Charis Ji's Profile

After reading this post, and looking up more facts, I’m very impressed by Saint-Gobain’s commitment to reducing environmental impact, as well as energy security, the latter of which has a stronger economic motive. Similar to IKEA case (where wood was so central to IKEA’s business), energy consumption is also core to SGO’s business. Unlike some of the issues raised by other posts (e.g. vehicle emission standards) where regulation seems harsher, energy consumption by building materials companies seem to be less regulated as of now. SGO is right in taking proactive measures instead of waiting for regulations to catch up. I also really like Eric’s priority list for where to implement alternative energy first. The only question I have is that, the footprint that fit the criteria is still small, compared to SGO’s entire production footprint. The rest of the geographies might lack economic motivation to transition to renewable energy, absent of government policies.

There are two separate issues here. One is rising labor cost. The other is isolationism. On isolationism, in the short-term, Foxconn has some flexibility to avoid import tariff should it increase. Foxconn has a factory in Harrisburg, Pennsylvania, which can be used for final assembly for its handset business. Longer-term, I actually see Trump’s move to bring jobs back to the US as an unprecedented opportunity for Foxconn to make inroads in the US. The reason is that while Foxconn is a big supplier for Apple, it also owns a 65% stake in Sharp, a Japanese display/white goods/solar company (acquired in 2016), who sells products directly to US customers under the “Sharp” brand. On July 23, 2017, Foxconn/Sharp announced its $10mm investment in Wisconsin, with the White House signing a memorandum of understanding with the Wisconsin state government [1]. With that, Foxconn receives an incentive package of $3mm [2]. Essentially, with the government incentives to bring jobs back to the US, Foxconn/Sharp is able to bring manufacturing closer to its US customers. So net net, Foxconn has a balanced combination of businesses that helps weather through potential policy changes.

[1]https://walker.wi.gov/sites/default/files/Foxconn%20MOU.pdf
[2]https://www.reuters.com/article/us-foxconn-wisconsin/wisconsin-bill-giving-3-billion-incentives-to-foxconn-advances-idUSKCN1AX101

This is super interesting! Often times, organizations that require a large number of unique talent from all over the world tend to be nonprofit organizations, for example, a university lab, which have their own work visa category that is more relaxed than typical work visas for for profit organizations. Cirque du Soleil is quite unique in that it both requires a large number of foreign talent, and is a for-profit organization (C-corp, not S-corp!). I am quite surprised that given Cirque du Soleil’s profitability, the legal team is so small. I’d invest money in the best immigration lawyers. There’s probably enough margin in the ticket price to cover both that as well as the higher cost of sourcing talent. In terms of additional solutions, I like Jojo’s idea of a PR play. Given the loyalty of the audience, and how much they appreciate the artists, Cirque du Soleil could potentially print something like “Part of the ticket price is going into helping our artists legally work here in the US. Despite increasing cost, Cirque du Soleil is committed to bringing you the best artists from all over the world.”

This is a great case-in-point for the short-term and long-term trade-offs that a company has to grapple with to address a problem. There are multiple layers to it. Shorter-term, light weighting is effective, but as CAFE standards get progressively stricter, electrification would make more sense, because 1) light weighting can only go so far and 2) battery cost is coming down and is increasingly attractive relative to internal combustion engine vehicles.

What I see as a key to the issue (also environmental related issues in general) is that fuel efficiency is a supply-side problem i.e. consumers are not asking for it and are hence not willing to pay for it. What that means is that all the automakers have to make investments into the transition without the ability to charge more. So the timing of the investment is very important – you don’t want to invest ahead of the competitors in new emission reduction technology when the cost curve has not come down; you also don’t want to invest after your competitor where you lose competitive edge.

