Category Archives: Retail

Retail

[VIC – 141] Do you prefer ignorance or awareness?

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Business & Money

In recent years we’ve heard a lot about “the death of retail.” In fact, from 2006 to 2016, 5 of the big retail chains (Sears, JCPenney, Nordstrom, Kohl’s, and Macy’s) lost a combined $75B in market capitalization. Amazon went from $17B to $350B in market value during the same period. So there is some truth to the phrase.

However, Amazon may be opening 3,000 cashier-less stores by 2021.

Apple is investing heavily in their retail experience.

All of the top e-commerce brands (Bonobos, Indochino, All Birds, Warby Parker, etc) have moved or are moving into physical retail.

You can also look at stock charts for Nike, Lululemon, Home Depot, and Walmart and see a strong growth story.

So it’s not fair to make a sweeping generalization about a category and leave it at that.

What is clear is that you need to do something unique and compelling in retail if it is to be a growth driver for your business.

Human Progress

Many of you might remember reading George Orwell’s 1984 and Aldous Huxley’s Brave New World while growing up. Both novels described a dystopian version of the future the served as a critique regarding the social, political, and technological trends of the day. That said, I’m more interested in the differences between the two.

Orwell described a world that was caught up in perpetual war and ruled by an authoritarian state that employed tools of mass surveillance and propaganda to control every thought and action of a reluctantly servile populace.

Huxley’s depiction, by contrast, described a “willingly” servile population. I say “willingly” in quotes because people were actually mass-produced via in vitro fertilization and genetic modification into a predefined caste system. Further, they were constantly under the influence of Pavlovian-style conditioning and a powerful narcotic that rendered them blissfully unaware of the true state of the world.

Perhaps I can draw a modern analogy to better describe these two scenarios.

You might say that Orwell’s dystopia looks something like North Korea. Overt mass surveillance. Overt propaganda. People living under a state of fear and many risking their lives to escape. (I’ve never been to North Korea or spoken to anyone that lives there, so we’re stuck with my imagination)

And what place, you ask, might represent Huxley’s version? Dare I say the United States? Think about it for a second. You might say that Facebook and Google offer us “free” services in exchange for the intimate details of our lives and the right to control what we see and consume. You might say that advertising, media, and industry have created a culture of rabid overconsumption as a distraction from the true nature of reality. You might say that we live in a state of willing servitude where the services and products that we love are actually are captors.

So I guess the question is: which is preferable, ignorance or awareness of captivity?

Philosophy

I read a quote a few weeks ago that went as follows (not sure exactly where I saw it):

“The opposite of a simple truth is a simple lie. The opposite of a profound truth, is another profound truth.”

It has been on my mind since reading it.

If I ask you where you were at noon on Monday, November 5th, you can tell me the truth about your whereabouts. Or you could lie. And I could subsequently check what you said with other people, or perhaps look at your Uber ride history for confirmation. In other words, your location at a specific time on a specific date is a simple matter of fact.

By contrast, if I ask you about what it means to live a good life, what happens after death, or whether you believe in a higher power, these are questions of an altogether different sort. And your answers would reveal profound truths about your belief system.

But those profound truths do not have profound lies as their corollary. Instead, other people would provide different answers that they believed to be profoundly true.

So the question is, how do you reconcile such a difference in profound truths?

I’m not sure what the answer is, but I would say that you have to do so respectfully and compassionately, and that a genuine sense of curiosity serves well.

My Latest Discovery

A few friends gave me nice bottles of whiskey and scotch for my birthday (thank you 🙏). So one evening during this past week, I decided to do a tasting flight. I poured a half shot of Hibiki Japanese Harmony, a half shot of Auchentoshan 12-year old single malt scotch, and a half shot of Oban 14-year old single malt scotch, each with a couple drops of water added.

All were delicious, but slightly different.

To my unsophisticated whiskey palet, the Habiki was the smoothest and most gentle, while still maintaining a nice blend of flavors and aromas (it’s a blend of many different whiskeys).

The Oban packed a bit more bite, but also seemed to have hints of fruit and spice.

The Auchentoshan was my favorite. It was the most pungent in my opinion, but with that came more complexity and richness. There also seemed to be a hint of bourbon which we all know I love.

But, to be honest, you can’t go wrong with any of the three.

Asking Questions, Investing, Mindfulness, Retail

[VIC – 118] Experts don’t know s**t!!

