Business of Holidays

Last weekend was Halloween and business was good.

According to the National Retail Federation, American consumers will have spent $6.9 Billion USD on Halloween costumes, decorations and related items this year. This includes haunted houses, and candy.

So, wow did it go from a niche holiday to the 2nd most lucrative holiday behind Christmas?

Halloween used to be only popular among school aged children because they get candy. Now, the holiday is not just for kids. Adults are embracing it full-on. Some 13% of Americans ages 18-44 say Halloween is their favorite holiday, reports DDB Worldwide. There are just as many adults costumes are here are children’s costumes in the stores. Including “Sexy Pizza Rat“.

It probably started like most trends: Organically. A small bunch of young adults in relatively isolated enclaves throughout the nation that wanted to partake in costuming. Then other people saw how fun it was and then the number of participants grew into a measurable amount.

Slate has a pretty interesting article theorizing about its beginnings at the Halloween parade in New York City’s Greenwich Village. This parade for all-ages, first started in the early-70’s, began as a neighborhood event organized by a local puppeteer and mask-maker. Its fun and popularity then spread to San Francisco and Los Angeles.

The appeal to adults is not a difficult concept to grasp. “There are several reasons [for its adult popularity],” says Denise Delahorne of DDB Worldwide, a global marketing communications network in a recent 2012 Forbes article, “There’s no stress to it. You don’t have to travel or deal with relatives. There’s not the holiday pressure to find a date if you are single. You can wear whatever you want and not be judged. There’s the fantasy, role-play element.”

Businesses saw this trend (the power of market research!!) and seized this market opportunity. Voila! Halloween as we currently know it came to being.

Not Just Halloween

Because of these reasons, ancillary (niche) markets have begun reaping the benefits of costuming. Now, dressing-up has gone from beyond Oct. 31 to dates throughout the year at comic book conventions, anime expos, etc. and throughout across the United States and beyond.

14001298002_87af605b18_o — anime character at 2012 Anime Expo

The commercialization of Halloween isn’t unique though. In fact, Christmas wasn’t always about retail. An event that might have happened in the Spring over two millennia ago eventually became linked to a 4th-century Greek bishop known for gift giving. This act of gifting, over centuries, became more commercialized. In even in the 1800’s letters were written lamenting that “Christmas wasn’t the same as it used to be.”

We also did it with Valentine’s Day. For better or for worse, the next step might be commercializing Thanksgiving. Then we can have 5 uninterrupted months of “holiday” spending. If I were commissioned to do a marketing/PR campaign to commercialize Thanksgiving, I would investigate the underlying psychology that differentiates Thanksgiving from the other holidays (see the Denise Delahorne quote above). Maybe a little DIY, a little up-cycling/repurposing, gluttonous eating, etc. Then craft an activity/event that addresses these elements. Next craft the marketing communications that implies the psychological elements in the advertising of the product/service I’m selling.

November 2, 2015

Walmart hits the slumps

Walmart lost $21 billion in market value after it forecasts drop in 2017 earnings resulting in the steepest decline of the company’s stock in 25 years.

In layman’s terms: Because Walmart said it’s expecting to earn less in 2017, lots of their shareholders sold their stock and lots of potential buyers said they weren’t willing to buy unless the asking stock price is lower.

Why

Amazon.

Amazon is crushing pretty much every retailer (except some custom designers; however with Amazon Local they are partnering with may of those product/service providers). Amazon sells practically everything you can put in a box and ship. At extremely competitive prices. Free overnight/2-day shipping in some cases.

Walmart offers very very competitive prices and has locations pretty much anywhere in the US. However, they are still a brick and mortar business so there is a limitation on floor space thus a limitation on product offerings. I say brick and mortar instead of ‘click and mortar’ because even though they have an online store, it sucks. Last year, I purchased a product online and selected in-store pick-up. 5 days later it was available for pick-up at he Walmart that is down the street from my office. Walmart’s supply chain management system is one of the best in the world. However, somewhere down the road there was an implementation issue of the online business with the existing business.

Walmart’s situation has similar elements to that of Blockbuster. They have a size and first mover advantage. However, over time they lost their position. I doubt Walmart will face the same fate as Blockbuster but with a $21 billion dollar loss, it is not nothing. You can read about Netflix/Blockbuster here.

2. Other competitors

Dollar stores: Walmart is known for low prices but no one goes lower than dollar stores. Furthermore with the long-going Great Recession and great income disparity dollar stores enjoyed great profitability.
Grocery stores: Walmart has Neighborhood Market stores in some markets and super stores (all encompassing stores) in other markets. Nonetheless, companies that are just grocery stores are a big and aggressive competitor to Walmart.

Other Factors

Walmart is also facing PR issues: 1) It is considered low-class. There is a search term “people of Walmart” which shows rather uncouth individuals shopping in Walmart stores. 2) Also, Walmart is criticized for killing off small, independent stores.

