Here’s a product pivot.
As I’ve hit on in my RetailDirect product, we’re knee-deep right now in the ‘the mall is dead’ call, which is very consensus. It may be right, but there are more cross currents today than I think many thought leaders on the Street lack an investment edge.
So…my team is going to pivot and refocus most of our effort in answering the following key questions in a Black Book on March 6th. I’ll say that if there is one BB of mine you participate in all year, this should be the one (note, I reserve the right to say that again several times throughout the year – always room to up the bar).
Things we’ll answer.
1. Transformational Deals: Some companies have been playing strategic/capital deployment offense for years. Others are woefully underinvested. Share gain and loss will accelerate. We’ll see big and out of consensus deals.
- Remember that fateful day when FedEx bought Kinkos? That was a head scratcher – until it wasn’t.
- Ditto for Sears/Kmart – flawed but didn’t stop the deal from happening.
- Federated buying May in 2005.
- Adibok
- Why not see transformations as distribution pipes become content owners, and content owners buy the final mile? That’s the equivalent of anchor tenants signing 100-year leases 60 years ago.
- Some companies that will be acquired – potentially this year – are likely not even considering it yet at the Board level.
- We gotta think BIG here folks – on cross sector deals -- and the box the consensus is sitting in might be end up being a coffin.
- Deals won’t be governed by #oldwall price targets. Acquirors will care about the big multiples on ‘reach’ assumptions generated by a third year banker at Goldman who needs larger transaction size to get paid – AND a CEO who wants a generational move to earn his portrait on the Boardroom wall.
2. Who goes bankrupt? Credit risk for public and private companies in the Retail Supply chain.
3. Wide-Reaching Implications. Big call to be made on everyone from the Mall REITs (and related -- everyone from GGP, SPG, SRG, TCO, VNO, MAC), Brands, vertical box lessees, big box, Asia.
4. What’s the risk of an Amazon blow up? Where is it relative to capacity? Failing the consumer would be a game changer until AMZN re-focuses capital away from content/marketing/growing Prime to re-building infrastructure. Likely? Prob not, but definitely possible and needs to be considered in the context of any and all risk management processes.
- What will Amazon announce over the next two years that people can’t (or won’t) even conceive yet?
- Why doesn’t Amazon buy a third of Macy’s stores (Kohl’s?) and make a branded/virtual showrooming experience?
- Oh and by the way, it would add de-facto wearhousing space in the middle of where people actually live. Is a 350mile drone flight plausible? No way. What about a 3 mile flight? Yep.
- Could Amazon turn into a massively capital-intensive model? Yep. That changes valuation – actually it will introduce the concept of valuation to the Amazon community for the first time in years. Probably a near-term negative – until one day it becomes the GARP stock of the decade.
5. Importance of stores to the ecomm part of the business. The ‘store visits per purchase’ carries tremendously among Softlines through the durables chain. This has implications for who can close stores vs who can’t close (or sell) money losing stores.
6. There are more buyers of large boxes than people think. Many more…they’re just not the traditional players. AOL/Time Warner was a horrible deal until the Morgan Stanley Analysts made it happen (and at that point time, it was the Media and Internet analysts – who were sort of bankers as well). Bad deal but it didn’t matter – it still happened. Bad deals happen all the time. Out-of consensus buyers will creep into the equation.
7. The final mile… Drones seemed like a ridiculous idea three years ago and cost AMZN half of its market cap. Still far-fetched. But less so than 3-years ago. Underground delivery networks and blimps? Seriously?
8. How will Millennials shop? How VR needs to co-exist with big-boxes. Why Amazon needs to buy big boxes. How things like 5G will change the game.
This is going to be one of those ‘Way out there’ Black Books. “Great, McGough is going off the reservation again and thinking too far out.” Many people will say these things are not possible to accomplish. ‘It’s fantasy land’. To be clear, I’m perfectly cool with that.
If there was ever a time to employ whatever intellectual and mental flexibility (and creativity) we can muster into an investment process, this is definitely the time.
2017 is shaping up to be a transformational year.
I’ll say it again, the box people are hiding in might end up being a coffin.
