Electric Cars are Not a Fad, and They Matter

Electric Cars are Not a Fad, and They Matter

As the pandemic dropped on the USA with full force mid-April the price of oil dropped to less than $0. OK, it was something of a fluke. Demand dropped so fast that supply couldn’t fall fast enough, so oil was flowing into refineries and tanks and pipelines so fast that nobody knew where to put it – and that resulted in suppliers having to pay someone to take their oil.

But… the point was very real. Oil prices depend on demand – every bit as much as supply. Even though for a generation we’ve taken growing oil demand for granted, and focused on how to create additional supply, it is a fact that NOW declining demand will limit the value of oil and gas (which is, after all, a commodity.) The TREND has changed course, with demand in the USA barely, or not, growing – and globally demand growth primarily all in Asia (mostly China.) Overall, supply growth has beaten demand growth by a wide margin, and prices are not only low now – they will likely go lower. Even oil company CEOs are predicting US production will decline – but to lower demand

In 2015, I predicted that Tesla could put a big hurt on Exxon. Most people thought that was a joke. Tesla was a fraction the size of GM, and “small potatoes” in the car industry. Meanwhile Exxon was one of the world’s largest oil producers and refiners. That really would be a very small David smacking a very big Goliath – and with a very small rock. But what I pointed out in 2015 was that traditional analysts predicted a very gradual growth in electric cars, and a continued growth in petroleum powered cars, and pretty much constant growth in oil & gas consumption with economic growth. In other words,analysts were using old assumptions all around and expecting only a tiny impact from a few weirdos buying electric cars.

But I asked, what if those assumptions were wrong? In 2015, the world was awash in oil, inventories were then at record levels, and electric car sales were taking off. And the truth was, a lot was happening to reduce demand for oil. Renewable energy programs, conservation, and a change in economic activity from basic manufacturing and commodity processing to a knowledge economy. These trends were all putting big dampers on oil demand. And electric auto sales were poised for a big boom. I predicted demand for oil would drop substantially, inventories would skyrocket and industry problems would worsen as prices cratered.

Uh-hum – what was the price of oil in April?

In 2009, I made the case that electric cars were a small base, but that geometric demand growth would make them an important economic impact . Today, most Americans still think that’s the case. In 2009 less than 100,000 new cars were electric. But by 2015, over 1 million electric cars had been sold. Then, with the help of game changers like the Tesla Model 3 in 2019 sales exceeded 7 million! A 7-fold increase in 5 years, or nearly 50%/year market growth!!Global stock of electric passenger cars

Americans aren’t aware of this phenomenon largely because the big growth centers are outside the USA. Where electrics are ~2% of US car sales, in some European countries they are well over 10% of the market. Even in China they represent over 5% of sales!Global stock of EV by region

Remember what I said above about demand growth depending on China? Look again at who’s buying the most electric cars.

Lessons:
1 – Never think your product is beyond attack by market forces. Be paranoid.
2 – Very small, fringe competition can sneak up and steal your market faster than you think.
3 – Fringe changers don’t have to take a huge market share to make a BIG impact on your market and pricing.
4 – Disruptive events favor the upstarts, who are on trend, and hurt big incumbents, who depend on “business as usual.”
5 – Don’t expect markets to “return to normal.” Markets always move forward, with trends.
6 – Don’t plan from the past, plan for the future – and pay attention to disruptions, they can break you.

TRENDS MATTER. If you align with trends your business can do GREAT! Are you aligned with trends? What are the threats and opportunities in your strategy and markets? Do you need an outsider to assess what you don’t know you don’t know? You’ll be surprised how valuable an inexpensive assessment can be for your future business (https://adamhartung.com/assessments/)

Give us a call or send an email.  Adam @Sparkpartners.com

Ignominious Ends- Sears and Malls

Ignominious Ends- Sears and Malls

TRENDS: Covid-19 has accelerated a lot of trends. Few more than retail. Oddly some people have taken the view that Covid-19 changed retail. Actually, it didn’t. The pandemic has merely accelerated trends that have been driving industry change for almost two decades.

