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The Weekly Consensus

Ideas, observations, and news on the consumer products and retail industries
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The Weekly Consensus – June 19, 2017 (Volume 9, Number 24)

The Big Story
Coming Soon to You, a Pop-Up
Billy Busko

On Memorial Day Weekend 2004, I was visiting the Hamptons, where outlandish sightings are common.  But I was particularly struck by a handsome house in town that had a large red bullseye painted on the front – Target style.  Intrigued, I approached the building, and, indeed, it had been converted into a Target store.  On July 4th, the building remained, but the store was gone.  I assumed that Target was too low-end for the Hamptons and that the store closed because of a lack of business.  Not so – I later found out that Target had previously opened other New York stores in Tribeca and Rockefeller Center and on a boat docked along the Hudson River, all intentionally opened for only one month.

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The Weekly Consensus – June 12, 2017 (Volume 9, Number 23)

The Big Story
The Last Merchant Prince
Paul Alexander, CFA

When Mickey Drexler announced his retirement last week, a number of industry observers called it “the end of an era.” Most people making this statement were referring to the longevity and influence of Drexler’s career, the highlights of which include building The Gap and Old Navy into household names, and making J.Crew one of the most popular brands of the early 2000’s – successes that earned him the moniker “the merchant prince.” However, his retirement may also be viewed as a metaphor for the changing complexion of retail leadership, and the end of an era for the industry as a whole.

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The Weekly Consensus – June 5, 2017 (Volume 9, Number 22)

The Big Story
Giving and Taking Credit
Mark Lenz

As part of its recent first quarter earnings announcement, Signet Group (the retail jewelry stalwart and parent company of Kay, Zale, and Jared) reported that it will outsource its customer credit business.  Signet’s customer credit program has provided a competitive advantage for the company over the years, but it has come under increasing pressure from investors in recent months.  There are perceived balance sheet benefits related to outsourcing, and additionally, questions have begun to mount about whether Signet has been recognizing bad debts in a timely manner (due to its approach to evaluation).  Outsourcing should address each of these concerns, but it could also have drawbacks.

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The Weekly Consensus – May 22, 2017 (Volume 9, Number 21)

The Big Story
Big Blowhard Brand
Doug Stebbins

There is a big difference between a label and a brand.  Virtually every product has label.  But just because a product has a colorful logo does not mean it is brand.  A brand has meaning to the consumer.  A strong, established brand is able to create a specific perception in customers’ minds concerning a product’s qualities and attributes. Creating a brand can be time-consuming and expensive, and the results are unpredictable.  Many products try to accelerate the brand development process by aligning with a celebrity and hoping that the attributes of the celebrity rub off on the product in the minds of consumers.  But, what happens when the process is reversed, and a brand is developed to create a celebrity?  That is exactly what is happening with Big Baller Brand.

As the website says “Big Baller Brand is a Lifestyle Apparel company founded on core family values, and inspired by the 3 Ball brothers from Chino Hills, California.  Lonzo, LiAngelo, and LaMelo Ball are basketball players with Championship pedigree”.  Keep in mind that the average age of the three Ball sons is 17 and combined they have scored the same number of points in the NBA as I have.  You may be wondering how these three brothers, two of which are still in high school, got their own brand.  The answer is twofold:  YouTube, and their father, LaVar (LaVar is apparently the source of the “Championship pedigree” noted above).

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The Weekly Consensus – May 15, 2017 (Volume 9, Number 20)

The Big Story
Terrible, Horrible, No Good, Very Bad
Marshall Schleifman

In Judith Viorst’s 1972 children’s book Alexander and the Terrible, Horrible, No Good, Very Bad Day, from the moment Alexander wakes up, things just do not go his way.  Poor fortune visits him at every turn throughout the day.  It feels fitting that Viorst’s protagonist shares his name with former New York metropolitan department store chain Alexander’s, whose story ended terribly, horribly, no good, very bad in a 1990s bankruptcy.  And based on first quarter results reported last week across the department store group, terrible, horrible, no good, very bad trends appear to continue to haunt the subsector, and are rapidly accelerating.