Walmart is doing many things to try to turn their path around. We’ll see how effect these efforts are.

October 15, 2015

How Quiksilver (and surf brands in general) can save it/themselves

Last week I highlighted aspects about Quiksilver’s bankruptcy. So this is what Quiksilver and other surf brands do should to save themselves.

Sector downturn

Looks like the other big surf brand, Billabong is also hurting too with diminishing revenues and net losses from 2012 to 2014.

Recently Billabong also sold its other assets: DaKine, Swell.com and Surfstitch to enhance liquidity.

Billabong also thought about selling RVCA but didn’t. I’ll get to that in a bit.

As I discussed in my previous post, Quiksilver bankruptcy is partly due to surfing not being as cool as it used to be.

So what is cool?

If extreme sports was cool in the ’90s and ’00s, extreme athletics is cool now. MMA and CrossFit is cool.

In March 2015 WWE announced a 50/50 joint venture partnership with MMA brand, TapOut. Founded in 1997, the brand had $200 million in revenues in 2010. Later that year the founders sold it to Canadian company Authentic Brands Group LLC for an undisclosed sum.

CrossFit had 8,000 affiliates in October 2013. As of January 2014 the company had 9,000. In May 2014 it hit 10,000 affiliates.

As shown by strategyandanalytics.com’s graph featured in Fast Company’s article, CrossFit’s popularity growth is amazing.

Of course, most people don’t actually want to do WODs and armbars. They only want to dress like they do, much like surfing and snowboarding.

This is why it’s no coincidence that Reebok (doing well financially with 5% growth in 2014 and seven consecutive quarters of growth) has its hand in the UFC and CrossFit.

Under Armour is so popular. Under Armour which also makes products for MMA and CrossFit enthusiasts were named as one of the most valuable American brands by Fashionista and as one of the top 10 MMA brands by FightState.

Heck, even Adidas (Reebok’s parent company) makes judo gis!

But Reebok isn’t a surf brand!! Quiksilver isn’t an MMA/CrossFit brand!!!

So going back to RVCA. RVCA, is a popular surf brand that is also popular amongst the brazilian jiujitsu crowd with its sponsored athletes such as MMA star BJ Penn amongst BJJ stars. RVCA recently did a collaboration gi with uber popular gi brand Shoyoroll. Billabong decided to keep this brand.

As RVCA has shown, it is possible for a surf brand to do a brand extension into other lifestyle activities.

So what should Quiksilver do?

Change their marketing communications. Surf ads right now are blondes in exotic tropical locations. Unfortunately for Quiksilver and other surf brands is that demographics are changing: wealth discrepancy is large also Hispanics and Asians are the fastest-growing minorities in the US. This growing market segment might not have the money or time to travel to exotic destinations nor do they even look like a pro surfer such as Alana Blanchard.

So abandon their existing surf model? No, look at the other elements of surf. The aspects of the lifestyle that are more relatable to this large, young, and growing market segment:

Surf spots: Urban surf spots such as old Huntington Beach (it wasn’t always the gentrified “Surf City USA” it is now), Long Beach, Rockaway Beach NY, San Pedro, etc. Even urban Honolulu can be a little edgy.
Embrace their connections with the skate world.
Athletes: Add famous MMA and/or CrossFit athletes that also surf. Especially with the Reebok-UFC deal, lots of MMA fighters are looking for more sponsorship money. UFC middleweight contender Luke Rockhold surfs in Santa Cruz.
Other lifestyle images: Tattoos and asphalt instead of sunsets and palm trees, turntables instead of ukeleles.
Diversify: Buy or strategic partnership with boxing/muay Thai brand Fairtex/etc. or Brazilian jiujitsu brand Gameness/etc.

We’ll see what the future brings.

October 11, 2015

Quiksilver bankruptcy

In a nutshell

Surfing isn’t seen as cool as it used to be
Recession hurt consumer spending -> moved to fast-fashion retailers such as H&M and Forever 21
Rossignol purchase drained their cash reserves
Continued to expand stores even though market tastes changed

Read the rest of the article here

October 5, 2015

Business terms

A couple weeks ago I sent my business partner in one of my projects a list of indirect competitors. He, a television producer without a business background, replied that they are not competitors. That made me realize that the many terms used in business are very confusing and their subtleties are unclear. So I put together a little glossary of some terms that are often misused/mistaken.

Direct competition vs. Indirect competition: Direct competition is pretty clear but what about indirect competition? For example Netflix’s direct competitor is Hulu. They’re both streaming video platforms. An indirect competitor can be the simple antenna TV or something that can be a technology that is still in R&D. Over the air TV broadcast isn’t necessarily a streaming on-demand platform but it is a substitute video entertainment/content delivery system. So a competitor can be something that is obvious or something that is not so conspicuous.