Back in 2004, Eddie Lampert bought all the bonds of defunct Kmart and used those assets to do a merger with Sears – creating Sears Holdings that encompassed both brands. The day of announcement Chicago Tribune asked for my opinion, and famously I predicted the merger would be a disaster.  Clearly both Kmart and Sears were far, far off trends in retail, both were already struggling – and neither had a clue about emerging e-commerce.

Why in 2004 would I predict Sears would fail? The #1 trend in retail was e-commerce, which was all about individualized customer experience, problem solving for customer needs — and only, finally fulfillment. By increasing “scale” – primarily owning a lot more real estate – this new organization would NOT be more competitive. Walmart was already falling behind the growth curve, and everyone in retail was ignoring the elephant in the room – Amazon.com. Loading up on a lot more real estate, more inventory, more employees, more supplier relationships and more community commitments – old ideas about how to succeed related to fulfillment – would hurt more than help. Retail was an industry in transition. All of these factors were boat anchors on future success, which relied on aggressively moving to greater internet use.

Unfortunately, Eddie Lampert as CEO was like most CEOs. He thought success would come from doing more of what worked in the past. Be better, faster, cheaper at what you used to do. In 2011 Sears asked its HQ town (Hoffman Estates) and the state (Illinois) for tax subsidies to keep the HQ there. Sears had built what was once the world’s once tallest building, named the Sears Tower. But many years earlier Sears left, the building was renamed, and Sears was becoming a ghost of itself. I pleaded with government officials to “let Sears go” since the money would be wasted. And it was clear by 2016, that Lampert and his team’s bias toward old retail approaches had only served to hurt Sears more and guarantee its failure. Now – in 2020 – Hoffman Estates has taken the embarrassing act of removing the Sears name from the town’s arena,  admitting Sears is washed up.

****

It was with a multi-year observation of trends that I told people in 2/2017 that retail real estate values would crumble . Now mall vacancies are at an 8 year high and 50% of mall department stores will permanently close within a year. We are “over-stored” and nothing will change the fast decline in retail real estate values. Who knows what will happen to all this empty space?

Trends led me in March 2017 to advise investors they should own NO traditional retail equities. Shortly after Sears filed bankruptcy Radio Shack and storied ToysRUs followed. And with the pandemic acting as gasoline fueling change, we’ve now seen the bankruptcies of Neiman Marcus, JCPenney, J Crew, Forever 21, GNC and Chuck e Cheese (but, really, weren’t you a bit surprised the last one was still even in business?) After 3 years of pre-Covid store closings, Industry pundits are finally predicting “record numbers of store closings”. And, after 15 years of predictions, I’m being asked by radio hosts to explain the impact of widespread failures of both local and national retailers ( ).view of a closed mallIgnominious ends are abounding in retail. But – it was all very predictable. The trends were obvious years ago. If you were smart, you moved early to avoid asset traps as valuations declined. You also moved early to get on the bandwagon of trend leaders – like Amazon.com – so you too could succeed.

As we move forward, what will happen to your business? Will you build on trends to create a new future where growth abounds? Will you align your strategy with the future so you “skate to where the puck will be?” Or will you – like Sears and so many others – find an ignominious end to your organization? Will the signs change, or will the signs come down? The trends have never been stronger, the markets have never moved faster and the rewards have never been greater. It’s time to plan for the future, and build your strategy on trends (not what worked in the past.)

But don’t lose sight of the lesson. TRENDS MATTER. If you align with trends your business can do GREAT! Like Facebook. But if you don’t pay attention, and you miss a big trend (like demographic inclusion) the pain the market can inflict can be HUGE and FAST. Like Facebook. Are you aligned with trends? What are the threats and opportunities in your strategy and markets? Do you need an outsider to assess what you don’t know you don’t know? You’ll be surprised how valuable an inexpensive assessment can be for your future business (https://adamhartung.com/assessments/)

Give us a call or send an email.  Adam @Sparkpartners.com

Microsoft:  Value Creation Is About New Markets and Growth – Not Defending Your Base

Microsoft: Value Creation Is About New Markets and Growth – Not Defending Your Base

People who follow my speaking and writing – including my over 400 Forbes columns – know that I preach the importance of growth. Successful organizations are agile – and agility is the sum of learning + adaptability. Smart organizations are constantly looking externally, gathering data, learning about markets and shifts – then structured to adopt those learnings into their business model and adapt the organization to new market needs.

