Jonathon Duskin Who?

Jonathan-DuskinActivist Lightweight Attacking Children’s Place

I like being an activist myself, but a special kind.  I like attacking financial activists who assume they understand the businesses they are attacking, yet build stories based on the only thing they do understand: numbers. These stories are all about creating greater shareholder value, but mask the real objective, which is to make tons of money for themselves. Sadly,  90% of them don’t know what the word strategy means and couldn’t operate their way out of a paper bag, much less lead the process. Most of them destroy more value than they create.

Which brings me to Jonathan Duskin, the current poster child activist lightweight, whose track record could only be described as “failing upward” as he became CEO of Macellum Advisors. Somehow he got Barington Capital Group to collaborate with him (I guess he needed their now questionable credibility) in sending an “attack” letter to Norman Matthews, revered industry veteran and Chairman of the Board of Children’s Place (PLCE). The delusional letter, penned by Macellum and Barington, was sent from out of the blue (or black) the night before Children’s Place’s 4th-quarter earnings call (March 12th), attacking the company’s operating and leadership performance under its CEO, Jane Elfers. The “delusional duo” of Macellum and Barington (the delusion revealed below), with a 2 percent share of Children’s Place, had not uttered a peep of discontent during any of the four previous investor calls throughout 2014 — or even two months prior to the attack letter. Perhaps Duskin was trumping up the delusion in a dark room somewhere before luring Barington into the deal?  Who knows? [Read more…]

Checking the Pulse of the American Shopper

pulseFrom a retail perspective, it’s hard to find numbers or analysis of the past year without also finding the word “cautious” in close proximity. Holiday spending for 2014: Cautious. Consumer attitude from recent gasoline price drops: Cautious. Outlook for 2015…. You get the picture.

Given the depth of the financial crisis in 2008 and the habits of the post-crisis consumer, this attitude can hardly be blamed. For retailers, however, the state of the American consumer might better be described as “tempered.”

It describes a cohort that has been tried, toughened and come through stronger. That’s what MasterCard Global Insights research shows. Our most recent work on the attitude toward credit and debit spending — arguably a leading indicator for retailers — captures a more nuanced portrait of how Americans are feeling about the economy and their own pocket five years into the recovery. In short: The post-crisis consumer has learned some tough lessons and come through with a tempered but tactical attitude toward credit and debit usage, disposable income, and saving for the future. [Read more…]

How Consumers Pocket The Change In Global Oil Prices

pocketoilchangeProbably the biggest global economic story since the collapse of the credit-based global economy in 2008 is the implosion of petroleum prices, which has had a direct, if lagging effect on retail sales in the U.S.

As of this writing, the price of a barrel of crude oil has recently gone below $45. The global economic situation is volatile enough to potentially reverse this trend, however, for the moment the  benefit remains with the consumer. Thus it’s worth taking a look at the economic and spending behavior that follows oil price declines because it has implications for business and industry across the country. [Read more…]

The Secret Sauce to Jumpstart Retail Sales

SECRET_SAUCEThe Census Department has started to release data from its five-year Economic Census that does a deep dive into all aspects of the US economy, including 12 sectors of retail. What’s important about the latest Economic Census is that it gives us the ability to study and learn from the pre- (2007) and post-recession (2012) retail market. While more data will be rolling out between now and 2016, here is the real story in the retail data.

Retail Hasn’t Begun to Recover From the Great Recession

Retail remains stuck in recession mode. In the 10-year period leading up to the Great Recession, retail was posting a compound annual growth rate of 4.76%; since then, retail has limped along with CAGR of 1.54% for the five-year period from 2007-2012.

Retail did a little better from 2012–2013, up some 4.2% based upon comparables from the Monthly Retail Trade Survey, but 2014 has been a complete drag, with September’s YTD report showing the GAFO (General merchandise, Apparel, Furniture & Other) retail sector up a mere 1.4%. For retailers that fill the nation’s malls, shopping centers and main streets, the GAFO number is the one to watch. From 2007-2012, the GAFO stores posted only 5.4% growth, well below retail as a whole, and from 2012-2013, they inched up only 1.5%. [Read more…]

Urban Legend

Stocksy_txp50011d0dXEG000_Medium_456973_2For more than four decades, Urban Outfitters Inc.’s namesake brand has been a favorite among hip young adults in search of edgy products and a cool place to hang out. Though its brand ethos is the envy of many in the apparel world, sales have until recently been on the decline, and the company has had to face the fact that having customers spend more time chilling in its stores doesn’t necessarily increase sales. So what’s an iconic brand to do?