Industry vs. Market: Industry is what your company is in. It is your competitors, your supply chain, and related companies. They are essentially the parties that sell to the market. The market is your customers. They are the buyers of your product or service. When industry publications write “market size” they are talking about the amount of money that can be made from the customers.

Sector vs. Segment: Sector is a subsection of an industry. The “telecommunications industry” for example is made up of thousands of sectors; the router sector, the ground wire/cable sector, the GPS tech sector, etc. Industry term is only as broad as the scale of your analysis. If you are analyzing just the GPS sector, then you can say “GPS industry” and then breakdown the relevant sectors within that industry. Segment is a subsection of a market. A segment of the “millennial market” is tween girls, etc. (when a segment is referencing a group of people, then it can also be called demographic). A segment of the “restaurant market” is Mediterranean restaurants.

Revenue vs. Profit (income): Revenue is the money that is coming in before costs, expenses, taxes, depreciation, etc. are taken out. Once those pesky things are taken out you have profit. There is gross profit which is revenue – expenses, and and net profit which is revenue – expenses – taxes. Then there is retained earnings, which is another step!

There are many many more (branding, PR, etc.) so if you are unsure, please feel free to ask!

August 17, 2015

Product/Service life cycle

One of the first in a business plan is determining where on the product/service life cycle curve the product sits. It is always helpful in any Industry and Market Analysis to get a macro view of where the product/service is in its life cycle.

What is the product/service life cycle?

It is the birth, growth, progression, and ultimate passing of any product/service. For example, a CD came into the market around the early 90s. This is the birth/introduction stage. It gained popularity and was one of the most preferred data transfer methods until recently. So for the next ten years, it was in the growth and in the early 2010s entered the maturity phase. Now, it is in the decline phase. Microsoft Office is installed online when purchasing a new laptop. No more CDs.

Of course, not all products/services will die out. They may die out eventually but will make one or two more resurgences. Take, for example, baking soda (sodium bicarbonate). The earliest use of naturally forming sodium bicarbonate was used by ancient Egyptians as a component of the paints they used in hieroglyphics. Sodium bicarbonate was also used in the 1800s in commercial fishing to prevent freshly caught fish from spoiling. Baking soda continues its long life cycle in many, many uses, including cleaning, cooking, neutralization of acids and bases, not to mention the elementary school volcano science experiment, and more.

Maybe there will be a new use for CDs that will revive the CD, but without major modification (which will essentially change the actual product and will actually create a new/different product), it will be unlikely. Wherever your product/service is in its life cycle, with enough investigation, a new spin could be created to find a niche demand (market segment).

Launch and Grow Your Business

July 24, 2015

David vs. Goliath the story of Netflix vs. Blockbuster

Over the weekend, I was doing some industry analysis for a client. She had a great idea, and a novel one at that. Well, it turns out that there was one other company in the same niche. A direct competitor…that has the early mover advantage. This reminded me of David vs. Goliath the story of Netflix vs. Blockbuster.

So what do you do when you’re the new kid on the block? Like anything else, with lots of hard work and a great deal of luck. Let’s look at the case of Netflix vs. Blockbuster for guidance.

In 2004, Blockbuster was the proverbial Goliath with about 9,000 stores globally and revenues of over $6 billion. Netflix was David and had started just 7 years prior. Fortunately, it had several things going for them:

1. Hard work

Competitive Advantage – Netflix’s algorithm takes user ratings on movies they rented and then makes recommendations for other films that they might like, including movies that the viewer may have never heard of. This rating-based recommendation is very commonplace now (seen everywhere from Pandora to Amazon), but in 1997, Netflix’s algorithm was a competitive advantage. Viewers get recommendations they really enjoy, customer retention & satisfaction increase, and money comes in.
Constantly Improve – One of Netflix’s criticisms is that DVD delivery is often slow. Creating a logistics and inventory management system that receives orders and quickly sends out products, in addition to receiving returns and repackaging for reshipment, was key to customer retention & satisfaction. Netflix is still staying current by moving from DVDs to streaming VOD.

2. Lots of luck

Competition was Flat-footed – Blockbuster kept the same mentality of a 1985 video rental shop. They held on dearly to their late-fee revenue source, and its high fees and strict enforcement soured customers’ views of the business. The late-80s/early-90s business model put them behind. All they did was immitation. In 2005, they finally did away with late fees. In 2009, they introduced Blockbuster Express, a DVD rental kiosk designed to compete with Redbox. By now, customers are streaming videos and renting DVDs at kiosks, while Blockbuster is trying to offload their many stores.
- Additionally, Blockbuster did not consider the rapidly expanding prevalence of broadband internet in US homes. By 2009, 68.7% of US households had broadband internet. Also, in 2008, the Broadband Data Improvement Act, a bill to improve the quality of federal and state data regarding the availability and quality of broadband services was passed, ushering a digital highway for movie streaming.
Competition Thoughtlessly Expanded – Blockbuster rapidly expanded, adding its 1,200th store by June 1990 and 9,000 stores worldwide by 2004. They wanted to be the biggest. And fast. They filled their stores with not just movies but video games, candies, and other goods. Unfortunately, all these stores require operating expenses. Operating expenses that were greater than the gross profit (i.e., Revenues minus Cost of sales). Also, among many stumbles (which is much too long for this post but I put some references below so you can read to your heart’s content) is they failed to anticipate how media consumption will change. From analog to digital.