Steve Ballmer was the antithesis of agility. For his entire career he knew only that Microsoft stock price post BallmerWindows and Office made all the money at Microsoft. So he kept investing in Windows and Office. He failed at everything else. False starts in phones, tablets, gaming – products came and went like ice cream cones on a hot August day. Ballmer laughed at the very notion of the iPhone ever being successful – while simultaneously throwing away $7.2B buying Nokia. Then there was $8.5B buying Skype. $400M buying the Borders Nook. Those were ridiculous acquisitions that just wasted shareholder money. To Ballmer, Microsoft’s future relied on maintaining Windows and Office.

So as the market went mobile, Ballmer kept over-investing. He spent billions launching Windows 8, which I predicted was obviously going to fail at growing the Windows market as early as 2012. And it was easy to predict that Win8 tablets were going to be a bust when launched in 2012 as well. But Ballmer was “all-in” on Windows and Office. He was completely locked-in, and unwilling to even consider any data indicating that the PC market was dying – effectively driving Microsoft over a cliff.

It was not hard to identify Steve Ballmer as the worst CEO in America in 2012. When Ballmer took over Microsoft it was worth $60/share. He drove that value down to $20. And the company valuation was almost unchanged his entire 14 years as CEO. He remained locked-in to trying to Defend & Extend PC sales, and it did Microsoft no good. But when the Board replaced Ballmer with Nadella the company moved quickly into growth in gaming, and especially cloud services. In just 6 years Nadella has improved the company’s value by 400%!!!

Success is NOT about defending the past. Success IS about growth. Don’t be locked in to what worked before. Focus on what markets want and need – learn how to understand these needs – and then adapt to giving customers new solutions. Don’t make the mistakes of Ballmer – be a Nadella to lead your organization into growth opportunities!

Do You Grow with Market Shifts – or Slowly Lose Relevancy?  The Advertising Story

Do You Grow with Market Shifts – or Slowly Lose Relevancy? The Advertising Story

In 2020, internet ads will represent over 50% of all advertising money spent. Think about that factoid. An ad medium that wasn’t even important to the ad industry a decade ago now accounts for half of the industry. It took three years after the Dot Com bubble burst for internet advertising to hit bottom, but then it took off and hasn’t stopped growing.

An example of rapid, disruptive change. A market shift of tremendous proportions that has forever changed the media industry, and how we all consume both entertainment and news. Did you prepare for this shift? And is it helping you sell more stuff and make more money?

This was easy to predict. Seven years ago (12/10/12), I wrote “The Day TV Died.” The trend was unmistakable – eyeballs were going to the internet. And as eyeballs went digital, so did ads. These new, low cost ads were “democratizing” brand creation and allowing smaller companies to go direct to consumers with products and solutions like never before in history. It was ushering in a “golden age” for small businesses that took advantage.

However, small businesses – and large businesses – largely failed to adjust to these trends effectively. By 3/21/13 I pointed out in “Small Business Leaders Missing Digital/Mobile Revolution” that small businesses were continuing to rely on the least economical forms of media outreach – direct mail and print! They were biased toward what they knew how to do, and old metrics for media, instead of seizing the opportunity. Likewise, by 12/11/14 in “TV is Dying Yet Marketers Overspend on TV” I was able to demonstrate that the only thing keeping TV alive were ad price increases so big they made up for declining audiences. The leaders of big companies were biased toward the TV they knew, instead of the better performing and lower cost new internet media capabilities.

Three years ago (1/6/17), I pointed out in “Four Trends That Will Forever Change Media… and You” it was obvious that digital social media advertising was making a huge impact on everyone. Fast shifting eyeballs were being tracked by new technology, so ads were being purchased by robots to catch those eyeballs – and this meant fake news would be rampant as media sites sought eyeballs by any means. And Netflix was well on its way to becoming the Amazon of media with its own programs and competitive lead.

