I say Yes. Clayton M. Christensen, the Harvard professor who popularized the term “disruptive” in a 1995 superficial Harvard Business Review article in 1995 that he parlayed into tenure at Harvard and a consulting business, says No. Here’s the story.
Category Archives: internet
am I reviving my Odds and Ends page?
I once thought that Odds and Ends would be a regular feature of my blog–a place to record information that might be useful but which had no immediate stock market urgency. It hasn’t turned out that way. I’m not sure why.
Fir the first time in a long while, however, I”m writing about two items that really belong there: Activision and King Digital, and Urban Outfitters’ acquisition of a small upscale pizza business. Here they are.
the holiday retail season: Millennials vs. Boomers
Conventional wisdom in the US has long been that 30-somethings want a house, a car and clothing suitable for work. Fifty-somethings want a vacation home, jewelry and a cruise.
As the Baby Boom generation became more important, therefore, an investor wanting exposure to consumer spending should have shifted away from homebuilders and carmakers and toward high-end specialty retail, luxury goods and hotels and cruise lines.
Of course, there were other secular forces at work, as well–the move from the cities to the suburbs and the dismembering of the traditional department store by specialty retail, just to name two.
Today we’re in the early days of another significant demographic change. Millennials now outnumber Boomers in the US. Millennials only earn about half what Boomers do. And they were hurt much more severely than the older generation by the recession. But they’re on the up escalator, while Boomers as a group will see their economic power wane as they retire.
Playing the aging of the Boomer generation had two aspects to it, one positive and one negative. The positive side was hard–finding the small, relatively obscure companies like the Limited or Toys R Us or Home Depot/Lowes or Target or (later on) Coach that would catch the fancy of the Baby Boom. The negative side was easier–avoiding the losers who didn’t “get” what was going on. These included American carmakers and the department stores.
In 3Q15 corporate results, we’re already beginning to see the new generational change begin to play out. Home improvement stores are doing surprisingly well. Large retail chains are reporting relatively weak results. What strikes me about the latter is that the worst-affected seem to be the most heavily style-dependent and the firms that have put the least effort into their online presence. In contrast, I’m struck by how many small online, even crowdsourcing, alternatives to bricks and mortar there now are to buy apparel.
How to play this emerging trend?
The negative side is easy– avoid the potential losers, that is, firms whose main appeal is to Boomers and companies with a weak online presence.
The positive side is, as usual, harder. Arguably, many of the winners–Uber, and the sharing economy in general being an example–aren’t yet publicly traded. Absent a pure play, my best idea is to invest in the winners’ onlineness. The easiest, and safest, way to do so is through an internet or e-commerce ETF.
One other point: for many years, economists have tracked the activity of Boomers as a way to estimate the health of the economy. To the degree that they, too, fail to adjust quickly enough, their assessments, like department store sales, may understate growth momentum.
is the e-commerce market in China saturated?
I’ve recently begun receiving emails again from the Fung Business Intelligence Center, an arm of the Hong Kong-based, garment-oriented logistics company Li and Fung. One of the latest poses the question that’s the title of this post.
The answer: yes …and no.
Yes, the market in the developed areas of China is close to saturation today. However, rural areas of the Asian giant remain relatively unexploited, both by internet and traditional bricks-and-mortar retail. FBIC thinks that the rural sector, which now makes up about 10% of Chinese e-commerce revenue will be at least as large as the urban sector in as little as 10 years. My back of the envelope calculation is that rural e-commerce growth will add at least five percentage points annually to what overall e-commerce expansion would otherwise be. Presumably, some Chinese e-commerce players will be more adept at wooing this business than others, meaning their rural business could add 10% or so to annual sales growth.
The FBIC report, which is relatively short, is well worth taking a look at.
merger mania in the computer chip business: why?
This year has been market by a spate (like that word?) of mergers/acquisitions in the computer chip industry, the latest being the potential combination of stodgy Analog Devices with Maxim Integrated Products. Why is this happening now?
Three reasons:
–cheap financing, even though not necessary in all cases, is still plentiful. This may not continue to be the case as interest rates in the US rise
–the cost of creating and fabricating new generations of products is becoming very expensive, to the point that some firms can no longer afford to stay independent and remain in the game
—most important, though, is the emergence of mega-customers like Apple and Samsung, or Acer and maybe even Asus, which has changed the competitive structure of the industry. The situation now is that these few large buyers of components can play one supplier off against another to get better prices. The only way suppliers can get any market clout is to combine.
One might think that this is evidence of the overall tech industry maturing, meaning that we’re entering a period of slower industry growth. While that may be true, maturity isn’t the sole, or even the main, reason for consolidation. When the EU was created, for example, cross-border mergers became feasible for the first time. Small national supermarket chains combined to become EU-wide powerhouses. For a while, food suppliers remained as small as before. But the mammoth size of EU-wide purchase orders from the big supermarket chains became so enticing that food suppliers offered unusually high discounts to get the business. These firms soon realized that they needed scale, both just to get the big supermarket orders and fulfill them and to streamline operations and lessen profit-destroying discounting. The large scale of the customers forced the suppliers to scale up as well.
The economics works in the other direction, too. Large scale on the suppliers’ part forces customers to scale up.
In the case of chip companies, I don’t see an easy way to make money right away from ongoing consolidation. Many of the actors remain unattractive on a stand-alone basis, in my view. Also, the general rule is that half of the combinations won’t work out, either because the principals can’t get along post-merger or an acquirer pays too much for a target. Better to let the dust clear and try to assess the combined firms, say, next Spring. Having said that, I do own Intel and Avago, two consolidators.