Fast forward to today, Netflix has a share price of over $400, revenues of $4.37 billion USD, and over 2,000 full-time employees. Blockbuster is bankrupt. David had defeated Goliath.

However, like most engaging stories, the end is never the end. Dish Network purchased Blockbuster and its remaining 1,700 stores on April 6, 2011 for $233 million and took over Blockbuster’s $87 million in debt and liabilities. Dish now continues to license the brand name to franchise location, and keeps its “Blockbuster on Demand” video streaming service and the “Blockbuster@Home” television package for Dish subscribers. Maybe this strategy to resuscitate a nearly-dead brand sounds foolish. However, so did mailing out DVDs.

For more info:

http://www.referenceforbusiness.com/history2/93/Blockbuster-Inc.html

http://www.ibtimes.com/sad-end-blockbuster-video-onetime-5-billion-company-being-liquidated-competition-online-giants

http://www.fastcompany.com/1690654/blockbuster-bankruptcy-decade-decline

http://www.getfilings.com/o0000930661-02-000951.html

Click to access BBI_10_K.pdf

April 8, 2015

A gadget’s journey

This holiday season little thought goes to the awesome path the various components of electronics takes to make it to the store shelves and under our tree.

From mines, to factories and cargo ships, many gears of the global economy work together to bring us our shiny electronics.

Read the entire here.

Of course not only electronics take this journey. Everything from food to t-shirts make a similar trek before reaching us.

December 10, 2014

Rivalry within an industry

Last time, I discussed one way to analyze uncertainty within an industry. Another way of looking at the uncertainty of an industry is looking at the relative power of suppliers and the threat of new entrants. In the previous example, technological changes and the predictability of purchases were used to gauge uncertainty. If all four are taken together you get famed Harvard Professor Michael Porter’s 5-Forces Analysis.

This framework states that the rivalry, or competitiveness within an industry is based on 4 external factors that combine to make a 5th element, the rivalry within an industry. The 4 factors are:

The Bargaining Power of Suppliers
- This is the power suppliers have over purchasers in an industry. For example, saccharin (or cane sugar) suppliers over Coca-Cola.
Threat of Substitutes
- This is what can be substituted for Coke. Pepsi comes to mind. Also, this goes back to the previous article. Are new technologies begin developed? Instead of cola, will there be a new way to ingest beverages
Bargaining Power of Buyers
- This goes back to the previous article about industry uncertainty. Do the buyers have to have Coca-Cola? Things like electricity and food are higher up on the hierarchy of needs. Also, are the buyers unable to form a coop to purchase things in bulk?
Threat of New Entrants
- New cola brands are coming in to challenge the old guard. The more this happens, the more uncertainty there might be in an industry.

These factors , can be ranked low, medium, high (or even 1-5) to give the relative rivalry within an industry. Now, there is no uniform standard stating that the threat of substitutes in the semi-conductor industry is low, but rather a general consensus of industry analysts will say that there are few viable substitutes to the silicon semi-conductors we most frequently see in today’s electronics. Maybe in the future, we will we graphene based semi-conductors. When they come, then the rivalry will go up.

October 19, 2014

How to gauge uncertainty within an industry

One way as shown in Harvard Business Review is measuring demand uncertainty vs. technological uncertainty. There are others, such as low barriers to entry (i.e. competitive climate) and bargaining power of suppliers, but that is for another discussion.

When there is uncertain demand, your revenue stream becomes jeopardized. For example, you know people have to eat everyday, so the demand uncertainty of a restaurant is relatively low compared to that of construction. New construction is highly dependent on whether the overall economy is doing well or not. So does eating out at restaurants, but a burger costs less than a building. Remember, this is all relative.

Technological uncertainty, can be described as the rate in which the technological landscaping is changing. For example, will new inventions come along to disrupt existing methods? Are new materials being developed? Going back to the restaurant and construction example, the technology of a restaurant (e.g. grills, spatulas, etc.) have been relatively consistent compared to that of new construction materials and architectural structures.

In the end, one ways to gauge the uncertainty of your industry is looking at how stable demand is and how stable the technological climate of your product/service is.

Here is a comparison of various industries plotted by their relative uncertainty.

October 7, 2014

Category: industry and markets