So the point? It was predictable all the way back in 2012 that digital media would soon dominate. This would change advertising, distribution and content. Now digital advertising is bigger than all other advertising COMBINED. Those who acted early would get a huge benefit (think Facebook/Instagram Path to Media Domination) while those who didn’t react would feel a huge hurt (newspapers, radio, broadcast TV, brick and mortar retail, large consumer goods companies that rely on high priced TV.) But did you take action? Did you take advantage of these trends to make your business bigger, stronger, more profitable, more relevant? Or are you still reacting to the market, struggling to understand changes and how they will impact your business?

The world continues to be a fast changing place. Mobile phones and social media will not go away – no matter what Congress, the UN or the EU regulators do. Global competition will grow, regardless what politicians say. Those who understand how these big trends create opportunities will find themselves more successful. Those who focus on the past, try to execute better with their old “core,” and rely on historical biases will find themselves slowly made irrelevant by those who use new technologies and solutions to offer customers greater need satisfaction. Which will you be? A laggard? Or a leader? Will you build on trends to grow – or slump off into obsolescence? The choice is yours.

Mighty Oaks from Tiny Acorns Grow – Beyond Meat

Mighty Oaks from Tiny Acorns Grow – Beyond Meat

The newsletters of Adam Hartung.
Keynote Speaker, Managing Partner, Author on Trends
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Mighty Oaks from Tiny Acorns Grow – Beyond Meat

TREND: Beyond Meat (BYND, NASDAQ)

A big, new trend is emerging. Sales of plant based protein products may be small, but growth is remarkable. Could Beyond Meat be the next Netflix?

BEYOND MEAT plant based patties

In Q3 2019, Beyond Meat’s revenue is up 2.5x (250%) vs Q3 2018 — which was up 2.5x (250%) over Q3 2017. Yes, you can say this growth is on a small base, given that last quarter was $100M revenue.

Imagine what it’s like growing that fast. Imagine the exhilaration of solving problems – like funding your accounts receivable that’s growing with accelerating orders. Or amping up production faster than ever imagined. Or meeting needs of your customers, retailers and restaurants. Or paying out big bonuses due to beating all your planned metrics.

It’s not that much fun to work at Cargill. Or Tyson Foods. Or Smithfield. Or any other traditional company producing beef, or pork, or chicken. Those are huge companies, with lots of people. But they aren’t maxing out sales and profits – and bonuses – like Beyond Meat.

It’s easy to ignore a start up. But one has to look at the relative growth of a company to judge its future. There were cracks in the growth rate at Blockbuster 6 years before it failed. And during that time, Blockbuster kept saying Netflix was a nit that didn’t matter. But Netflix was growing like the proverbial weed. Netflix wasn’t even half the size of Blockbuster when Blockbuster filed for bankruptcy.

A Threat Enters

With growth like Beyond Meat it didn’t take long to upset an entire industry biz model. Amazon still doesn’t sell as much as WalMart, but it wiped out a significant number of retailers by changing volumes enough to erase their profits. Think about the changes wrought on the advertising industry by Google, which has pretty much killed print ads. Look at what’s happened to other media ad models, like TV and radio, by Facebook’s growth. And entertainment has been entirely changed – where today the onetime distributor is one of the biggest content producers – Netflix.

In traditional marketing theory, Beyond Meat, like Netflix, is selling new products to existing markets.

Most disruptors enter the markets in the new product/new market quadrant of the Ansoff matrix. They create the new market just by entering. If they even see them as competitors, established businesses dismiss these potential disruptors because of established focus on current markets/current products with sustaining innovations. Selling new products to existing customers is the first step companies take as they start to innovate.

Kraft was on this path when they acquired a new productc with its purchase of Boca Burger in 2000.  Kellogg’s and General Foods jumped into the alternative meat products at about the same time.  Vegetarian burger substitutes threatened the success formula of meat products and were relegated to niche products. In 2018, Kraft’s incubator tried to relaunch Boca, but the smaller, more nimble start-ups had already captured consumers’ attention and reframed the market.

