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.