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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 – February 12, 2018 (Volume 10, Number 7)

The Big Story
A Super Bowl for the Millennials
Michael A. O’Hara

Last Sunday’s Super Bowl LII featured a gutsy head coach making his debut in the big game and an anonymous back-up quarterback becoming a legend to rival Rocky Balboa in the City of Brotherly Love.  But the nation’s most broadly celebrated non-holiday holiday also contained some discernable non-football cultural trends worthy of note:

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The Weekly Consensus – February 5, 2018 (Volume 10, Number 6)

The Big Story
Does Amazon Still Not Care About Making Money?
Paul Alexander, CFA

For many years the narrative surrounding Amazon and its attitude toward making money has been that the company doesn’t seek to be profitable. That it values growth opportunity and market share over income. That it has been tirelessly conditioning the investment community to prioritize vision over the bottom line. NYU professor and notable tech pundit Scott Galloway even mused in a speaking engagement last year that every time Amazon reports a profitable quarter, CEO Jeff Bezos probably berates his deputies that they screwed up.

And yet, last week, Amazon reported that it generated $3 billion of net income in 2017. $1.9 billion of that came just in the fourth quarter. According to Galloway’s joke, there must have been a bloodbath in a certain conference room in Seattle.

Or was there? Maybe Amazon is finally warming up to the concept of making money. 2017’s $3 billion profit is up from $2.4 billion in 2016 and $0.6 billion in 2015. In contrast, over the prior three-year period, from 2012 through 2014, Amazon was roughly breakeven. To borrow a famous line by James Bond creator Ian Fleming, one year of profit growth is happenstance, two years is a coincidence, three is a trend. Amazon must have meant to do this, no? Is the company finally allowing itself to reap the rewards of its growth and dominance?

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The Weekly Consensus – January 29, 2018 (Volume 10, Number 5)

The Big Story
Things Are Getting Grosser for Grocers
Maeghan Thompson

Only days after Amazon made headlines last week by opening its cutting-edge Amazon Go convenience store to the public, it was reported that Kroger, the largest supermarket chain in the U.S., is considering teaming up with China’s ecommerce giant Alibaba.  Amazon Go stores are cashier-less, and use cameras and sensors to eliminate checkout lines, allowing customers to grab and go.  Coincidentally, Alibaba also operates supermarkets in China that use Amazon Go-like technology.

While the events of last week may have been less connected than they seemed, the sequence certainly has the appearance of being the latest chapter in what has become a supermarket/tech arms race.  Beginning with Amazon’s acquisition of Whole Foods last year, large U.S. grocery retailers, including Walmart, Target, Kroger, and Costco, have all reacted to Amazon’s expansion into the industry.  Walmart has continued to develop item-scanning apps that enable customers to skip the cashier line, and Target acquired the food delivery startup Shipt for $550 million in December to bolster its same-day delivery capabilities.  Kroger’s flirtation with Alibaba is likely related to Alibaba’s Alipay, which is a mobile and online payment platform that could potentially be used as an app for shoppers to skip lines, just like Amazon Go.

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The Weekly Consensus – January 22, 2018 (Volume 10, Number 4)

The Big Story
Retail’s Big Show and The Rise of Retail Tech

Last week, the National Retail Federation (NRF) held its annual event, Retail’s Big Show – NRF 2018. The event showcases leadership and innovation in the retail industry. While the retail landscape hasn’t garnered much enthusiasm or excitement in recent years, the rise of retail technology, both in terms of development and use, may begin to change that.

NRF 2018 featured a number of new events and exhibits concerning technology and the vision of the future store, including an innovation lab. The innovation lab featured interactive exhibits centered around each step in the shopping journey, a showcase of the latest technologies, and information and content, including presentations from industry leaders. Exhibitors included the customary vendors and service providers, but also included some of the world’s largest technology companies and solutions providers, such as Amazon, Samsung, IBM, Intel, Microsoft, and Adobe.

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The Weekly Consensus – January 15, 2018 (Volume 10, Number 3)

The Big Story
Kodak’s Recent Developments
Betsy White

 

Over 4,000 exhibiting companies and 1,200 speakers were in attendance at the annual CES (Consumer Electronics Show) in Las Vegas last week.  While the conference is known for its debuts of cutting edge technologies and gadgets, one presenting company with an old-economy name managed to create quite a bit of publicity and a 300% increase in its stock price.  Two announcements made by Kodak indicate it is now fashioning itself as a new-economy company.  Since it emerged from bankruptcy in 2013, Kodak has mostly licensed away its consumer products business to focus on B2B goods and services.  But both of its newest developments (pun intended) involve a further pivot, moving Kodak into cryptocurrency initiatives that expand the bitcoin universe.

The first of Kodak’s new initiatives involves an ICO (initial coin offering) of a new cryptocurrency called KODAKCoin, which is launching in conjunction with an image rights platform called KODAKOne.  Both KODAKCoin and KODAKOne are designed to assist photographers in managing and getting paid for their images.  Launching January 31 and operated via a licensing partnership with WENN Digital, photographers who sign up for KODAKOne are provided with a level of certainty and security that they are being paid for their work.