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The Weekly Consensus – May 8, 2017 (Volume 8, Number 19)

The Big Story
The Venus® Brand
Michael A. O’Hara

Jerry Seinfeld once observed that sports fans are more loyal to teams than to athletes, pointing out that as beloved players leave their cities we stop rooting for the person but still root for the “laundry.”  This may be why I hated Magic Johnson when I was a teenager, even though he was a once-in-a-lifetime talent in my favorite sport who was also articulate, funny, gracious, and remarkably unselfish.  His tragic flaw:  he played for the Los Angeles Lakers.  As an adult, I love Magic, and have learned to appreciate transcendent players, even if they aren’t lucky enough to play for Boston teams.

But not everyone is as open minded as me about other cities’ sports stars.  (Feel free to send me an email congratulating me on my high-mindedness.)  This suggests that transcendent athletes in individual sports may be able to build brands that exceed those of team sport athletes.   Many (most?) people outside of Cleveland root against Lebron James.  But, as we learned at last Wednesday’s 7th annual Next Great Consumer Brands, everyone loves Venus Williams.

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The Weekly Consensus – May 1, 2017 (Volume 9, Number 18)

The Big Story
The 7th Annual Next Great Consumer Brands

As the seventh-annual Next Great Consumer Brands event culminates this week at the Nasdaq MarketSite in Times Square, we are pleased to welcome another exceptional collection of high-potential consumer and retail brands.

Away

Launched in February 2016, Away is a travel brand founded by Steph Korey and Jen Rubio (both formerly of Warby Parker). Away creates special objects that are at home on the road—that carry you forward, making your trip easier, and in a small way, your life better. It started with luggage.

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The Weekly Consensus – April 24, 2017 (Volume 9, Number 17)

The Big Story
Three Reasons Why We Like PetSmart’s Chewy.com Acquisition
Maeghan Thompson

PetSmart announced last week that it is buying Chewy.com, an online retailer of over 30,000 pet related products.  According to Recode.net, the purchase price is $3.35 billion, making it the largest e-commerce acquisition ever.  That statistic may be eye-popping enough to make you sit up, roll over, and play dead, but it makes sense to us for three reasons.

First, Chewy.com is very successful.  Non-pet owners might not be familiar with the website, but it has grown to become the online leader in pet foot and litter sales in a relatively short period of time.  The company, which was founded in 2011, achieved sales of $900 million in 2016, and projected to reach over $1.5 billion this year.  According to 1010Data.com, Chewy commands 57% of online pet food and littler sales, ahead of Amazon’s 33% and PetSmart’s 2%.  An emphasis on customer service and love of pets has helped Chewy.com to distinguish itself from competitors and bond with its customers. The website’s customer service agents are available 24 hours a day via phone and text, and sent handwritten holiday greeting cards to 2 million customers last year.  The company keeps profiles of each customer and their pets, and enters newly registered customers into a drawing for a free oil painting of their pet – 700 paintings are awarded and delivered per week, according to Bloomberg.

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The Weekly Consensus – April 17, 2017 (Volume 9, Number 16)

The Big Story
Trading Spaces
Betsy White

One of the more attention-grabbing retail news items last week was JC Penney’s announcement that the company would delay the closing of 138 stores due to a surge in business after the closures were announced. The reality however, was only a short delay in the start of liquidation sales. The stores will still close, just slightly later than originally contemplated, ostensibly because the company determined it would make more money (or lose less) if the liquidation sales start in May instead of April.

Reading almost daily about another retail chain closing some or all of its stores leads one to ponder what can be done with all of this retail space being vacated at lightning speed.  While painful for landlords, retailers, and often the consumer in the short term, there is a huge opportunity for property owners, along with new tenants, to remake the brick and mortar landscape.

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The Weekly Consensus – April 10, 2017 (Volume 9, Number 15)

The Big Story
RetailWire BrainTrust Throwdown: Is It Inevitable That Tech Companies Will Dominate Retail?
Rick Moss, RetailWire

Commerce is the engine that has driven the global prominence of the U.S. economy. Still, the e-commerce revolution that caught on in the late 1990s is so fundamentally different, that the prior 400 years of traditional retail can be viewed as a prelude to the empowered, connected consumer age in which we exist. We’re in the midst of a hi-tech revolution with no limits in sight.

We asked two of our BrainTrust panelists, Ken Lonyai and Ryan Mathews, to argue for and against the following premise:

The new model for retail, as exemplified by Amazon, is built on mastery of data, AI and IT services. Legacy retail companies can’t possibly make a transition to this type of data-first company. Therefore, possibly within the next decade, big retail will be entirely dominated by tech companies.

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