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Business & Money

I continue to look for opportunities in retail. I’m convinced there must be a few diamonds in the rough that might offer considerable investment returns.

One thing in retail that is apparent and difficult to refute is the shift from brick-and-mortar to e-commerce. Assuming you accept that at face value, I’ll offer up a few observations.

There’s a new service imperative in e-commerce. Consumers want faster delivery, free shipping, and speedy no-hassle returns. This means e-commerce retailers need to make significant investments in supply chain logistics that are close to consumers. This is in stark contrast to centralized distribution models of yesteryear that pooled inventories and managed distribution across wide geographies.

This change not only affects e-commerce retailers. Traditional brick-and-mortar retailers that want to remain relevant are forced to invest in their online operations, forcing similar investments in consumption-end supply chains.

Also, consumers are increasingly located in dense urban environments. Thus, potential sites for logistics centers close to consumers are a finite resource. So, for companies that invest in logistics real estate assets in these locations should enjoy rising rents and high occupancies.

All this to say that I believe there might be a great investment opportunity in REITs that focus on consumption-end supply chain logistics assets. The best example of this that I’ve been able to find is Prologis (PLD). And I love the fact that Amazon is its largest tenant.

You can rest assured that this one has been added to the watch list!

Human Progress

In settings where innovation is important, it’s often said that it’s best to approach things from first principles. That is to say that people should approach questions or challenges from a fresh perspective, without preconceived notions or ideas about the right solution.

In thinking about what types of people are best at this sort of thinking, it would appear that children might have an obvious advantage. Due to a simple lack of experience, they have no other option but to approach most things they encounter from first principles. So they ask ‘why this’ and ‘why that’ in an attempt to gain an understanding of the world.

But as we age, this sort of questioning falls off a cliff. The more we learn, the more we’re supposed to know and the less we tend to ask.

This leads to a sort of paradox wherein expertise is inversely correlated with one’s ability to ask good questions. Experts have gone so far down the knowing path, that there’s no longer a perceived need to ask questions. Of course, that opens one up to vulnerability as you might be operating with information that is out of date or simply wrong. It’s the proverbial situation where everything looks like a nail to the hammer-wielding individual.

So it seems that outsiders to a specific problem or industry might often be those best positioned to ask good questions and approach things from first principles.

Philosophy

This past Thursday I woke up to pouring rain. When I went outside to walk the dog, the cold drops felt refreshing on my skin.

After the walk, I jumped on the treadmill at the gym for a quick 1-mile run to warm up before my workout. In our gym, many of the treadmills are lined up against floor to ceiling windows, overlooking the 7th-floor terrace and the east river in the distance. As I ran, I noticed something interesting. If I focused my forward gaze, I could see a small green shrub on a hill outside the window. However, if I didn’t focus my gaze, I would instead see my reflection staring back at me while running on the treadmill.

It was a great reminder of a simple idea. You have a choice of what you see. Or rather, you have a choice of what you perceive or where you decide to focus your attention.

The rain outside during the walk that morning reflected the same. When I looked out the window when I woke up, I thought “damn, walking Dutch in the rain sucks.” But when I got outside, I was pleasantly surprised by the feeling of cold water making contact with my skin.

There’s so much wrapped up in everyday sensory experience!

My Latest Discovery

A friend sent me this Anjunabeats set earlier this week. It’s unbelievable!

Blockchain, Cryptocurrency, Investing, Retail

[VIC – 76] Running 🏃🏃 for the exits. Early = wrong. Toasters as teachers 📝. Filter by unread. Do dreams 😴 mean anything?

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Business & Money

Take a look at Best Buy and Home Depot over the last year:

At a time when most retailers seem to be hemorrhaging, these guys are both trading at all times highs. This fact reminds me of 2 key points in investing:
It’s not an abstract philosophical game. Regardless of what people are saying, you simply have to think deeply about the business and analyze the numbers. It’s purely rational.
Second, and more importantly, when everyone is running for the exits, it’s a great time to look for cheap opportunities to buy. When the housing market crashed, it was a great time to buy real estate. After the internet bubble burst, great engineers and companies could be acquired for next to nothing.
If investing was about consensus, everyone would be rich.