Urban Decay

At the new Urban Outfitters store in Herald Square, steps from the Macy’s flagship at the southernmost edge of New York’s historic garment district, two 20-something women with multiple tattoos and pink ponytails fondled a fur-trimmed suede coat priced at $248. “I love it,” said one, holding the coat up in front of a full-length mirror. “I just don’t know if I love it enough.” [Read more…]

Fast Retailing Redux

Forget Weed, Maybe It’s Ecstasy

uniqlo_newA week ago, I suggested that Tadashi Yanai, President and CEO of Fast Retailing (parent of Uniqlo), must be smoking something, as he declared he would have 1000 stores opened in the U.S. by 2020. Now I read in WWD.com, which covered the company’s annual media event last week, that his aim is to reach $253 billion (yes, USD), in global sales by 2030, up from their August current year-end revenue projection of about $13 billion. His new projection for 2020 was $42 billion,which by the way, is way lower than $61 billion target I had reported that Mr. Tadashi had projected in last week’s article. So, which numbers are we to believe?

And, even with the lowered projection for 2020,does the $250 billion goal for 2030 sound like something a person with all of their marbles would throw out at such a meeting? Mr. Tadashi said, “So we are within sight of 5 trillion yen, ($42 billion) and that’s not just big talk. I think soon we have to start making big ambitions for the year 2030 as well, and if it’s the year 2030, why not 30 trillion yen ($253 billion)?” The audience laughed thinking that this must be Yanai’s type of a Japanese joke. He responded, “It’s not a joke. I believe it’s possible that we can realize this dream.” [Read more…]

Homeless in America

Young man holding teddy bear and taking a nap on couchThe home furnishings business should be hitting…well, home runs right now. The only thing is that it’s not: a couple of bloop singles at best.

Housing has rebounded and prices are approaching pre-Great Recession levels. Unemployment continues to drop, and more importantly, people with jobs feel less spooked that they’re going to lose them suddenly. Consumer confidence, despite the occasional outlier survey and Election Day polls, is generally positive. Gas prices are down, creating more disposable income for even budget-stretched households. And the costs of consumer goods, thanks largely to low inflation and a never-ending supply of third-world sourcing options, are a downright bargain in historical terms.

Yet sales of home furnishings products continue to struggle, even as sales of other perennial larger discretionary purchases – new cars and vacations – have rebounded from the dregs of their 2008-2009 levels.

Home may be where the heart is, but it ain’t where the spending is. What’s going on? As with most things in the universe, it’s not just one development that is causing a seminal change in the dynamics of home furnishings purchasing patterns. It’s three uneasy pieces.

1. Hello Muddah, Hello Faddah

With all due ethnic respect to Alan Sherman, the fact of the matter is that this generation of young people finishing up college is increasingly moving back in with their parents, rather than setting up their own households. And that’s a huge part of the home furnishings problem today.

The folks who keep track of such things say that there are 2.3 million so-called “missing” households in the country today. That is, new households that would exist if historical patterns of home formation had held true the past few years.

Before the Great Recession, about 27% of 18-to-34-year-olds lived with their parents. Now that number is 31%.

Do that math and that’s almost one in seven more kids heading home rather than getting their first place.

Another study makes the case even more persuasively. In the six years before the Great Recession, an average of 1.35 million households were
created every year. In the six years since, that average has dropped to just over 550,000 a year.

Even with all the hand-me-downs and trash day curbside pickups resourceful kids usually repurpose, there are still a lot of dishes, toaster ovens, sheets, rugs and other household paraphernalia that are still not being purchased.

These kids who are moving back in with their parents, doing extended stays with friends, or otherwise camping out in basements and attics
of unsuspecting relatives are using somebody else’s existing home products. Let’s face it: chipped plates and somewhat frayed towels will do just fine when you’re looking at $80,000 in student loans and no job.

Small kitchen2. Going Rental Mental

Ok, so we know there are simply fewer people starting households. That wouldn’t be so bad if those that were starting up were choosing the great American tradition of buying a house. But they are not.