The Acorn Sprouts

Beyond Meat had morphed quickly into a direct competitor to the meat industry by selling this new product to existing meat customers!

Riding the trends of climate change, sustainability and organic foods, Beyond Meat is starting to look like a true game changer. It may be small, but those other companies were too (along with Tesla, don’t forget, considered immaterial by GM, et.al.) Those who are in the traditional protein market (beef especially) had better pay attention – their profit model is already under attack!!

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“The creation of a thousand forests is in one acorn.”

Ralph Waldo Emerson

What’s on your company’s radar today?

Spark Partners is here to help as your coach on trends and innovation. We bring years of experience studying trends, organizations, and how to implement. We bring nimbleness to your strategy, and help you maximize your ability to execute.

Let us do an opportunity assessment for your organization. For less than your annual gym cost, or auto insurance premium, we could likely identify some good opportunities your blinders are hiding. Read my Assessment Page to learn more.

How we can help
For more on how to include trends in your planning, I’ve created a “how-to” that you can adapt for your team.  See my Status Quo Risk Management Playbook.
Give us a call today, or send an email, so we can talk about how you can be a leader, rather than follower.  Or check out the rest of the website to read up on what we do so we can create the right level of engagement for you.
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Find Opportunities Out of the Box

Find Opportunities Out of the Box

Find Opportunities Out of the Box

If your company is like most businesses, your list of new product or service ideas looks like a sales wish list- new features at a lower cost. Marketing or product management may go a step further and group the ideas into product line extensions or possibly entries into new market segments. Unfortunately, while generating revenue in the short run, this process leaves the company vulnerable to competition and missing opportunities in the long run.

Well, you are not alone. Since about 2012, the pace of innovation has slowed even in the popular market of social media. According to KeyMedia, “What was once a world of diversity and originality has slowly started to look like a bad case of déjà vu… (as platforms are) becoming more similar to each other…”

Most companies devote resources to a quadrant on the innovation matrix known as “sustaining innovation.” They improve existing products sold to existing customers. It’s low risk, true, but it’s also low return. Why do companies follow this death spiral? It’s because “innovation” has gotten a bad reputation.

According to Inc. magazine, “…many (business) people have come to equate the idea of innovation with disruptive innovation. But the fact is that for most businesses, placing big bets on high-risk ideas is not only unfeasible, it’s unwise.”

The Ansoff matrix of new and existing markets and products is usually interpreted as 4 quadrants. It is much more than that: it is a continuum between sustaining and disruptive innovation. .

Adam Hartung often tells clients, “Get out of the box, then think!” This applies directly to the Ansoff model. Once a company sees the matrix, not as fixed “boxes” but as a spectrum of opportunities, markets are viewed not as filled with risk, but filled with opportunities!

Consider Ricoh’s new “clickable paper” that combines the print channel, with an app and that integrates to social media or a website. Not disruptive in the classical sense, but an adjacent product and adjacent market segment that makes print relevant to tech savvy consumers. Or Dr. Dre’s Beats headphones that combine pre-equalized sound with noise cancellation and style- a clever and highly successful blend of existing technologies, vigorously marketed.

Uncovering these market opportunities that can deliver improved returns at a manageable risk for the firm. New products will also generate an increasing percentage of revenue leading to continued growth. Companies that master this process have a long range radar to identify potential opportunities in a process called, “continuous innovation”.

What’s on your company’s radar today?

We are here to help as your coach on trends and innovation. We bring years of experience studying trends, organizations, and how to implement. We bring nimbleness to your strategy, and help you maximize your ability to execute.

Go the website and view the Assessment Page. Send me a reply to this email, or call me today, and let’s start talking about what trends will impact your organization and what you’ll need to do to pivot toward greater success.