Take electrification as an example. Investing too earlier means 1) electric component supplier ecosystem is not mature yet; leaping into the electric vehicle age might mean having to make certain key components in-house 2) battery cost might be so high that profitability suffers until battery/combustion engine cost crossover happens, where the crossover point is out of your control. Investing too late means that you might lose the opportunity to have a seat at the table where key supplier relationships are established and industry standards are set. You also might lose the mind share among consumers when competitors have electric vehicle brands and you don’t. Technological transitions are good times for market share to reshuffle. Electrification is the biggest innovation that the auto industry has seen since Henry Ford as far as engine technology is concerned, and is already creating new winners. Hence, investing in electrification is strategically important even if financially it doesn’t make sense yet. Therefore, I feel that timing is a very tricky issue. This goes back to the many short-term and long-term trade-offs that the post highlighted.

Thank you for sharing, Alaa(?)! This is absolutely fascinating. Regarding your “IoT” recommendation to keep track of inventory level, my question is whether it is worth it to put a $1 chip on a $15 lipstick when the margin is only probably $5 (using Ulta’s 35% operating margin) + the server/computing cost. I’d rather train my sales people to direct customers to other SKUs when the SKUs that they want run out.

Regarding the recommendation, one potential alternative is to go the opposite way. Instead of carrying a huge number of SKUs and making sure all the SKUs are in stock all the time, Sephora could separate the store into high volume/everyday SKUs (think classic popular products such as Clinique yellow gel or Estee Lauder brown bottle eye cream) and boutique/exploration SKUs. For high volume SKUs, Sephora can carry an inventory balance to make sure they always have them in stock. For exploration SKUs, the expectation for something being in stock is probably low, because customers don’t even know that they need them. In that case, sales people can curate the experience and push for a smaller number of products based on 1) what they want to push and 2) what’s in stock.

In terms of store layout, Sephora can put the high volume SKUs closer to the back of the store and the exploration SKUs closer to the entrance of the stores (similar to IKEA where customers need to walk through the whole store). That way, Sephora can drive store traffic with high volume products but also give its sales people an opportunity to push new products if the customer is in exploration mode. On top of that, Sephora can design the layout of the store in such a way that high volume SKUs don’t need to take up as much shelf space (i.e. more efficiency on rent).

Sephora can do that because as a retailer, it knows exactly which SKUs sell the best (and sells by itself) and hence can reduce the rent/sales people allocated to those units accordingly. In addition, such a strategy can also give Sephora more negotiating leverage against cosmetics brands as Sephora the retailer plays a bigger role in what products get sold. Sephora can also diversify its sales contribution from different brands to reduce brand concentration risk.

Risks to my recommendation:

1) Sephora needs to train its staff to educate customers about the new store layout as most customers are probably still accustomed to sorting by product and sorting by brand
2) The tasks of the workforce also need to adapt – merchandising becomes important; flexible display becomes important (what do I push this month? how do I display the products to best represent this boutique brand?); knowledge of the sales people become important (should Sephora consider letting sales reps from the boutique brand into the store and sell instead given better knowledge? how does Sephora ensure good practice among those sales reps? if Sephora uses its own staff, how to make sure they are well equipped with new product knowledge more frequently than before?)

Great post and fascinating topic!

Given Disney’s distinctive brand, a large content library and the scale of its studio, it has the strongest leverage against Netflix (for library content) and exhibitors (for the new release), out of all the networks and studios.

Traditional media companies have done a poor job of colluding against Netflix, as 1) most of them are too small to have the critical mass of content required for a viable OTT product, 2) the allure of getting cash from licensing content to Netflix is too strong compared to the cost of investing in their own OTT. On the exhibition side, studios have done a slightly better job of shortening windows and experimenting with day-and-date releases, to extract more economics from the exhibitors, but the effort is not enough. In both cases, the root cause of media companies’ frustration is essentially the monopoly of distribution.

I believe that going against distribution monopolies is necessary and urgent. I also believe that Disney is the best positioned to do it. However, what is really needed is more collusion among traditional media companies. They have been disagreeing with each other on all the important existential issues e.g. Disney not getting on board with DTC business models to bypass movie theaters (e.g. the Screening Room); Universal has its own set of calculations because of its parentco Comcast; smaller media companies not being able to say no to Netflix (recognizing that Netflix and movie theaters are slightly different issues here); halfhearted effort by major players to put together Hulu. Lack of cooperation among traditional media companies may lead to their own demise.