Monthly Archives: November 2015

Pictured in a 2014-2015 NHL regular season game, Sidney Crosby and Evgeni Malkin are both prized brands and assets that have been vital to the league’s explosive growth in  non-traditional hockey markets in recent years. (NHL)

Prior to the beginning of this year’s annual National Hockey League season, The Hockey News business blog’s Ken Campbell released an article scoffing at the preposterous $750 million asking price that the ownership group of the Pittsburgh Penguins were demanding for the purchase of the franchise. Using the industry standardized measurement of “10x profit” as a general measuring stick for the valuation of a company, Campbell argues that the magnitude of the discrepancy between a typical NHL franchise’s cash flow and their respective valuations on Forbes magazine is colossal. His argument is based off the premise that collectively, NHL franchises are exceptionally overvalued given the recent asking prices for a multitude franchises.

With the average value of an NHL franchise at an all time high, ownership groups around the league have began to seek prospective buyers in the investment space, hoping to capitalize on the good fortune that the NHL has been blessed with for the last half decade. Under commissioner Gary Bettman, league revenues ($3.7 billion USD) have soared to an all time high and interest in the league remains at a sustainable high. Notwithstanding this fact, the league’s numerical success has not been reaped by a handful of the league’s franchises, with bottom league dwellers such as the Arizona Coyotes reporting harrowing financial losses of up to $30 million USD. The Coyotes, playing in a disinterested market dominated by baseball and American football, is still valued at a whopping $225 million by Forbes magazine. This simple statistic itself is undoubtedly worrisome for prospective investors whom are seeking an opportunity to become part of an ownership team.

Among the league’s most successful franchises is the Vancouver Canucks, who currently boast a valuation of over $800 million USD by Forbes Magazine. In recent years, nonetheless, the team has struggled to perform on the ice and may become subject to macroeconomic factors. (CBC)

Without neither the constant turnover of ownership nor the current capability to expand the league to 32 teams, the NHL runs the long term risk of plateauing and losing its valuable market share to the NFL, MLB and NBA. The league, given its ineluctable greed and avarice, will undoubtedly continue to argue for the presence of intangible assets and intrinsic value in their justification of a valuation to potential owners, raising the franchises’ value to unreasonable heights and inevitably driving well-informed investors away. The NHL’s annual expansion dinner party’s attendance is an attestation this notion, where only two of sixteen invited party guests showed up. The ownership and executives of the NHL must acknowledge that its novel product is not exempt from the pessimistic general industry guidelines that dictate the extrinsic and intrinsic value of a company or a franchise. Without a change in attitude towards valuation, the National Hockey League will slowly become an irrelevant entity beleaguered by stagnant growth. In this worst case scenario, power will shift into the players’ hands, whom will inevitably demand blasphemous remuneration to remain in the declining league or depart to overseas competitors. Without the best hockey players in the world, the National Hockey League will effectively lose its competitive advantage and ultimately its entire business model.

Link to original blog.

A 107,000 square foot stand-alone store, Polo Park Shopping Center in Brandon, Manitoba is the quintessential of Target Canada’s failure, closing just three months after its opening day ceremonies. (CBC)

At the end of Samantha’s post regarding the retail market, she poses an open ended question that speculates the reasons for Target’s incapability of competing in Canada and translating its prior success into an exceedingly similar market. Although she never elaborates on this question, she efficaciously answers her own question by mentioning the alleged similarity between the value propositions and strategies of both Walmart and Target.

When Target Corporation executed a deal that consisted of the purchasing of 189 leaseholds of Zellers across Canada in 2011, Canadian consumers were equally as vehement as they were exhilarated. The notion that the highly acclaimed retailer was expanding to Canada subsequently created lofty expectations that Target, priming it for ineluctable failure. From the beginning of its tenure, Target’s upper management treated the fledgling endeavor in a separate manner to that of its American incumbent. This treatment most likely occurred due to the entrenched American corporate mindset of the lackluster Canadian market, composed of the supposition that the Canadian marketplace is essentially a “minefield.” Analysis of the retailer’s flirtation with the Canadian economy via different methodologies displays the astonishing amount of blunders that now-defunct Target Canada made.

Shortly after Target Canada conducted its grand openings at each of its respective stores, it became increasingly clear that the previously Zellers branded stores were downtrodden and disheveled, incapable of meeting both Target’s and its consumer’s needs. Furthermore, the location of these stores was an anathema; its major customer segment, the middle class, could not justify the elongated commute to many of these destinations. Consumers immediately took notice and scoffed at its seemingly different appearance from its American counterpart. A departure from its box-like layout, Target immediately tarnished its image, changing its perception and inadvertently shifting its position in the Canadian consumer mind for the worse.