The number of people deciding to rent rather than own is at a level this country hasn’t seen since the Reagan administration. Between 2007 and 2013, the country added about 6.2 million tenants but only just over 200,000 homeowners. While new single family home construction is finally coming around again, it’s nothing compared to multifamily construction, which last summer hit its highest level since at least 2006 and maybe even further back to 1989.

And first-time home ownership is down 5% to 33%, the lowest level since 1987. These are staggering statistics for a country that has based a wildly disproportionate percentage of its economy around the idea of home ownership. In case anyone forgot, it was the boom in the housing market that fueled the boom of the first half-decade of the new century. And it was the housing collapse that drove the nation into its biggest economic downturn in more than 80 years.

So, maybe you’re thinking what difference does it make whether someone lives in an apartment or a home? They still need those dishes and towels. Yes, that’s true, but not all home furnishings products are created equally. A renter is likely to buy the same sheets as a homeowner. They each will want some cookware and a blender and some comfortable places to sit. But is a renter likely to put in wall-to-wall carpeting as a homeowner would? How about replacing the washing machine or getting a new fridge? Will they spring for the bedroom set of their dreams if they’re not sure it’s going to fit in the next apartment they move to? And they certainly aren’t going to put in new windows, doors or kitchen cabinets if they are just passing through.

3. Home Sweet Home… or Not

The Millennial generation that is increasingly becoming the prime consumer of stuff in America does not have quite the same love affair with their homes as their parents did. Most anecdotal studies will tell you that decorating their homes is not a priority for many Millennials, no doubt because they are still cash strapped with those student loans. And maybe even more to the point, storage capacity in rentals doesn’t accommodate large collections of stuff.

They eat more meals out, be it at Chipotle or the latest all-you-can-eat Quinoa place. Big fancy kitchens don’t have quite the same appeal as they did for their parents. They also don’t seem to have the interest in some of the brands – and their corresponding premium prices – that have characterized the home business for the past few decades. Which is not to say they don’t like Ralph and Calvin and Donna. They just may not love them. Or be as loyal to these labels as previous generations have been…at least right now, anyway.

Furnishings’ Future?

Put all of these things together – fewer households being started, an increasing number of renters with less need for some home products, and demographics pointing to an emerging less-home-conscious consumer – and it starts to make sense why the home furnishings business is not booming the way many thought it would.

That helps explain today. But what about tomorrow? Is this a fundamental change in the way America lives that will define the home furnishings industry for a generation or more? Or is it just a moment in time, and the more traditional patterns will slowly but surely return the natural order?

Tough to say, but somehow I think you shouldn’t throw in the towel and write off the home – literally or figuratively – quite yet.

Around the World with Paco Underhill

cooking_oilWhat We Can Learn From Emerging Markets

Merchants have a temptation to move up-market. We suspect this is a reflection of their desire to seek higher margins. While we can applaud the successes of luxury categories at the upper tier of the market, it is at the other end of the spectrum where we find insightful examples of merchant innovation. For many of the world’s consumer product goods companies, future earnings and sales growth are anchored in their ability to not only move up, but also to more effectively cover the down-market. But we may be missing some very special lessons in this traditional marketing strategy. We can learn from what’s hidden in plain sight in emerging economies by recognizing the transformation of our ideas and the ingenuity of adapting our concepts to local solutions. There is also a new wave of clever entrepreneurs who are retooling conventional retail and marketing in novel grassroots ways.

Sumba: Rethinking Trust and the Pragmatics of Third-World Recycling

The Indonesian Island of Sumba has the peculiar distinction of being the world’s southeastern-most home of the horse. Its equine culture is unique to the archipelago, and adventurous tourists invade the island for its horse festivals that involve ritual battles on horseback. Its welcoming villages are dominated by tall prehistoric megaliths, not unlike Easter Island. But in Sumba, these giant icons are made all the more startling by the vibrant human life that continues on the island, in contrast to the abandoned statues of Easter Island. Sumba has a few resorts that tend to be patronized by glitterati looking for places where the tabloids can’t find them. It is, in its way, paradise lost and found. [Read more…]

Value is in The Eye of the Beholder…Who is Blind

PrintThere is a binary system governing value. The first “beholders”of value are its creators and sellers. The second are its consumers. Unfortunately,the first beholders have become blind to what their intrinsic value really is, or should be. As a result, they are blinding the second beholders by devaluing their products, leaving these consumers to conclude that the default “real value” is the lowest price.

