Ross is the Boss

Discount Retail Stores

      Believe it, retail is not out, let's check out discount stores for an opportunity that may unfortunately come true. To understand where this opportunity will come about we will take a look at, the business model, who shops at these stores (Ross & TJ Maxx), how big that consumer basis is, and why they will continue to shop there. 

     You may think that these discount retail stores can sell so cheaply because all of their clothing is from past seasons or full of manufacturer defects. This is surprisingly far from the truth and the majority of their clothing is from the same season and of high quality. A very small percent does however have unnoticeable defects or is out of season. Discount stores actually directly deal with name brands and their manufacturers to acquire in season products that have been over produced. The end state is that these stores get to purchase name brand products at fractions of the suggested retail price and can sell to you much cheaper than department stores. 

     While anyone can shop at a discount retail store the majority of people that do are of middle to lower socio-economic status (SES). These consumers still want fashionable products but at a discounted price and there is no better place to find these items than at discount stores. According to some reports 40% of households are earning 40k or less a year. Coincidentally most of the people that shop at these stores earn around 40k a year. If 40% of families make 40k a year that means there are nearly 48 million households (not individuals) to draw consumers from (if we use 2012 household data). With a growing amount of people identifying as lower and lower middle class there is plenty of room for growth in their already robust consumer base. 

     Consumers will continue to shop at these stores regardless of if the economy improves or not. Those that are already shopping there know that they can get name brand products at massive discounts, why change were you shop based off your income if you can get the same stuff for cheaper? And what happens if the economy tanks, people lose jobs or are being paid less? Well those that already shop there will continue to shop their to save money (maybe not go as often) and you will gain a new customer base from those that have moved down a few income brackets and are now forced to shop at discount retailers. While this is just a prediction I would like to point out that since 2008 (rough start of recession) Ross has increased sales by 72% to almost $11 Billion base off their 2008 and 2014 earnings reports. 

     Bottom line is that discount retailers are here to stay and will continue to grow especially if our lower middle class continues to grow. If you don't already shop at one of these stores I would recommend it especially if you are planning on investing in one. Top guns in this sector are Ross (ROST) and TJ Maxx (TJX). 

iWatch, Definitely Not

iWatch, Definitely Not

     The iWatch is set to come out April 24th, 2015, is meeting mixed reviews and I have one simple question...Is keeping your phone in your pocket worth the $350 you will spend on and iWatch? If that doesn't help realize it's weakness maybe this will. 

     Smart watches have been in existence for almost 45 years, been compatible with computers for about 30 years, have been making phone calls for 16 years, and running apps for about 12 years. The most popular (current) smartwatchs are the Pebble versions which has basic applications. Some of the applications allow you to receive updates about who has called or texted you, track fitness, turn on and off GoPro style cameras, and receive weather updates among other applications, for a low price of $99. Has the pebble really made a impact in the wearable tech industry? No, specifically because I do not know one person that has one, and in total it has sold about 400,000 watches. 

     The basic things that iWatch can do are send and receive calls, receive social media updates, track fitness, read emails, talk to siri, and basically do all the cool things you need it to do to prevent you from taking your phone out of your pocket. The unfortunate part of the iWatch is that it isn't waterproof, has less than a days worth of battery power, and requires an iPhone in close proximity (like a pants pocket). The Samsung Gear is extremely similar to the iWatch and only sold 800,000 units at $199. If the iWatch does the same things and costs $150 more will consumers buy it? 

     My prediction is that the iWatch will be released and met with consumers that don't want to buy it. It does not simplify the consumers life enough to the point where it is worth $350 especially since it requires you to still have the iPhone in close proximity to fully make use of it's features. If the iPhone is that close you might as well take it out and use it instead of fumble with a tiny screen on your iWatch. Wearable tech will be a market in the future but definitely not in the close future. I see this market advancing like PC's and Laptops, steadily as available technology makes it more practical for the consumers. Unfortunately we are not there yet. 

     

The War Begins: Netflix v. Theaters

The War Begins: Netflix v. Theaters

     Since I could remember movies were enjoyed on the big screen in a movie theater or a drive-in. Drive In's have all but disappeared and the decline of movie theaters is in it's beginning days, citing a CBS article published in 2014 "Last year the number of frequent movie-goers in the crucial 18- to 24-year-old age group plummeted 17 percent. Among 12- to 17-year-olds, admissions were down almost 13 percent." However in the long run revenues are up because of increased ticket prices. While this will offset the decreased traffic it won't fix the issue that people no longer want to see a movie when they can watch it from the comfort of their home. This is especially true today with streaming entertainment sources like Netflix, Hulu, and Amazon coming out with original content that is actually pleasing and many times award winning. This track record will soon follow into their ventures into major motion pictures. 
     
     The war has started with Netflix's announcement that they would simultaneously air a sequel to "Crouching Tiger Hidden Dragon" online and in theaters. It has now spilled over to their newest movie "Beasts of No Nation" both being rejected for screening at big time movie theaters such as AMC, Cinemark, and Carmike. In a related note Netflix has penned a deal with Leonardo Dicaprio to begin producing documentaries for their streaming service. While he is not starring in films the association will only give Netflix more validity within the "Hollywood" community. 

     What does this mean for Netflix? Bottom line up front, big movie theater chains are scared and legitimizing Netflix through this dismissal of Netflix produced movies. Any media coverage created through this will only push more sales towards Netflix (as long as it isn't centered on content quality). Netflix only stands to gain more via any sort of negotiation from here on out. If theaters allow the release then Netflix will not only garner a profit from ticket sales but will more than likely attract more subscribers via viewers of the movie enjoying the content. 

     What does this mean for theaters? Bottom line up front, theaters will lose this battle because any plan of attack will lead to a loss of revenue. If theaters shun the movie then they are missing out on ticket and concession sales. If theaters decide to allow the movie to release in their establishments then they will reap some benefits from ticket and concession sales but will lose some because of people staying home for their viewing experience. 

     My prediction is that this war will end with Netflix out on top but big theaters will not give up without a fight. Netflix and all streaming content providers will stand to win from this outcome of the war. What I see in the future for not only Netflix but all streaming companies is a pay per view style of viewing for "premium" content on their sites. Subscribers would be billed normal monthly payments but if they want to watch the providers original content then they would have to pay a fee to see it sooner than everyone else. Eventually at a predetermined amount of time (just like movie theaters) the content would be released to all subscribers for no additional charge. 

     Final outcome is that movie theaters are then turned into a novelty as drive ins were. While I don't think this will happen anytime soon consumers will only pay a certain amount for that "movie theater" experience. When that threshold is reached they will lose and Netflix will win.