James Cassel

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On December 13, 2015, James Cassel commented on IKEA’s business and operating models: a match made in heaven :

This is a great post Amine! I think IKEA is a great example of a company creatively disrupting what used to be a standard – and clunky, and expensive – event in a person’s life. IKEA set out to democratize design. Their mission is to “create a better everyday life for the many people” and so much of that comes back to the elements you discussed (http://www.ikea.com/ms/en_SG/about_ikea/our_business_idea/index.html). I would like to add a couple of notes expanding on your product design process idea.

First, IKEA does its research. When IKEA first came to the US, it dropped off truckloads of products all measured in centimeters and Americans rejected them. IKEA has learned, and now sends anthropologists into countries to learn how people interact with their homes and what their lives are like. They publish a quarterly “Life at Home” report with qualitative and data-intensive quantitative findings. For example, here is a sample showing differences in peoples’ habits in the kitchen around the world: http://lifeathome.ikea.com/food/en/. Based on this research, IKEA might develop products, but more often they learn how their existing products can fit into the lifestyles of people around the world. IKEA stores’ showrooms and catalogs tell people how to integrate products into their lives, and with this anthropological understanding, IKEA can adapt its products to fit the world and increase volumes, creating further economies of scale (http://fortune.com/ikea-world-domination/).

Second, IKEA is conscious that when you supply the world with tables and chairs, you are also taking a lot from the world. IKEA uses an incredible 1% of the world’s wood supply, which is roughly 17.8 million yards of wood (http://gizmodo.com/heres-why-ikea-is-discontinuing-everyones-favorite-sh-1527126312). In 2012 IKEA published an intensive report detailing their sustainability strategy in which they begin by stating they would “economise with resources” (http://www.ikea.com/ms/en_US/pdf/reports-downloads/sustainability-strategy-people-and-planet-positive.pdf). Holding true to that mission, a little over a year later they replaced the beloved EXPEDIT bookcase (a bestseller), with the KALLAX; the only difference between the two was shaving down the width of the outside wooden pieces. It is a small change, but at the volumes this bookcase is sold it has a meaningful impact on IKEAs raw material usage. This demonstrates IKEAs iterative product development expertise, helps them lower costs, and more importantly supports their philosophy of creating a better life for many people – if they can reduce their wood usage, they can bring their product to more people without further environmental impact. Bring on the Poang.

On December 13, 2015, James Cassel commented on Bridj: Bridging the gap between public transit and Uber :

At $6 a ride, it is triple the cost of taking an MBTA bus and not that much lower than a cab or Uber. That said, with huge capital expenses (a Mercedes Sprinter does not come cheap – and don’t forget about the upkeep: for a rental car company the costs associated to the vehicle are typically about 50% of all operating costs), and becoming an early supporter of the $15 minimum wage for all employees (http://globenewswire.com/news-release/2015/11/11/786300/10156047/en/Bridj-becomes-first-startup-to-mandate-15-minimum-wage.html) Bridj has some hefty operational costs to hurdle. Because of these expenses, customer adoption and high utilization are critical to get Bridj profitable. The price point sitting tightly between existing public transportation and upscale options like Uber and Lyft squeeze the interested market size smaller, making high utilization a big challenge that I’d be very worried about.

The sectors make it look like they are targeting young, high earning individuals for work. People who live in the residential Allston / Brighton / Brookline and going to work at a tech company (in Kendall) or some other business in Back Bay / Financial District. The Back Bay sector may get some traffic on weekends, but very little. The issue I see here is that when you’re going to work, you’re on a deadline and need to be at your destination at a very specific time. With flexible bus routes and seemingly no visibility into other passengers or your ETA from one person’s experience (http://www.citylab.com/commute/2014/07/what-i-learned-riding-one-of-those-new-private-city-buses/375312/) prior to getting on the bus, as a rider I’d be worried about getting on board. If they are targeting these urban commuters, these further narrows their addressable customer set, and leaves the mid-day times underutilized.

In the short term, Bridj will need some strong funding to fill the financial gaps. They’re off to a good start with $4M+, but considering many alternative transportation companies like Zipcar have struggled with profitability for years, they’ll need to keep wooing investors for a while. Speaking of those big alternative transportation guys, Uber launched UberHop this week in Seattle, which is basically the same product as Bridj but without the sector limitations (http://qz.com/569652/ubers-newest-service-works-just-like-a-bus/). This will put a lot of pressure on Bridj to prove their business and operating models are solid and grow quickly.

On December 13, 2015, James Cassel commented on Lululemon: From Niche Market Pioneer to Apparel Ubiquity :

I agree with Aileen and Amy’s concerns about issues with internal culture and particularly the point Amy raised about quality. Lulu has built their strategy on building pillars around maintaining the high price point, and is relying on these for continued growth.

Community – While the internal culture has taken heat for being oppressive and cult-like their customer community is stronger than ever. Just check out the 10,000 strong “agents of change” who head to Vancouver each year for SeaWheeze – a half marathon put on by Lululemon in the middle of a weekend of yoga, positivity, mindfulness, and of course brunch. I think even as Lululemon grows, these ties will remain strong. Some will leave for Bandier looking for a more unique look, but the masses have been tightly pulled into the concentric circle. (http://www.seawheeze.com/)

Quality – They’ve had other quality control problems beyond the sheerness debacle – in 2007 they advertised health benefits of a seaweed infused fabric (not kidding here) that later they retracted (http://www.reuters.com/article/us-lululemon-outlook-analysis-idUSBRE99712S20131008#c6GYrpFVRrQb40BC.97).

International Growth – My greatest concern is Lululemon’s dependence on store growth to drive company growth, and their ability to expand successfully in new international markets. In recent years their same store growth has declined, only rebounding in the last couple of quarters. Retail store sales represent ~75% of Lululemon’s sales, and growth in the number of stores has sustained the 13% revenue growth in FY15. (You can see the a chart on same store growth vs revenue growth (and sourced info) here: http://marketrealist.com/2015/06/store-expansion-critical-driver-lululemon-athletica/.) Unless Lululemon can turnaround their existing stores, their continued success is at serious risk to success in new markets. As of February 2015, the US, Canada, and Australia markets are highly saturated with some room for expansion, but not much left.

Lululemon Stores, February 2015
US 200
Canada 46
Australia 26
New Zealand 5
United Kingdom 2
Singapore 1
Total 280

Source: Lululemon 10K: http://investor.lululemon.com/secfiling.cfm?filingID=1397187-15-16

Lululemon will need to expand to new markets to continue growth, particularly Asia, and with a product tied to athletics I worry about how they will translate. There is a desire for branded international goods in Asia, but different cultures have different athletic cultures, and Lululemon may need to adjust their products or community engagement to have continued success. This will be a relatively new challenge for them, and if internal culture, quality control, or competition become too much, it could break the successful model they have now.