The Retail Apocalypse
Businesses have always gone in and out of style but the sheer volume of highly recognizable retail brands that have gone bankrupt recently is somewhat shocking. A combination of significant debt and struggling storefronts have contributed to the acceleration of business failures across North America. According to CB Insights, in 2017 alone there were 21 bankruptcies with Claire’s and Toys ‘R’ Us being two notable examples.
It’s easy to place Amazon at the center of it all, but that doesn’t tell the full story. In reality, many urban stores failed to adapt rapidly enough to changing consumer preferences and in some cases simply had too many locations. As we mentioned last year, the United States has six times the retail square footage per person of the United Kingdom.
Everywhere we look, it seems like more and more businesses are operating at a loss in an effort to gain share in a winner takes all game. Uber, Netflix, and Amazon represent some of the most well-recognized examples but not every business (or venture capitalist) can endlessly subsidize consumers – as much as we would love that to be the case.
Of all companies that went public last year, 76% were unprofitable leading up to their IPO. According to The New York Times, that was the largest number since the peak of the dot-com boom in 2000, when 81% of newly public companies were unprofitable. Some of those will still be winners, in some cases big winners, but many will unfortunately fail to deliver for their investors.
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It’s commencement season!
There were a number of great talks delivered this month, with Tim Cook delivering a speech designed to inspire Duke University’s Class of 2018. Tim’s message is to ‘be fearless’ and fight against injustice and inequality. He encouraged a refusal to accept things as they are and to force change whether in business or in life.
“You reveal your character when you stand apart – not when you are part of the crowd”.
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We actually find the “move fast and break things” mentality to be overstated when it comes to business. It certainly works well for ‘disruptors’ but can, without question, be a disaster if the business model is flawed. This piece draws a distinction between reversible and irreversible decisions. It’s fine to go fast if you can change direction quickly, but when you are stuck with a decision, it is highly advisable to give it serious thought.
Investment liquidity provides a good example of this concept. In our experience, investors tend to evaluate liquid and illiquid investments with a similar level of diligence. A mistake is a mistake, but having funds locked up for 7-10 years in a money-losing proposition is one of the most painful experiences an investor can go through.
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Michael Bloomberg has succeeded across sectors – first as a businessman, then as a politician, and now as a philanthropist. In his most recent letter, Michael speaks to the importance of work being driven by reliable data – and places a few direct jabs at the recent rise of “alternative facts”.
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