I have seen the movie of Retail Startups. It ends.
Long ago in Silicon Valley time, I was part of a retail startup – Moxsie and it was widely acknowledged as one of the pioneer in combining Social Media and Retail. Moxsie also was the first company that sold Independent Designer fashion online. But as the history goes with retail startups, it went under and sold finally to Fab.com.
Recently (ok its been over six months) the online retail darling for the past few years, Fab.com is slowing down into a small operation and is doing pivot yet another time and/or getting/got sold, I couldn’t help but thinking the fate of all the Internet based Fashion startups.
Online fashion retailers have folded or going through a terrible time – Fab.com, Modcloth, Moxsie, Zappos – yeah, they ran out of cash and/or sold to Amazon, the list goes on.
Amazon.com kickstarted the online retailing business but the key difference is that they chose the way of Walmart where they focussed only on pricing to build a business. Their website is not that fancy but really helps someone buying something. While this is going on let us look at the brick and mortar fashion retailers. Specifically they year they were founded –
Saks Fifth Avenue – 1898
Nordstrom – 1901
Bloomingdale’s – 1861
Lord & Taylor – 1826
Neiman Marcus – 1907
Barneys Newyork – 1923
Interesting isn’t it?
So there is something going on in the fashion retail industry. We all know certain strip malls where any business that springs up there folds eventually. I think there is even a Seinfeld episode based on that. Looks like the online fashion retail industry is following a similar pattern.
I haven’t done any research on why these retailers failed but I see a pattern emerging all around.
Would love to hear your thoughts !
IKEA revolutionised furniture shopping by getting us cheaper furniture. In reality, Walmart provides the same cheap furniture. Yet, people like and rave IKEA. There are so many IKEA fan clubs. I am a fan too Yet, I could never figure out why I was so attached to my IKEA products. Especially when know that they make cheap furniture compared to my neighbourhood furniture store.
Then one day, I asked this question to an IKEA store manager and he replied – “It is the emotional investment a customer does at IKEA makes them loyal fans.” I couldn’t understand it first.
He explained it to me that in IKEA, when people walk through the Showroom, they actually create an image of their home with the IKEA product. (Investment #1).
And the moment, they write down the Aisle information in the IKEA cheat sheet, about where to pick it up, they have started to like the product in their head ( Investment #2).
Once they purchase it, and load it onto their car, they have put an investment of physical labor (Investment #3).
It takes a day to assemble most things and that investment is huge. (Investment #4).
After that much of physical and emotional work (and pain) , you are so heavily invested, you get a sense of accomplishment.
It is your own furniture and YOU BUILT IT (with a little help from IKEA).
After such a huge investment, you are not going to pooh-pooh it. In fact, you are going to guard it and keep it for years, if not decades and talk about how hard it took to buy, assemble it. That is a commitment. Note that despite all the physical work, the sense of building something is the actual investment. IKEA works so hard to ensure you get a sense of accomplishment whenever you buy a product. I really didn’t believe what the store manager said but eventually ran into this page at the IKEA website.
Nothing to read on Starbucks. Just watch this very short scene from the movie – “You’ve got mail”. Watch it from the 33rd second.
Apple shopping is not a technology shopping. A very small percentage of people buy their Apple products without ever seeing them. Most of them buy it differently. They go to their favourite mall for something else and suddenly there is an Apple store. They walk through the aisles and get to see what they have. At that time, they do not have any plans to buy an Apple product. But everytime, they go to a mall, they invest some time to explore further into Apple Products. This happens because walking into an Apple store, is a low-pressure shopping experience, just like in IKEA. You walk the aisles and see how different people use the product. After some 5 or 10 times, they become convinced that the time commitment (investment) they have put into the Apple store visits must yield something. They go ahead and buy it from the same Apple store. This feels like accomplishment. After numerous visits, you are finally seeing a return on that time spent on learning about Apple. How do I know this happens? After the IKEA incident, which was way back in 2006, I noticed a similar pattern was happening to me. I ended up buying an Macbook, Macbook Pro, numerous iPods and iPads and what not. Weirdest thing is that I still hold on to my Apple products even if they are decades old. Hence the thought that the Apple Store creates a similar IKEA-like experience.