United Airlines – How Bad Strategy Created a Culture That Kills Puppies

United Airlines – How Bad Strategy Created a Culture That Kills Puppies

Do you remember the songs, and videos, from 2008 “United Breaks Guitars?” After United Airlines destroyed musician Dave Carroll’s guitar he chronicled the months-long journey he took trying to replace it. In the end, United told him “F**k you” as customer service blew him off completely. He went on to make a few million dollars with his songs and parody about the horrible experience. Because so many people felt they were abused like Mr. Carroll.

“United Breaks Guitars” was a hit because so many people related to the terrible customer experience on United. book united breaks guitars “The Unfriendly Skies” was the motto of customers, mocking the airlines “Friendly Skies” ads. It was clear that by 2008 United did not care about customers. Moving headlong to constantly lower operating costs, United built a culture that focused solely on efficiency, leading to terrible customer service, unhappy customers and employees that were a lot more worried about being yelled at by their bosses for not cutting costs than creating any customer satisfaction.

Things certainly haven’t changed. In 2017, United ejected a 69 year old physician from a plane, breaking his nose, knocking out his teeth and giving him a concussion. That created an uproar. Yet within a week United killed the world’s largest bunny rabbit in an airplane holding bin. But, even worse, last week United actually killed a puppy by forcing it be placed in an overhead bin. At least the dog United sent on a 1,000 mile unexpected flight to Japan survived, and the interviewed owner said he felt lucky the airline hadn’t killed his pet. Of course United refunded their money – which as you can imagine was a slap in the face to all these people who were so abused.

Unfortunately, United is just the worst of a bunch of bad airlines. Customer service really isn’t any better on Delta, American, JetBlue or Southwest. Saying these other airlines are better is just picking out a less heinous member of the Khmer Rouge Army.

STRATEGY MATTERS

This all goes back to deregulation. When President Carter allowed the airlines to charge as they like the industry really had no idea what it was going to do. There was chaos for years. But eventually consolidation kicked-in, and cutting cost was the only thing all 3 majors agreed upon. Buy more market share, as opposed to winning it with customer service, then slash the costs. This did the wonderfulness of leading all of them to file bankruptcy! Some twice! What a grand industry strategy!

eaten green olivesThen Chairman of American Airlines received Wall Street Journal front-page coverage for realizing people weren’t eating their olives in first class, so he ordered olives removed from the first class meals. He was cheered for saving $100K. But what folks missed was that he, and his peers leading the airlines, were systematically trying to figure out “how do we offer the least possible service.” By focusing on a strategy of lowering cost, and being doggedly determined in that strategy, soon nothing else mattered.

Today, there are no free meals in coach, and terrible meals in first class. Management angered employees into strikes and multi-year negotiations, beating down compensation and eliminating benefits leading to unhappiness so bad that in 2010 a Jet Blue flight attendant pulled the emergency exit and jumped out of the plane as he quit.

So, all the airlines in America stink. And, many domestic airlines in Europe, such as Ryan Air, have followed suit. The execs keep saying “all customers care about is price.” They use that excuse to create a culture so hostile to employees, and customers, that pretty soon employees are beating up customers and killing family pets (after charging extra to take the pet on the plane) and actually not caring.

Employees have become gestapos for the leadership – which has created a culture in which nobody wins. So flight attendants do as little as possible, because they don’t care about customers any more than leadership does. In 2017, a JetBlue attendant threw a family off flight because their toddler kicked the seat. When a woman complains about a child in seat next to her a Delta attendant throws her off the plane. And just last week when a 2 year old cries during boarding a Southwest attendant throws the child and her father off the plane.

Deregulation led to an oligopoly. Now, customers have no choice. Some of us fly almost every week on business, and it is pure hell. Nobody we deal with, from TSA to airport vendors to airline staff like customers. The culture has become “I’m abused, so you will be abused.” To fly is to succumb to being obsequious to ALL employees in your effort to not anger anyone, for fear they will deny you service. Or, worse, beat you up or kill your pet. But, honestly, there is nothing customers can do about it.

