The Weekly Consensus – February 11, 2019 (Volume 11, Number 6)

The Big Story
A High Growth Industry? Or A Budding Mania?
Douglas Stebbins

Holland was famously gripped by “tulip mania” in the 1630’s when, in what is considered by many to be the first speculative financial market, prices for certain tulip bulbs escalated to such a level that a single rare bulb could cost a year’s wages.  Not surprisingly, the craze was not sustainable, and by early 1637 bulb prices collapsed.  Who would have thought that a simple plant could drive such speculative investment?  On second thought, maybe it is not too hard to imagine.  We may be living through our own mini-mania, as the past couple of years have seen a torrid pace of deals and sky-high valuations involving a different plant. Not tulips, but cannabis.

According to CapitalIQ, there have been over 500 transactions involving U.S. based cannabis-related companies in just the past 12 months.  That amounts to a pace of almost 10 mergers, acquisitions or capital raises per week, as operators and investors try to capitalize on the burgeoning U.S. pot market.  While still illegal under U.S. federal law, a number of individual states have passed legislation permitting the use of marijuana for medical and industrial uses, and, more recently, for recreational use.  The recently passed Farm Bill also legalized commercial hemp for certain uses, but punted oversite of cannabidiol (CBD), the non-psychoactive ingredient in cannabis, to the FDA, which promptly stated that it would not allow CBD to be added to food or drink without prior approval.  New York City also announced that it would be cracking down on edibles and drinks that include CBD.

 

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The Weekly Consensus – February 4, 2019 (Volume 11, Number 5)

The Big Story
Game On
Marshall Schlieifman

Effectively a national holiday, Super Bowl Sunday has no religious, historic, patriotic or familial foundation – it is simply about entertainment and indulgence.  Only a four-hour event, the Super Bowl is about friends, most of whom have no rooting interest in either competitor, getting together to watch the game and (over-)eat nachos, chicken wings, pizza, etc., etc., etc. on a new TV while wearing team apparel.  Not surprisingly, all those jerseys, TVs, food and drink really add up.  What is surprising is how much it all adds up to.

The National Retail Federation, the world’s largest retail industry association, has been surveying consumers to track Super Bowl spending since 2005.  According to the survey, Americans spent $14.8 billion this year, or $81.30 for every adult, to celebrate the Big Game.  This total is down from $15.3 billion last year, primarily because fewer people plan to watch the game – 182.5 million this year compared with 188.5 million last year.

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The Weekly Consensus – January 28, 2019 (Volume 11, Number 4)

The Big Story
Can America’s Digital-First Brands Go Global?
Michael A. O’Hara

The class of emerging consumer businesses known as “digital-first” businesses (and its unique sub-segment of mono-branded “digitally native vertical brands”) has enjoyed special status over the past few years.  Often led by charismatic founders with innovative strategies, these businesses resonate with Millennials, have access to unprecedented consumer data, and have been given extraordinary valuations by an increasingly attentive universe of Silicon Valley venture capitalists.

To date, top-line growth has been the key driver to valuation, and investors have been patient on profitability.  Despite earning enough scale to go public, digital-first brands Wayfair, Purple, and Blue Apron have yet to achieve positive cash flow status.  Digital luxury marketplace Farfetch has a valuation of nearly 9.0x revenue even though it lost over $200.0 million in the fiscal year ended September 2018.  Among privately held digital-first companies, few are thought to be profitable at this time.

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The Weekly Consensus – January 21, 2019 (Volume 11, Number 3)

The Big Story
For Consumer Brands, Is Being Political Ever Correct? – Part IV
Paul Alexander, CFA

 

Consumer brands and retailers continue to take public political stances at an increasing rate in recent years, a move that, traditionally, has been avoided and occasionally ridiculed.  We’ve chronicled this growing trend in three prior Big Stories, going back to late 2017, when our colleague Mark Lenz wrote about Patagonia’s outspoken opposition to the Trump administration’s moves to reduce the size of certain national monuments.  In each of our prior three stories on this theme, we noted the risks associated with taking a stand. However, we have yet to point to an example where this strategy backfired (Dick’s firearm-minimum-age change resulted in missed sales, but fell short of a backfire, in our opinion).  Today, we look at an example where a company’s public political stance flopped.  Or, at least, it initially looked like a flop.

Last week, Gillette released a roughly one-and-a-half minute commercial on YouTube called “We Believe; The Best Men Can Be,” in which the company challenges men to reject toxically masculine behavior, such as sexual harrassment, bullying, and physical violence.  The company references the #MeToo movement in the ad, and uses language that plays on the company’s long-time slogan, “Gillette: The Best a Man Can Get.”

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The Weekly Consensus – January 14, 2019 (Volume 11, Number 2)

The Big Story
Tech and Privacy Clash at CES
Maeghan Thompson

Last week, the Consumer Electronics Show, better known as CES, took over the Las Vegas Convention Center, showcasing more than 4,500 exhibitors in the consumer electronics industry.  CES has enabled consumers and technophiles for over 50 years to see the future of next-generation technologies and products.  In many years, the show has served as a coming-out party for groundbreaking new products, such as in 1970, when the first consumer VCR was unveiled, or, more recently, in 2015, when the event was overrun with web-connected products known as “Internet of Things.”  However, while the show often carries a certain “the-future-looks-bright” optimism, the message this year may have been “let’s-pump-the-brakes.”  The different tone this year emerged as technology’s inexorable advance seems more than ever to be jeopardizing a cherished right: privacy.

