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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 – April 1, 2019 (Volume 11, Number 13)

The Big Story
A Growing Influence
Maeghan Thompson

Last week, Viral Nation, a leading social media marketing agency, was named “Best Large Influencer Marketing Agency” by the 2019 Influencer Marketing Awards.  With a massive group of influencers across various industries, Viral Nation connects brands with social media content creators.  This form of marketing (and the industry’s associated awards) may have been considered niche only a few years ago, but it has become an integral part of brands’ marketing budgets, and only appears to be getting more important.

There are several marketplaces where brands can link with influencers to create content.   One of these marketplaces, TRIBE, is an Australian influencer marketing startup founded in 2015 that announced last week a U.S. launch and a $7.5M Series A funding round.  TRIBE has its influencers create posts for ongoing campaigns, and then allows brands to pay for only the posts they approve for sharing.  TRIBE has over 50,000 influencers and has worked with over 40 of the top 100 global brands.

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The Weekly Consensus – March 25, 2019 (Volume 11, Number 12)

The Big Story
Hudson Yards: Nice Mall, Or Transforming Retail?

Hudson Yards, billed as the most expensive real estate project in U.S. history at $25 billion, opened this month. Its 28 acres encompass apartments, condominiums, retail stores, restaurants, a cultural center, and a 150-foot art-installation dubbed The Vessel. At seven stories and one-million-square-feet, the shopping center has been promised to transform both Manhattan shopping and the retail experience.

Of the more than 100 shops and 25 cafés and restaurants, most are familiar names: Louis Vuitton, Kate Spade, Cartier, Uniqlo, Banana Republic, H&M, Neiman Marcus, and Shake Shack dot the list. Along with those household brands, Hudson Yards has touted the first brick-and-mortar stores for a number of digitally-native brands. In fact, the presence of those brands has given way to an entire floor within the shopping center and a special name to boot: The Floor of Discovery. According to the Hudson Yards website, “The Floor of Discovery will house a unique collection of first locations from digitally native brands and experiential shopping offerings from modern brands.”

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The Weekly Consensus – March 18, 2019 (Volume 11, Number 11)

The Big Story
Unintended Consequences
Betsy White

Successful retail strategy number one has always been to give consumers what they want, when they want it. That message has only been reinforced with the ubiquity of ecommerce and the evolution of omni-channel strategies at the most successful retailers. The latest twist on this has been the proliferation of business models that have provided consumers with the ability to satisfy their wants, not through ownership, but via a short-term rental model.

Perhaps it’s the gig economy, where many jobs are now done by contractors (who, by definition, are temporary), that is driving more consumers to rent instead of own. It is entirely possible to live your life today without owning a whole bunch of things that consumers have traditionally purchased (or at least rented on a long-term basis), like your home (think Airbnb), your car (Lyft, Uber), your clothes (Rent The Runway, Le Tote), and even your furniture (Fernish). At least until now, it appears that those who have taken advantage of the near-term cash flow benefits of rental programs have also benefited from little upward price movement. But renting-focused consumers may not be able to rely on price stability going forward, as evidenced by the millions and even billions of dollars of losses that public companies like Uber and Lyft report each year.

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The Weekly Consensus – March 11, 2019 (Volume 11, Number 10)

The Big Story
Why Didn’t I See Many Consumer Startups at Shoptalk?
Paul Alexander, CFA

After hearing rave reviews of the event for a couple of years, I was happy last week to attend Shoptalk, the annual retail and ecommerce conference, for the first time. I enjoyed it, and, in many ways, it was exactly what prior attendees had told me to expect: thousands of attendees, keynotes from A-list industry executives, panels with interesting topics and experts, and countless opportunities to network. However, my experience differed from my expectations in one curious way. I was under the impression that Shoptalk was chock-full of startup brands and entrepreneurs. While there were some consumer startups in attendance and speaking on panels (Lively, GREATS, and Cotopaxi were there, to name a few), there weren’t as many of them as I expected. Instead, it seemed that most keynotes and panelists were from industry titans like Walmart, Amazon, and Google. I was not alone in noting this; a report from Forbes said that, to some, “the show felt big branded,” and an Ad Age article commented on the show’s evolution from 2016, when it felt like an “intimate” gathering of startups, to today, when it is an event touting “executives from big names.”

Much of this evolution is likely attributable to Shoptalk’s success. With each year, the event grows, making it more attractive to big-money sponsors and famous speakers. However, maybe other factors were also at play. One panel discussion at Shoptalk, “VC Perspectives on Innovation in Retail,” touched on two dynamics in the startup world that could have affected what I saw. Unfortunately for emerging consumer businesses, both possibilities are a little foreboding.

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The Weekly Consensus – March 4, 2019 (Volume 11, Number 9)

The Big Story
A Good Break-up?
Billy Busko

“The whole is more than the sum of its parts.” – Aristotle

However, Gap disagrees.  The company announced last week that it’s spinning off its value chain Old Navy from the rest of the brand portfolio, creating two publicly traded companies.  The legacy company will retain the Gap brand along with its other brands including Banana Republic, Athleta, Intermix and its newly created e-commerce brand Hill City.

One of the trends in the increasingly active market for corporate transactions has been the growing popularity of spin-offs.  A spin-off involves the separation of a company’s businesses through the creation of typically two (although there could be more) independent publicly-traded companies. As a result, shareholders at the time of the spin-off own shares of two companies rather than one.  Boards of directors, managers and investors believe that certain businesses may command higher valuations if owned and managed separately rather than as part of the same enterprise.  An added benefit is that a spin-off is commonly completed on a tax-free basis to both the originating public company and the shareholders.

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The Weekly Consensus – February 25, 2018 (Volume 11, Number 8)

The Big Story
RetailWire Discussion: Is Walmart just starting to hit its stride?
George Anderson, RetailWire

 

As many expected, Walmart reported strong fourth quarter results as it continued to strategically use its e-commerce business to drive top line sales online and in stores during the holidays. The retailer, which posted a gain of 43 percent in e-commerce sales during the quarter, saw its same-store sales (excluding gas and including online) improve 4.2 percent in the U.S., a full percentage point ahead of the analyst consensus.

On the company’s earnings call, Walmart CEO Doug McMillon said the retailer had picked up market share in key categories including groceries and toys during the holiday period. He pointed to a strategy of meeting shoppers where and when they want to buy as a big factor in his company’s success. Mr. McMillon, as in the past, said that customers who shop Walmart online and in its physical locations spend about twice as much as those who shop in the chain’s stores alone.

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The Weekly Consensus – February 18, 2019 (Volume 11, Number 7)

The Big Story
The Winners and Losers of Amazon’s Abandoned NYC HQ2
Mark Lenz

The Amazon River can be challenging to travelers, with risks lingering around every bend.  Amazon.com, Inc. found challenges around every bend while planning its HQ2 in New York City, and last week it decided the risks were too high, and announced it was backing off on its intent to build a second headquarters in Long Island City.

Incidentally, I wrote my last Big Story on Amazon HQ2 the week that the original announcement was made to split the new headquarters between Virginia and New York.   Two of the most powerful politicians in the state, the governor and the mayor of New York City were puffing out their chests upon the announcement.  However, at the same time, there was an undercurrent of dissent citing the cost in dollars and quality of life for current residents.  I asked then “who will be the real winners and who will be the real losers in this Amazon HQ story, and at what cost”?

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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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