No, I’m not getting all philosophical on you. Or maybe I am, if you’re able to fully understand the magnitude of what I’m about to serve up. It’s an enormous message for all businesses and, by extension, our economy as well.

It’s about the real, universal, global and all-encompassing definition of value, not just for the consumer, but also how you define it and hold it for your products, services, business and, indeed, your life.

For starters, before I take on the task of defining value and explaining why its creators and consumers are both blind to any common understanding of what it actually is, I submit that the collective “we” have been marking down value for a long time. The devaluation of value seems to be accelerating, particularly with the explosion of online businesses that don’t yet make a profit, relying on waves of funding and price promoting to stay afloat. This business model simply exacerbates the “marking down” syndrome. And this fragile model is also exacerbated by ongoing overcapacity throughout our economy, in which price promoting and endless methods of discounting become “weapons of necessity.” The end of this vicious cycle, of course, is worthlessness—AKA, zero value.

[Read more…]

Supermarket Disrupters Rattle the Industry

Amazon Expands Grocery Delivery Service To Los Angeles AreaConventional supermarkets — those mid-tier retailing behemoths — are beset on all sides by disrupters. Some of those disrupters are cloaked in technology, some aren’t; others are self-inflicted and emerging from within.

Let’s take a look at what the disrupters are doing to the biggest retailing industry of all.

To begin: the greatest disruption traditional supermarkets have faced in the 60 years or so they’ve been feeding America came a generation ago when Walmart got into the grocery business. Walmart’s go-to-market strategy changed everything, particularly how product was acquired and distributed. For the longest time, even as the threat grew, Walmart was ignored by the supermarket industry, largely because Walmart wasn’t — and isn’t — much of a marketer and had difficulty at the time with presenting quality perishables and still does.

But none of that really mattered because Walmart swamped supermarkets with such a significantly better pricing offer that it soon became the country’s dominant grocer. [Read more…]

The Hidden Message in How Americans Spend

Consumer spending increased by 3.7% in June, the highest 12-month smoothed monthly increase in almost two years, according to data released last week by the Bureau of Economic Analysis.

This year, Americans will spend $12 trillion on stuff, slightly more than the $11.7 trillion they spent on stuff last year.

These gross numbers are pretty meaningless and hard to wrap one’s mind around, but if we look behind the big numbers at what we’re spending our money on, and how some of those expenditures are growing, it’s not only pretty interesting, but can also tell us about how optimistic we’re feeling, about our consumer preferences as a society, and where we might be headed.

When the government tracks consumer spending, it creates two major categories: goods, which are separated into durables like cars and washing machines, and nondurables like clothes and food; and services, such as private school tuition, cab fare, eating in restaurants, and going to the doctor.

What I’d like to do here, though, is to categorize them a little differently.

pyramid2

Abraham Maslow (remember him from Psychology 101?) created the theory of the hierarchy of needs; simply stated that self-actualization is not possible until our basic needs are met. So, using a pyramid as a model, shelter, food and clothing (physiological needs) are the most basic needs at the base.

Fast forward to the top, creativity and artistic pursuits, are defined as self-actualization, or achieving our full potential as human beings. I’m super-simplifying here, but you get the idea. So if we look at trends in consumer spending through a redefined prism of Maslow’s hierarchy, and taking a few liberties with the climb to the top, some interesting patterns emerge. We can start with non-discretionary (need) categories like food, clothing and shelter at the base, and discretionary purchases, (more wants than needs) like restaurant dinners and new cars at the top.

So how have Americans been spending their money? And what’s behind these spending trends? [Read more…]

Whole Foods Market: Conscious Capitalism or Unconscious Greed?

wholefoods_webSo are we adding a luxury food brand to the “designer derby” of racers seeking more growth (for its own sake) by reaching down to consumers who are reaching up? Or is the CEO of Whole Foods, John Mackey, spreading his high-end food among the masses at prices they can afford, simply out of the goodness of his democratic heart? I’m speaking of the Whole Foods launch of pilot stores in more down-tier areas of Detroit, New Orleans and Chicago’s South Side. And about this strategy, Mackey made this rather magnanimous and altruistic statement: “For every penny we cut off the price, we reach more people who can afford to shop with us.”

What a wonderful thing to say. And, what a wonderful thing to do for the less well-heeled people living where the stores are being launched. And I suppose it will be a wonderful thing for new growth, at least for the foreseeable future. [Read more…]