The sources of consumers’ elevated privacy concerns are many.  First, several household name companies suffered enormous data breaches in 2018, including Facebook (50 million users compromised) and Marriott (383 million customers compromised, including five million unencrypted passport numbers).  Second, while more and more Americans are inviting smart speakers, such as Amazon Echo, into their homes (eMarketer estimates 74 million Americans will have a smart speaker by the end of 2019), the products are often suspected of “listening” in on their owners.  In certain instances, speakers have malfunctioned and shared or exposed contact information or private, recorded conversations.  Lastly, new technologies such as facial recognition software and AI continue to evolve, and bring with them new privacy concerns.

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The Weekly Consensus – January 7, 2019 (Volume 11, Number 1)

The Big Story
Digital-First Brands’ Next Conquest: Malls

It was reported last week that U.S. retail vacancies inched higher in the fourth quarter, rising to 10.2% from 10.0% a year earlier. The small increase underscores how the retail sector has withstood many store closures across the nation, despite substantial headwinds. Many had feared the worst, given actual or imminent closings by Sears, Kmart, JC Penney, Gap, Toys R Us, and Victoria’s Secret.

To combat the expected closings and the challenges of traditional retail, many mall owners have turned to new tenants and new leading models. Many malls are increasingly shifting real estate to apartments, hotels, fitness companies, grocery stores, and restaurants. Many are also growing increasingly dependent on short-term leases, for both online brands and traditional retail brands seeking a new physical experience.

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The Weekly Consensus – December 31, 2018 (Volume 10, Number 49)

The Big Story
RetailWire Discussion: What Are the Takeaways from the Best Holiday Season in Six Years?
Tom Ryan, RetailWire

 

According to Mastercard SpendingPulse, holiday sales in the U.S. from Nov. 1 through Dec. 24 expanded 5.1 percent, the strongest growth rate in the last six years. The gains were led by a 19.1 percent hike in online sales, and also helped by a recovery in some key categories. Apparel sales improved 7.9 percent, the category’s best year-over-year gain since 2010, while home improvement climbed 9.0 percent. Electronics and appliance sales dipped 0.7 percent.

Apparel sellers are improving their performance through better inventory management and efforts to instill more freshness into offerings, according to analysts. Investments in digital by Walmart and others are similarly boosting online and overall omnichannel efforts. Adobe last week predicted BOPIS-related sales increased 47 percent over the holiday from a year ago, while mobile spending soared 57 percent.

Taylor Schreiner, director, Adobe Digital Insights, said in a statement, “Retailers who can offer the easiest shopping experience, whether through excellent use of data to anticipate shoppers’ needs or by providing an option for picking up products at brick-and-mortar stores, are the ones people are flocking to.”

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The Weekly Consensus – December 17, 2018 (Volume 10, Number 48)

The Big Story
New Services Creating Big Money from Small Business
Betsy White

You’ve hopefully wound down or finished your Christmas and holiday shopping for 2018 by the time you read this, and perhaps you were able to patronize one or more of the thousands of independently owned stores in the U.S. which, according to a survey from American Express, generated $17.8 billion in sales on Small Business Saturday® 2018.

Consumers are not the only fans of mom and pop retail. Last week, Faire, a disruptive technology company described as a wholesale marketplace for artisanal products, raised $100 million from some of the most successful venture capital firms in the U.S.   According to the company and press reports, Faire’s “run rate” annual sales are $100 million, and this latest financing round valued the company at $545 million.  Faire was founded in 2017 by three former executives of the payment processing company Square.

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The Weekly Consensus – December 10, 2018 (Volume 10, Number 47)

The Big Story
Christmas Past, Present, or Yet to Come?
Billy Busko

It feels as though U.S. consumers – and the global economy at large – are watching Charles Dickens’ beloved novella, A Christmas Carol.  That it’s December and the Holidays are approaching only add to the staging.

Like the various ghosts, tariff news keeps coming.  We’ve seen the Ghost of Christmas Past.  Then we saw a possible glimpse of Christmas Present, but then quickly returned to Christmas Past. And now we wait on Christmas Yet to Come.  Similar to Ebenezer, this has all happened in what seems to be about a day, leaving wholesalers, retailers and consumers wondering what to do.

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The Weekly Consensus – December 3, 2018 (Volume 10, Number 46)

The Big Story
For Retailers, Is Being Political Ever Correct? – Part III
Paul Alexander, CFA

Retail brands appear to be taking public political stances at an increasing rate, a move that has traditionally seemed foolish to many in the industry.  This is a phenomenon we have written about in this space twice in recent months, as our colleague Mark Lenz chronicled in parts one and two of this series Patagonia’s public opposition to the Trump administation’s moves to reduce the size of national monuments, and Walmart and Dick’s Sporting Goods’s decisions to raise the minimum age at which the companies will sell firearms to a customer from 18 to 21.  Presumably, these decisions were carefully weighed, given their political, moral, and business-related implications.  They also seem to be a sign of the times, of the increasing difficulty that any person or brand has today of remaining politically neutral.  But a recent report suggest that it may be even more difficult to remain politically neutral than we ever realized.  In fact, from now on, it may be effectively impossible.

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