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The Weekly Consensus – January 8, 2018 (Volume 10, Number 2)

The Big Story
Uncle Sam as a Partner
Billy Busko

A business class professor often reminded us, “Every business has a partner: the government.”  There are many ways that the government and its laws and regulations impact business, but one universal factor is taxes.

The Tax Cuts and Jobs Act passed by Congress just before Christmas took effect January 1st.  How will the Act impact the Retail Industry?

To provide a general and global perspective, Ernst & Young reports that the U.S. has had the highest federal corporate tax rate in the world at 35%, which on average increases to 39% including state taxes.  This compares to a worldwide average of 25.8% or a modestly higher GDP-weighted average of 27.9%.  The global book ends have been the United Arab Emirates at 0% and the U.S. at 39%.  In between are Russia (20%), the U.K. (21%), China (25%), Canada (26%), Australia (30%), Germany (30%), Mexico (30%), Brazil (34%), India (34%), Japan (35%) and France (36%).  Moreover, the U.S. has not had comprehensive corporate tax change in thirty years.  In the meantime, the global average corporate tax rate has decreased approximately 15%.

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The Weekly Consensus – January 2, 2018 (Volume 10, Number 1)

The Big Story
RetailWire Discussion: What Retail Apocalypse?
Tom Ryan, RetailWire

While the disruption that has resulted in the closure of thousands of stores was the talk of retail throughout 2017, the industry scored its best holiday period since 2011 last year.

That’s according to Mastercard SpendingPulse, which was the first firm to release its holiday recap at the end of 2017. Sales from November 1 through December 24 expanded 4.9 percent vs. the previous year period, setting a new record for dollars spent. Mastercard tracks retail spending by all payment types.

“Overall, [the year 2017] was a big win for retail,” said Sarah Quinlan, SVP of Market Insights, Mastercard, in a statement. “The strong U.S. economy was a contributing factor, but we also have to recognize that retailers who tried new strategies to engage holiday shoppers were the beneficiaries of this sales increase.”

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The Weekly Consensus – December 18, 2017 (Volume 9, Number 48)

The Big Story
What Will Be Target’s Next Me-Too Move?
Paul Alexander, CFA

The escalating arms race between Walmart and Amazon has been one of the most interesting storylines in the consumer economy over the last two years. But every few months or so, we get a reminder that retailing isn’t just a two-horse race. Last week provided one such instance, when Target announced its $550 million acquisition of Shipt, a food delivery startup that will give Target the ability to roll out same day delivery to millions of shoppers.

While the Shipt acquistion is a big move, Target is still playing catch-up with its two big rivals. Walmart has already experimented with same day delivery in certain markets, and it purchased the last-mile logistics company Parcel this summer. Amazon also already offers same day delivery on certain items and has a relationship with the grocery delivery service Instacart through Whole Foods. This isn’t the first time that Target has followed Amazon’s or Walmart’s lead. Target was a few months behind Walmart this year in becoming a partner retailer on Google Express’s voice shopping platform. And just last month, Target declared that it will offer free shipping on all orders throughout the holiday season, emulating part of of the value offered by Amazon Prime.

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The Weekly Consensus – December 11, 2017 (Volume 9, Number 47)

The Big Story
For Retailers, Is Being Political Ever Correct?
Mark Lenz

Patagonia last week updated its homepage with this message, written in stark white on black: “The President Stole Your Land.” The change announced Patagonia’s opposition to (and legal efforts to prevent) President Trump’s recent order to significantly reduce the size of two large national monuments in Utah.  REI, another large outdoor retailer, also responded to the president’s decision by making a more subdued statement that they “are unwavering in our nonpartisan commitment to public lands.”

The federal government owns nearly two thirds of the land in the state of Utah, an amount of land much higher than in all other states in the U.S. except for two.  The announcement by President Obama creating Bears Ears National Monument last year, which makes up 1.3 million acres, while pleasing environmentalists and the local Native American tribes, did not please the local politicians and states’ rights supporters.

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The Weekly Consensus – December 4, 2017 (Volume 9, Number 46)

The Big Story
Gluttony Wednesday
Doug Stebbins, CFA

One should never underestimate the power of branding.  At some point, “the day after Thanksgiving” became known as “Black Friday”, a change that has magically caused normally rational people to wake up at 2am to line up outside of stores in the freezing cold.  While many believe that the term Black Friday was coined to identify when retailers’ red ink (losses) would turn into black ink (profits), it actually was a term created by the Philadelphia Police Department in the 1950’s to describe the chaos as shoppers descended upon the city for post-Thanksgiving holiday gift buying.  As the term took root in Philadelphia, there was an effort to rebrand the day “Big Friday” to make the city seem more welcoming to shoppers.  But it was too late, the Black Friday moniker was here to stay, and it is now known nationwide as the official beginning of holiday shopping season.

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