An Analysis of Free Trade

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I’ve been sitting on this for a while trying to figure out whether or not offer it up.  It’s certainly not action sports or active outdoor focused.  And, in our current environment, it’s inevitably going to be perceived as having a particular bias.  I’d say it reaches a solid conclusion based on the data it utilizes.  If that’s a bias, so be it.

It’s a defense of free trade from the Fabius Maximus web site which I follow and highly recommend.  It’s conclusion, however, is based on actual data; not anecdotal evidence, not a one minute story on the nightly news, and certainly not a tweet.

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Trade Shows, the Buy/Sell Cycle, and Changing Consumer Habits

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Over the last months or maybe a year, I’ve watched the trade show discussion as dates have changed, unchanged, and we’ve all tried to figure out the role of trade shows.

We agree, I think, on the following:

  1. We need some trade shows
  2. Right now, there are too many
  3. Face time is a primary benefit
  4. It’s become harder to justify and time and expense of exhibiting or attending
  5. It’s been a long time since the shows were critical to order writing

The people at Emerald Expositions, who “…operate more than 50 trade shows, including 30 of the top 250 trade shows in the country…” and who bring us Outdoor Retailer, Interbike, and Surf Expo, are trying to adapt.  So is Reed Exhibitions, the owner of Agenda, that has “…a growing portfolio of over 500 events in 30 countries…” and SIA, whose show many of us will be off to next week.

I’ve been thinking that all the discussion about when the trade shows should be held was kind of missing the point- changing behavior from our consumers, who are pretty much in charge now, means an internal industry focus on trade show dates that match our production cycle requirements isn’t, well, completely in touch with reality.

I was going to write a really great article on trade shows, the buy sell cycle, and changing consumer habits.  But then somebody I know sent somebody else I know a just excellent article and he sent it to me.  It’s called “The Big Shift” by David Clucas.

On the one hand I was kind of disappointed because I was gearing up to say cogent, insightful things.  On the other hand, now I don’t have to write it, and I can still bask in the glow of David’s smartness by pointing you to it.

Two of my takeaways from David’s article are the changes that are going to have to happen (and are happening) in production and inventory management and the advantages that big companies have.  Those advantages include having less need to exhibit at trade show, though that doesn’t mean trade shows in some form aren’t important to them for other reasons.

Meanwhile, here’s a shorter article on a large mall in in the Pittsburgh area that just sold for $100.00  No, I didn’t leave out any zero.  The buyer, Wells Fargo, already owns the dirt under it.  It opened in 2005 (not great timing) and is about half occupied.  Expect to see more of this.

What Will Retail Be Like in Five Years and How Will You Prosper?

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That was the question asked at a meeting last week at the Agenda trade show.  The meeting was attended by various invited brands and retailers and by me.

This meeting has been going for maybe four shows now and has generally been thoughtful and productive.  That’s a welcome improvement from the larger group meetings that used to be held at ASR.  They tended to be a bit acrimonious and have limited value.  Except that I got a free breakfast.

I had to leave before the meeting ended for a dinner engagement and didn’t get a chance to put in my two cents worth.  But the topic keeps churning my brain.  Typically, that means I should write about it.

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The Impact of Demographics on the Active Outdoor Industry

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I’ve just finished reading a book called The Methuselah Effect, by Patrick Cox.  As I’ve said, I often get intriguing business ideas from non-business books.  This is one of those times.  I really recommend this book.  The trouble is, it doesn’t seem to be on Amazon, which I’ve never seen before.

Anyway, the book is about advances in biotechnology and how they are going to impact health and longevity.  The first chapter title is, “Fewer Births, Longer Lives: Society’s Aging Changes Everything.”

His premise, which I found convincing, is that people are going to live longer and be more active.  But there are going to be fewer people.  He goes on to says in the first page, “From here on out, every generation will be smaller than the one before it.  After 200,000 years of population growth, mankind’s numbers are shrinking.”

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What Is the Value of Advertising?

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I read with some amusement as well as concern this article about an apparently still ongoing and massive online advertising fraud.  I imagine you’re all aware of it.  Meanwhile, back in this article, I mentioned the increasing use of ad blockers, especially by millennials.  And within the last week or so, I questioned, as I pointed you to four article on changes in retail, how TV advertising was being received.  What I said was, “Perhaps it explains some of the advertising I see on TV these days where a brand tries so hard to find a compromise message that reaches the sensibilities of more than one group that you walk away not sure what product you just saw advertised or why you should care.”

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Some Waypoints in the Evolution of Retail

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During the last couple of weeks, I’ve come across a number of articles that speak to the evolution of retail.  Here they are for your consideration in no particular order.

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The Buckle Has a Lousy Quarter- Kind of. Well, Not Exactly. Can the Outsized Returns Continue?

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As I’ve recently written, Tilly’s and Zumiez were kind of caught by surprise by their very positive end of October quarterly results.  But because the surprise was of the positive kind, nobody seemed to care.  Though perhaps they should.

The Buckle, on the other hand, reported a 14.6% decline in revenues from $280 million in last year’s quarter to $239 million in this years.

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Zumiez Has a Good Quarter Too

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Zumiez’s 10-Q for its quarter ended October 31 reported an increase in sales and profits.  I used the word “Too” in the article title because it sounds a bit like the Tilly’s results I reported a few days ago. Zumiez, like Tilly’s, would like to point to all the good things it’s doing as being responsible for the result.  And no doubt it’s fair to do that, but Zumiez, like Tilly’s was surprised by the strength it’s seeing and is cautious as to whether it will continue.

Net sales rose 8.4% from $204.3 to $221.4 million.  “The increase primarily reflected an increase in comparable sales of $8.2 million and the net addition of 35 stores (made up of 27 new stores in North America, 5 new stores in Europe, and 5 new stores in Australia partially offset by 1 store closure in North America and 1 store closure in Europe) subsequent to October 31, 2015. By region, North America sales increased $14.7 million or 7.8% and other international (which consists of Europe and Australia) sales increased $2.4 million or 14.6% for the three months ended October 29, 2016…”

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Tilly’s Has a Great Quarter, But I’m Not Sure They Completely Know Why

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You can’t fault the numbers.  Sales grew 7.4% for the quarter ended October 29th compared to the same quarter last year.  That got them to $152.1 million in revenue for the quarter.  Comparable store sales rose 4.4%, accounting for $6 million of the revenue increase.  “Store comps were up low-single digits and e-commerce continued to grow at a double-digit rate.”  The rest of the increase ($4.4 million) came from five stores opened since the end of last year’s quarter.

Their gross profit margin, at 31.5%, didn’t change.  A 1.1% decline in product gross margin due to higher markdowns was offset by a reduction in expenses.

This is a good time to remind you how retailers calculate cost of goods sold to arrive at their gross profit margin.  Here’s how Tilly’s does it.

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GoPro Announces a Restructuring

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As part of a press release entitled “Solid Holiday Demand in the U.S. for GoPro HERO5,” GoPro announced, further down the press release, that its board of directors had “…approved a restructuring of the Company’s business.  The restructuring includes a global reduction-in-force, the closure of the Company’s entertainment division and the consolidation of certain leased office facilities.”

“The  Company  estimates  that  it  will  incur  total  aggregate  charges  of  approximately  $24  million  to  $33  million  for  the  restructuring,  including approximately $13 million to $18 million of cash expenditures as a result of the reduction in force, substantially all of which are severance and related costs, and approximately $11 million to $15 million of non-cash expenditures, consisting primarily of stock-based compensation expense and accelerated depreciation associated with office consolidations. The Company expects to recognize most of the restructuring charges in the fourth quarter of 2016.”

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