STRATEGY MATTERS

The leadership of the airlines, lacking regulation, implemented a strategy of “be low cost.” The result was creating a culture where employees routinely abuse customers in the process of trying to save a few dimes. If the next Mark Zuckerberg, Elon Musk or Reed Hastings showed up, do you think HR would hire them? Would the Board of Directors, so focused on the wrong strategy, consider any of them as CEO? The wrong strategy has led to the ruination of an entire industry, miserable employees, unhappy customers and marginal returns. It is a terrible culture.

So what is your strategy? Is your strategy creating the culture you want? Are you headed toward happy customers who want more of your product or service, and create growth? Or are you letting your lack of a forward-thinking strategy default you into operational cost cutting, and the movement toward a culture of misery that drives away employees, vendors and eventually customers?

Warren Buffett Is Loading Up On Apple – Why You Should be Wary

Warren Buffett Is Loading Up On Apple – Why You Should be Wary

In February, Berkshire Hathaway revealed it had dumped its IBM position. Good riddance to a stock that has gone down for 5 years while the S&P went up! What did Buffett do with the money? He loaded up on Apple – making that high-flyer Berkshire’s #1 holding. So, isn’t the smart thing now to buy Apple?

First, don’t confuse your investing goals with Berkshire Hathaway’s. It may seem that everyone has the same objective, to buy stocks that go up. But Berkshire is a very special case. As I pointed out in 2014, we mere mortals can’t invest like Buffett, and shouldn’t try. Berkshire Hathaway has the opportunity to make investments in special situations with tremendous return potential that we don’t have. Berkshire’s investment strategy is to invest where it can create cash to prepare for special situations, or to park money where it can make a decent return, and hopefully generate cash while it waits.

Apple is the #1 most cash-rich company on the planet, and with the new tax laws it can repatriate that cash. This is an opportunity for a “special dividend” to investors, and that is the kind of thing that Buffett loves. He isn’t a venture capitalist looking for a 10x price appreciation. He wants a decent 5% rate of return, and hopefully dividends, so he can grow cash for his special situation opportunities. Apple, the most valuable company on any exchange, is exactly the kind of company where he can place a few billion dollars without driving up the price and let it sit making a solid 5-6%, collect dividends and maybe get a few kickers from things like the cash repatriation.

Second, let’s not forget that Buffett’s IBM buying spree lost money. If he was a great tech investor, he never would have bought IBM. He bought it for the same reason he’s buying Apple, only he was wrong about what was going to happen to IBM as it continued to lose relevancy.

I pointed out in May, 2016 that Apple was showing us all a lot of sustaining innovations, with new rev levels of existing products, but almost no new disruptive innovations. The company that once gave us iPods, iTunes, iPhones and iPads was increasingly relying on the next version of everything to drive sales. Lots of incremental improvement. But little discussion about any breakthrough products, like iBeacon, ApplePay or even the Apple Watch. In a real way, Apple was looking a lot more like the old Microsoft with its Windows and Office fascination than the old Apple.

By October, 2016 Apple hit a Growth Stall. While this may have seemed like “no big deal,” recall that only 7% of the time do companies maintain a 2% growth rate after stalling. Is Apple going to be in that 7%? With the launch of the less-than-overwhelming iPhone X, and the actual drop in iPhone sales in Q4, 2017 it looks increasingly like Apple is on the same road as all other stalled companies.

In the short term Apple has said it is milking its installed base. By constantly bringing out new apps it has raised iTunes sales to over $30B/quarter. And it has a dedicated cadre of developers making over $25B/year creating new apps. So Apple is doing its best to get as much revenue out of that installed base of iPhones as it can, even if device sales slow (or decline.) For Buffett, this is no big deal. After all, he’s parking cash and hoping to get dividends. Milking the base is a cash generation strategy he would love – like a railroad, or Coca-Cola.

But if you’re interested in maintaining high returns in your portfolio, be aware of what’s happening. Apple is changing. It’s not going to falter and fail any time soon. But don’t be lulled by Berkshire’s big purchases into thinking Apple in 2018 is anything like it was in 2012 – or through 2014. Instead, keep your eyes on game changers like Netflix, Tesla and Amazon.