So there is a pattern here – an emotional and physical investment, makes you like certain products over other.
I write mostly about investments, but this post is different than normal. But I am getting to investments here.
Most of us when we buy shares in a company and if the price of it goes down by 50% or more, we do a mistake of holding on to it, expecting to make the loss from the same equity. It is purely because, we have spent a lot of time analyzing that stock, you feel that your investment in that analysis shouldn’t go waste. Charlie Munger and Warren Buffett warn us here that you should do an analysis again here to see if the old thesis still holds valid. When your old thesis doesn’t hold anymore, you should sell those shares. Just because you made a time, analysis investment, doesn’t mean you should commit your money in it.
I have thrown some pieces of information about this in my book, “The First Book on Value Investing” but never went into detail.
I lived in the US for almost a decade working on a visa. I loved the country, its beautiful landscape, its entrepreneurship rich population, its big hearted presidents, history and culture. There is something unique about that country, that makes it special. I know what it means to be an American. But, there is always a but :). Yeah, but, working on a visa is a modern day slavery. You can kid whatever you want, it is a leash. I pity the folks who work in the middle east on a visa, life is even harder on them. If you think I am biased or lying, ask your friends/family who work on visa. Their lives are crippled. Their dream/liberation begins at a green card. Most of them work on their visa because of only one word – hope. They hope they can cross that green card magic line.
Today, my focus is actually about another type of slavery, that is even bigger and dangerous. It is your job. It is the place where you do – “work”. Look at any survey, most people are extremely unhappy with their job. Yet, they still work and work. Many, many of them work in their jobs because they have bills to pay. Their needs increase and hence the need to make more. The pressure of family, children is an icing on the top. This modern day slavery makes people cheat, lie and do things that no one would do. The examples are too much. Touch your heart and ask that question to yourself. You may have lied to your boss about estimates. If it is not your boss, it is your customer. We do terrible things to our children, spouse, parents and even god. We all are too scared to talk the truth and be happy about it. So, when we make villains out of just the wall street folks, we are actually the best hypocrites on earth !!
Yet, there is a very small minority of people, who work on things they like. There is something common among them, which is very easy to miss. It is their freedom from money constraints. I follow a blog called Mr. Money Mustache, who teaches about financial freedom. He beautifully sums up what I wanted to say on this subject –
I have nothing more to add. Today, I am working so hard, that I barely notice that I am working
Investing properly brought me to this destination and hence I do more investing
Disclaimer: You should do your own research and make decisions on your investments. Blindly following what I do, can result you in significant loss and I am not responsible for it.
For the first time in 5 years, I am not owning any Canadian Stocks. If you are a regular reader in 5reds, you know that I am not a fan of the Canadian Real Estate market. I refused to buy a home in Canada and rented all along. It was a lot cheaper to rent and I invested that money in RRSP and TFSA making a lot more.
My largest holding today is Cash !! Yes, I am finding fewer and few opportunities to invest and hoping there will be a market correction !!!
I will tell you a truth. I am surprised he was not one before.
Jamie was the person who was responsible for building and developing the two of the largest banks in the world – Citibank and JP Morgan Chase.
Yeah, he was the #2 guy at Citibank and was kind of forced out because he was too good and the CEO didn’t want to retire
In any other company, if a person who creates hundreds of billions of dollars for shareholders and was NOT a billionaire, that would be considered a joke. Banking is hard and one needs guts to stay in the industry for this long and I am surprised that his rewards have been much slower compared to his peers. Investing Banking on the other front is a different kind of money ball game. Look at folks from Goldman Sachs or for that matter Lehman Brothers. Dick Fuld, the infamous CEO of Lehman was a billionaire and I could say he was single handedly responsible for Lehman going under. Of course he lost most of his money because they were tied up with Lehman.