Video above published Aug 10, 2017 by L2inc.com--NYU Stern Professor Scott Galloway on digital winners and losers--
Loser: Unsustainable internet companies. Pureplays like Wayfair (domain: wayfair.com) and Blue Apron (domain: blueapron.com) are getting Amazon-like valuations without a critical component: a business that works.
Loser: The brand-industrial complex. Startup Brandless (domain: brandless.com) sells generic household items for $3 each, pointing to a larger shift in consumer behavior.
Loser: The smartphone generation. Three-quarters of American teens own iPhones (domain: apple.com/iphone), and the devices are making them more lonely -- but also less likely to do drugs.
Select slides:
Sources:
(0:13) “Meal-Kit Maker Blue Apron Goes Public, Demand Underwhelms As Amazon Looms,” Reuters, June 2017. http://reut.rs/2toDqYV
(0:13) “Pioneering Beauty Startup Birchbox Turns Profit After Tough 2016,” Forbes, April 2017. http://bit.ly/2fvh96f
(0:13) Google Finance, August 8, 2017.
(0:25) “New Amazon Data From Wall Street Should Terrify All Retail Stores In The US,” Business Insider, September 2016. http://read.bi/2bX6tG6
(0:30) “How Many Americans Are Amazon Prime Members?” The Motley Fool, April 2017. http://bit.ly/2fuXqmU
(0:30) “Share Of Internet Users In The United States Who Live In A Household With An Amazon Prime Subscription As Of November 2016,” Statista, November 2016. http://bit.ly/2vn3eob
(0:30) “Sixty-Four Percent Of U.S. Households Have Amazon Prime,” Forbes, June 2017. http://bit.ly/2usxrU8
(0:38) Value Investors Club, April 2016.
(0:43) L2 Analysis Of SEMRush Data, June 2017.
(0:47) “AMZN Cash Reserves,” Quandl, June 2017. http://bit.ly/2vIetIY
(0:53) “Burning Cash And Losing Customers, Wayfair Is Running Out Of Options,” Seeking Alpha, May 2017. http://bit.ly/2rqZ5dJ
(1:00) L2 Analysis of iSpotTV Data.
(1:12) L2 Analysis Of SEMRush Data, June 2017.
(1:31) “Blue Apron Significantly Lowers Its Valuation With Slashed IPO Pricing,” techcrunch, June 2017. http://tcrn.ch/2t1AIG0
(1:37) “Blue Apron Is Spending More Than $400 For Every New Customer — And That's Creating A Major Problem For The Company,” Business Insider, August 2017. http://read.bi/2vIHeVL
(1:45) “Form S-1,” Blue Apron Holdings, Inc., June 2017. http://bit.ly/2qGf2No
(1:50) “Blue Apron Vs. HelloFresh: A Look At Multiples And Valuation History,” CB Insights, June 2017. http://bit.ly/2uK03Dl
(1:50) “Blue Apron: 5 Things To Know About The Meal-Kit Delivery Company,” Market Watch, July 2017. http://on.mktw.net/2rtG3VH
(2:51) Cadent Consulting Group, 2016.
(3:42) “Have Smartphones Destroyed a Generation?” The Atlantic, September 2017. http://theatln.tc/2u3JDX6
(3:42) “Millennials Surpass Gen Xers as the Largest Generation in U.S. Labor Force,” Pew Research Center, May 2015. http://pewrsr.ch/1KAFrQ0
(3:54) “2016 Overview Key Findings on Adolescent Drug Use,” Monitoring The Future, January 2017. http://bit.ly/1WumBiz
Transcript via YouTube.com:
0:00 A loser: unsustainable Internet companies. Wayfair, Blue Apron and Birchbox are the
0:08 latest that have no sustainable strategy. These peer players are getting Amazon
0:12 like valuations without a critical component. That is a business that works,
0:18 or some sort of moat, that makes their companies scalable. For example,
0:22 warehouses within 20 miles of 45% of the population, or an incredibly robust
0:28 loyalty program with 58% of American households- yes, we're talking about
0:32 Prime. Wayfair's on track to double William Sonoma's eCommerce sales by 2019. Selling
0:38 low-priced items, they're competing with Amazon, which bids on 43,000 of the same
0:44 keywords. However, Amazon's cash won't run out. Meanwhile, Wayfair spending is
0:49 unsustainable. The company currently has more liabilities than assets. In exchange
0:54 for that massive spend, it's garnered no customer loyalty, even though the company
0:58 spent 72 million dollars on TV ads in 2016, and is slated to spend 90
1:04 million this year. Just 9 percent of search traffic comes from the master
1:08 brand term, compared to 30 to 50 percent from Williams-Sonoma brands. And they're
1:13 losing 60% of their customer base each year. By the way, the best proxy for brand
1:18 equity: look at the percentage of traffic garnered from key term brand searches.
1:23 Millward Brown and Ipsos: those businesses are going away. Blue Apron has a similar
1:28 story. In Q1 they lost 52 million on revenue of 245 million. The company has
1:34 an enormous acquisition cost; it spent four hundred and sixty dollars for each
1:38 new customer in 2016. Despite all those new users, Blue Apron's
1:43 revenue growth has been flat since Q1 of 2015. Their IPO down round was likely
1:48 the nail in the coffin. What Wall Street doesn't get? Paying high cost of customer
1:53 acquisition and investing insane amounts in fulfillment doesn't work when you
1:58 have 60 percent customer churn. At some point, like we saw with flash sites, there
2:03 will be a major correction in the marketplace. My advice to these companies?
2:07 While the market is drunk and asleep, grab its wallet and buy a real business,
2:13 as it will wake up, and it will be sober and irritable. A continued loser: the
2:19 brand industrial complex. The new startup, Brandless, competes with Amazon by
2:23 borrowing another of the Seattle giant's strategies: Private Label. And more
2:27 accurately: no label. But then again, if Brandless becomes popular, isn't Brandless
2:31 a brand? Mind blown. Brandless sells generic household items
2:36 from toothpaste to olive oil for just three dollars: yet another signal of the
2:40 death of the industrial brand complex, and is indicative of what is happening
2:44 in the larger consumer economy. Normally during a recession private label brands
2:49 take a larger share of CPG sales, as people are trying to save money and
2:53 don't want to pay more for the better known brand. During the recovery, however,
2:57 big CPG brands are able to use the normal levers of traditional advertising
3:02 and caps etc., they convince consumers to pay up for the premium brand. But things
3:08 are different now. There's been a structural shift, and despite a
3:11 recovery in the economy, private label sales continue to grow. We have entered a
3:16 new era; the sun has passed midday on brand building. A loser: the smartphone
3:22 generation. Three in four American teens now owns an iPhone. The impact? It's
3:28 making them more lonely. The data is clear: since the release of the iPhone,
3:32 the world has changed for American teens. Among other things, just 56 percent of
3:37 high school seniors in 2015 went on dates in contrast 85 percent of
3:43 Boomers and Gen Xers. To be fair, it's not all bad news.
3:47 Teens may be replacing drugs with their iPhones. Usage of illicit drugs, other
3:52 than weed, has fallen among eighth, tenth, and twelfth graders, to its lowest point
3:57 in 40 years. So teens are lonely, single, and addicted
4:01 to their smartphones, but not doing drugs. Progress? Maybe. My sons are getting their
4:07 first smartphones, and I told them they could have any ringtone, as long as it
4:12 was the sound of a tree falling in the forest or one hand clapping. In addition,
4:16 my smartphone is broken. Every time I use the home button, I find I'm still with
4:21 people I hate.
