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A great episode from a great podcast

Peloton - Your Startup Guru

NPR’s How I Built This is a fantastic podcast that brings the stories behind some of the world’s best-known companies. How I Built This interviews innovators, entrepreneurs and idealists about the movements they built.

Peloton co-founder:  John Foley

In this episode, they interview John Foley, one of the co-founders of Peloton; the fitness and media company that you’ve probably seen commercials for.

In the interview, they greatly undervalued John Foley’s network and experience but nonetheless, this episode touched on several relevant topics my clients often face.  I picked this episode because it was a little more in-depth and enlightening than other episodes in that Foley he talks about:

  • having the discussion with this wife about moving in with her parents if the company fails,
  • how everyone is similarly able including Harvard MBAs,
  • the CEO being the janitor when starting out; something I discussed in a previous post about bootstrapping
  • how VCs are not very adventurous,
  • how Peloton is only recently profitable after 7 years

There are also great questions asked by interviewer that touches on market trends such as arcades no longer thriving due to user experience-to-price dynamics (i.e. video game consoles vs arcades due to quality of experience), penetration/awareness strategy which led to their distribution model given that malls are making an industry correction, and lastly the trademark question: “How much of this was because of your intelligence and hard work, and how much of this was just luck?”

FYI, I always discuss market and industry trends, launch and penetration strategy, as well as bootstrapping in all my business plans.

The entire podcast can be heard here

Market Adjustment in the Retail Space

According to a new Credit Suisse report, up to 25% of U.S. shopping malls may close in the next five years signaling a retail space market adjustment.

Market adjustment in the retail space leading to the closure of the New South China Mall

What are the reasons for the market adjustments in the retail space?  Of course, Amazon and online shopping are the most glaring causes.  However, another factor is mall overexpansion.  Currently, there are around 1,200 malls in the US.  Between 1970 and 2015, the number of malls grew more than twice as fast as the population.  That number is predicted to decline to 900 within the next ten years.

Brick-and-mortar retail stores will never completely disappear because of the needs listed above and because humans are social by nature; only the type and make-up of retail stores will change.  Pop-up stores (a strategy utilized with great effect by Halloween stores) will likely become more common.

Market adjustment in the retail space could impact iconic brands such as Macy's

Another consideration

The market adjustment may result in the closure of 300 malls over the next decade. What to do with the vacant buildings?  There is a lot of space that could be used for other purposes.  Maybe mall owners will lower their rental rates to continue use .  In some areas of Manhattan, retail rents have declined 10-15%.

More housing? Closures from major chains like Macy’s and J.C. Penney are pouring up to 37 million square feet of space back into the market.  That could reduce some housing costs however more expensive housing markets generally have greater discretionary spending. The discretionary funds are often used for shopping.  Also, the time and cost to demolish existing structures, rezone, and rebuilding them into residential properties along with their infrastructural linkages are not insignificant.

Some mall owners have indicated that vacant properties will be renovated and updated to attract new tenants and raise rental rates.

Market adjustments in the retail space requires new ideas to adapt to changes

What to do?

Who knows what the future will bring but keep in mind that juggernauts like Walmart, Macy’s, and Sears are affected, so starting a service or online store that doesn’t compete with what Amazon sells is a safer option.  Branding your own product (e.g., Bonobo, Dollar Shave Club), and controlling your own distribution is another option.  B2B businesses are insulated from mall closures as no one buys industrial components at malls.

Services such as dentistry, restaurants, car mechanics, and large difficult-to-ship products such as mattresses, etc. will remain (so far) an insulated industry.

Analyses such as what is shown above are a small and cursory part of the industry/market analysis and strategy consulting services provided to clients.

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