes “Sweatpants Forever,” by Irina Aleksander.  “Even before the pandemic, the whole fashion industry had started to unravel. What happens now that no one has a reason to dress up?”

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Fashion in Games, 3D Printing (kind of), and Some Historical Perspective

I should really be analyzing Kathmandu and the BOA deal.  I will- I’m actually ready to start writing about Kathmandu- but wanted to take a short detour.

I’ve come across three articles I recommend you read. The first two are from The Robin Report and the third by a geopolitical analyst by the name of George Friedman.  He’s the guy who founded the Stratfor Group.  I’ll get to why I think you should read it.

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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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