Walmart’s Surprising Tumble – Analysts Never Learn, Will You?

Walmart’s Surprising Tumble – Analysts Never Learn, Will You?

On February 20, 2018 Walmart’s stock had its biggest price drop ever. And the second biggest percentage decline ever. Even though same store sales improved, investors sold off the stock in droves. And after a pretty healthy recent valuation run-up.

What happened? Simply put, Walmart said its on-line sales slowed and its cost of operations rose, slowing growth and cramping margins. In other words, even though it bought Jet.com Walmart is still a long, long way from coming close to matching the customer relationship and growth of Amazon.com. And (surprise, surprise) margins in on-line aren’t an easy thing — as Amazon’s thin margins for 15 years have demonstrated.

In other words, this was completely to be expected. Walmart is a behemoth with no adaptability. For decades the company has been focused on how to operate its warehouses and stores, and beat up its suppliers. Management had to be drug, kicking and screaming, into e-commerce. And failing regularly it finally made an acquisition. But to think that Jet.com was going to change WalMart’s business model into a growing, high profit operation any time soon was foolish. Management still wants people in the store, first and foremost, and really doesn’t understand how to do anything else.

All the way back in 2005, I wrote that Walmart was too big to learn, and was unwilling to create white space teams to really explore growing e-commerce (hence the belated Jet-com acquisition.) In 2007, I wrote that calling Walmart a “mature” competitor with huge advantages was the wrong way to view the company already under attack by all the e-commerce players. In July, 2015 Amazon’s market cap exceeded Walmart’s, showing the importance of retail transformation on investor expectations. By February, 2016 there were 10 telltale signs Walmart was in big trouble by a changing retail market. And by October, 2017 it was clear the Waltons were cashing out of Walmart, questioning why any investor should remain holding the stock.

It really is possible to watch trends and predict future markets. And that can lead to good predictions about the fates of companies. The signs were all there that Walmart shouldn’t be going up in value. Hope had too many investors thinking that Walmart was too big to stumble – or fail. But hope is not how you should invest. Not for your portfolio, and not for your business. Walmart should have dedicated huge sums to e-commerce 15 years ago, now it is playing catch up with Amazon.com, and that’s a race it simply won’t win. Are you making the right investment decisions for your business early enough? Or will you stumble like Walmart?

Retail Transformation Continues and Will Impact Your Portfolio

Retail Transformation Continues and Will Impact Your Portfolio

Business Insider is projecting a “tsunami” of retail store closings in 2018 — 12,000 (up from 9,000 in 2017.) Also, the expect several more retailers will file bankruptcy, including Sears.

Duh. Nothing surprising about those projections. In mid-2016, Wharton Radio interviewed me about Sears, and I made sure everyone clearly understood I expect it to fail. Soon. In December, 2016 I overviewed Sears’ demise, predicted its inevitable failure, and warned everyone that all traditional retail was going to get a lot smaller. I again recommended dis-investing your portfolio of retail. By March, 2017 the handwriting was so clear I made sure investors knew that there were NO traditional retailers worthy of owning, including Walmart. By October, 2017 I wrote about the Waltons cashing out their Walmart ownership, indicating nobody should be in the stock – or any other retailer.

The trend is unmistakable, and undeniable. The question is – what are you going to do about it? In July, 2015 Amazon became more valuable than Walmart, even though much smaller. I explained why that made sense – because the former is growing and the latter is shrinking. Companies that leverage trends are always worth more. And that fact impacts YOU! As I wrote in February, 2017 the “Amazon Effect” will change not only your investments, but how you shop, the value of retail real estate (and thus all commercial real estate,) employment opportunities for low-skilled workers, property and sales tax revenues for all cities impacting school and infrastructure funding, and all supply chain logistics. These trends are far-reaching, and no business will be untouched.

Don’t just say “oh my, retailers are crumbling” and go to the next web page. You need to make sure your strategy is leveraging the “Amazon Effect” in ways that will help you grow revenues and profits. Because your competition is making plans to use these trends to hurt your business if you don’t make the first move. Need help?