Charlie Weinberg's Profile
Detroit auto makers have a history of butting heads with the administration. They are some of the largest and most economically influential companies in the US and as such, have frequently been at odds with the government. During the Obama presidency when Chrysler went bankrupt, a group of Chrysler lenders refused to accept the governments bailout terms, claiming that the deal was downright unfair and they were not being compensated enough. Ultimately, after Obama repeatedly bashed the lenders publicly for refusing to make sacrifices when everyone else was, the lenders relented and accepted the governments terms. Ford is facing a similar situation here as it is in their best interest to remain on good terms with the President. It will be interesting to see how Ford’s relationship with Trump evolves as he threatens to pass more and more isolationist trade laws that will severely inhibit Ford’s supply chain. While they will want to appease the government, they also have shareholders to answer to who won’t be pleased with decreased profitability.
3D printing has also had a profound effect on the healthcare industry, with several healthcare engineers utilizing 3D printing to construct some of the most innovative applications to date. As Ryan mentioned above, there are certain drawbacks however, that might inhibit companies from fully adopting 3D printing. The advantages are obvious; cost efficient, speed, versatility, customization, significant return on investment, etc. However, several healthcare companies have not been able to realize these full effects due to stringent regulatory concerns, and a conservative industry with incumbent management teams weary of switching to an early stage technology. There’s also the question of mass production and the capital intensity of a technology that has not been able to ramp up production on a larger scale. It will be interesting to see how this technology innovates over time to become even more enticing for management teams who will soon have no choice but to switch over to a supply chain that incorporates 3D printing.
Hardly a problem unique to H&M, the entire retail industry is suffering as a result of the rapid rise of e-commerce and the decline in appeal of in store shopping. Bonobos, for example, is a brick and mortar clothing retailer who has adjusted its business model to deal with the issue of the digitalization in retail. Bonobos holds zero inventory at its stores, located only in major metropolis cities, and instead has focused on enhancing the customer shopping experience while taking on none of the inventory write down risk that has plagued traditional retailers in the past. A customer walks into a Bonobos store, music is blaring, a friendly customer sales rep greets you and offers you a drink, you try on various clothes that are on display, place an order on an in-store iPad, and your order is on your doorstep the next day.
Retailers are going to have to adopt some form of this model going forward – bring back the appeal of in store shopping while still utilizing e-commerce as its form of distribution, thus not having to worry about selling through store specific inventory. Companies no longer have the luxury of forecasting demand and what Bonobos has captured so brilliantly is their ability to mitigate that concern by having strategically placed warehouses around the country that can ship to customers the next day after purchasing online. They also have incentivized repeat customer purchases through their digital platform with personalized accounts containing your preferred size, previous orders, and recommendations. It doesn’t seem like brick and mortar is completely going away, and it will be interesting to see the measures traditional retailers like H&M undertake going forward.
It’s been fascinating to watch the measures that GameStop has undertaken to deal with the hugely pervasive issue of digitization in the gaming industry. I’m actually one of the few people out there bullish on GameStop for a variety of reasons:
New Console Release: The upcoming new console releases will be highly beneficial for the entire industry as consoles drive fundamental cyclicality in the gaming industry and although I understand this is not a long-term solution for the company, it does however provide them with some breathing room in the near term to figure out their new plan of action as it relates to their business model. It’s also worth noting that physical game sales still represent 50% of the full game market which GameStop still dominates.
Virtual Reality / Product Backlog: Sony recently released brand new virtual reality software and has partnered with GameStop to be its exclusive launch partner. That includes in store demos which will certainly drive increased foot traffic and is expected to be an industry wide catalyst for demand.
Diversification: As mentioned in the above comments, they are diversifying their business to focus more on digital sales and mobile and consumer electronics where they are re selling used Apple and AT&T products within existing stores (no incremental CapEx).
Management Team: They have an experienced management team with a proven track record of turning around businesses and recognize the inevitable decline of their core business. Until they can complete their long-term transition to digital sales, they are using non-core business offerings to supplement the cash flows.
In short, GameStop will be able to use the upcoming console release growth to fuel cash flows from its existing business long enough until it fully transitions to a primarily digital and consumer electronics retailer. From an investors perspective, this is an incredibly cheap stock and you are betting on an experienced management team to transform the business and achieve multiple expansion – not an unrealistic outcome given the market will undoubtedly like the business more after it increases its digital footprint and exposure to the fast-growing digital end market.
Thanks Grant – very interesting article on an increasingly important topic right now. I think it’s also relevant to think about the speed of adoption of driverless trucks and just how willing management teams will be to jump head first into this unproven market which would vastly alter a supply chain. Recently the Alliance for Driver Safety and Security came out against fully automated trucks, assuring drivers around the country that their jobs were not in danger. JB Hunt is part of said organization and while they have publically supported the technology, they appear less receptive to unmanned vehicles. Unpredictable conditions such as extreme weather, emergencies, detours, and other disruptions are still very much a part of the trucking supply chain, something that driverless trucks would be unable to cope with. The reality is that truckers serve several other roles besides just driving, such as cargo monitors and logistics communicators and as such, I think the shift to completely driverless trucks will be a slow one. And while JB Hunt might be purchasing these autonomous trucks to Drew’s point above, it seems that truck drivers are and will be an integral part of the supply chain for the foreseeable future.
Source: McKevitt, Jennifer. “Trucking Companies Push Back against Fully Autonomous Vehicles.” Supply Chain Dive, 6 Mar. 2017, http://www.supplychaindive.com/news/trucking-autonomous-self-driving-JB-Hunt-opposition/437407/.