Human Progress

I want to talk about cryptocurrencies and the underlying technology today. But before we dive in, I realize I’ve written on this subject before without providing adequate context and background to why it’s really important.
First, let’s consider banks. Banks have essentially unfettered control over money. They can print it (causing the value to fall). They cash restrict your access to it (e.g. in the case of a run on the bank = close banks when too many people are attempting to withdraw cash). They prey on the poor with myriad fees and predatory loans. The list goes on and on. And the best part, when they screw up, there are basically no repercussions (hence the term “too big to fail”).
Long story short, the incentive structures are all messed up. And given that these centralized institutions control our financial system, we’re basically forced to simply sit on our hands and pray they do the right thing (don’t hold your breath).
It is here that we arrive at the central tenant of the blockchain (the technology behind cryptocurrencies): it’s decentralized nature. There is no central entity (person, company, government, etc) that controls the entire system. Instead you have a distributed system (think ledger or database) where each entry is verified by lots of independent and self-interested parties (“miners”). As a result, you have inherent trust baked into the system. All participants rely on all other participants for the safety and integrity of the system. Incentives are beautifully aligned. (The implications go far beyond money, but this core tenant provides enough context for now)
So why are we revisiting the subject this week? Because of the price action of course.

This past week, 9 different people hit me up asking where/how to buy cryptocurrency. And many were people completely outside of the crypto.. actually the technology industry altogether. This is a telltale sign that we’re in bubble territory. Speculators and uninformed consumers are artificially inflating the value of cryptocurrency right now. And moreover, we don’t have any mainstream consumer application that would equate to higher demand (and higher prices as a result). It reminds of the dot-com bubble of the early 2000s when regular people were sinking their life savings into internet stocks, only to have it all evaporate overnight.
But the dot-com bubble is a prudent analogy for another reason. While companies were going bust left and right, many were actually incredible ideas that would later become valuable in their own right. Remember WebVan? It was FreshDirect before FreshDirect. Or what about the spectacular failure of Pets.com? Just a few months ago PetSmart acquired Chewy.com for $3.35 billion. It’s too bad that being early is synonymous with being wrong.
Similarly, I am a blockchain bull all day every day. It seems obvious that this technology will be absolutely revolutionary. But how many real consumer applications are viable today? Maybe a few. But there are a ton of things that need to be figured out first. What’s happening right now is speculation, plain and simple. Don’t be a sucker! If you want to get involved, park 1-2% of your portfolio in a secure crypto wallet and let it sit there for the next 10 years. In the meantime, it’s a good time to start educating yourselves about what’s coming.

Philosophy

So I wanted to show you my toaster:

You’ll notice that the power is set to level 5. This is a recent change. Up until last week, it was set to level 3. I think it came that way when I bought it. And level 3 was a great setting. It cooks waffles perfectly. The only downside is that you to run it twice to achieve said perfection. So when the waffles pop up, I would simply push the button down again for one more cycle and viola. Perfect waffles.
One day last week my fiance noticed this pattern and asked, “why don’t you just increase the power setting so that you only have to run it once? Wouldn’t that be faster?”
“Blasphemy,” I thought to myself. I already had a fool proof system of cooking waffles.
For some reason, I kept thinking about the toaster at random moments throughout the day. Of course it would be better to find the optimal power setting, but that would force me to venture into uncharted territory (a.k.a. untested power settings).
The next morning I decided I was in a risk-taking mood. I switched the power setting to 6 and pushed the button down. It was a grueling 90 seconds of weighting. Then pop! They were too done! Not burnt per say, but more done than I preferred. I knew I should have stayed with my system!
The next morning I was at it again, but with level 5 this time. To my surprise, the waffles were perfect. That wasn’t so bad after all. One false start the day before, but now back on solid ground.
While this is a pretty trivial example, fear of change is a real thing. I spent almost 4 years avoiding the power setting on a toaster due to fear of change. If an obstacle this small can cause such cognitive dissonance, one can only imagine what happens when larger ones present themselves.
I appreciate my toaster for this much-needed reminder.

My Latest Discovery

I’m either an oblivious idiot, or you will thank me effusively. Did you know that this little icon filters your inbox by “unread.”

I’ve wondered so many times why there was no easy way to do this. All the while, it’s been right here in front of me.

Question Of The Week

Whenever I have a dream, I tend to journal about it the next day to parse it for meaning. I’ve always felt that dreams were a great way to listen in on your unconscious mind. What do you think? Do you place any value or meaning in your dreams?