An info graphic created by the Globe and Mail depicts Target Canada’s statistics at the height of its ignominious debacle. (Globe and Mail)

In response to Target’s arrival, Walmart Canada immediately took hostile action, engaging in a relentless price war with  Target and intensifying rivalry in the superstore industry. Through the lens of a Porter’s five forces, it was evident that buyers received a new-found increase in power, with a growing amount of options to expend their dollar. In response to Walmart’s course of action, Target was handcuffed and could only undertake two options. With the first option, Target attempted to price match, which attributed to its gargantuan losses of $2 billion USD. When the first option became infeasible, Target attempted to sell its products at the previously higher price point, imploding its own key value proposition and thereby alienating its entire consumer segment.

Amidst a fiasco, empty shelves further beleaguered Target Canada’s ability to meet waning consumer demand. (Business Insider)

The final nail in the coffin for Target Canada’s during its tenure was its inability to consistently maintain inventory that would satiate its consumer’s needs and demands. Whether this abomination was a result of poor vertical supply chain management or Target’s ambition to create a cost leadership strategy by having minimal inventory remains a mystery up to this day. Overall, the overarching issue that plagued Target Canada’s existence and potential were the immeasurably horrific decisions made by upper management. Although Target Corporation was able to exit the Canadian market with relative ease aside from the $2 billion debt that it accrued, the firm’s tumultuous performance may detract potential shareholders from the company, hindering future growth and ultimately livelihood in the fickle precarious retail space.

During its short-lived history, Beats Music was unavailable to those outside of the United States, causing a plethora of issues and a collective public outcry. (App Advice)

On November 30, 2015, Beats Music, owned by Apple Inc., will efficaciously shut down permanently, marking the end of its one and three quarter year lifespan. This course of action is indisputably a reflection of the new-found success that Apple Music has recently discovered in its nascent stage of release. Originally named “Daisy,” Beats Music was never primed for success from its very beginnings dating back to 2012. Its main points of difference, an algorithm based curator that would devise playlists and a personalized experience based off listening habits, was undoubtedly ineffective against the phenomenon deemed the “free trial” that powerhouse Spotify employed. Similar music streaming firms such as Zune and Rdio have also consequently ceased its operations in response to the market demand for music streaming that has seemingly hit its plateau.

In response to Anand’s open ended question at the conclusion of his warranted critique of Beats Music, there is not a seed of doubt in any sane individual’s mind that Apple Inc.’s 2014 three billion dollar purchase of Beats Music was a horrendous undertaking and is nothing short of an ignominious abomination. Despite the fact that the subsidiary of Beats only had 300,000 active subscribers at the time of the purchase, Apple Inc. was somehow capable of justifying this quasi-“audacious” endeavor to its stakeholders and upper executives. To put the subscriber figure into perspective, incumbent rival Spotify had over 15 million active subscribers in the United States alone in a maturing market in 2014.

Affording consumers the opportunity to test its service for free for a limited amount of time, Apple Inc. has improved upon its previous endeavor with Beats Music. Its 6.5 million subscribers are a testament to its undeniable success.

Nevertheless, a glass half full argument does hold true for this investment. Shortly after Apple Inc. announced its intentions to discontinue Beats Music in the summer of 2015, the gargantuan firm announced that it would be releasing a novel product, commonly known as Apple Music today. Almost half a year after its inception, the service has done exceedingly well, garnering well over 6.5 million subscribers to date. While Beats Music never offered a trial service to its consumers, Apple Music offers a free three month trial to prospective consumers. In addition, Apple has also automatically implemented its service into its operating system in all of its reputable products, essentially making it unavoidable for its product purchasing consumers to a certain extent. The list of the improvements upon Beats Music is limitless and it would be superfluous to analyze each respective enhancement. The indisputable overarching theme of all these improvements is that without the failure of Beats Music, Apple Inc. would not have developed Apple Music into the competing entity that it is today. Because of Apple’s ostensibly limitless pocket and Apple Music’s undeniable success, it is easy to argue that Apple’s three billion dollar faux pas is more than excusable in this context. Inadvertently, the firm has also created an entirely new and lucrative revenue stream, inching Apple Inc. towards the possibility of becoming the first one trillion dollar market capitalization company in history.

by: Tyler Chiu

11/17/2015

Pictured is a TOM’s advertisement promoting its one for one campaign. A simple glance over industry analysis of TOM’s model demonstrates that the model is at best unproductive. In light of this criticism, the company has reconfigured its approach on charity. (TOM’s)

Social enterprise has endured heavy skepticism in recent years to say the least, with its ethos and underlying motives coming into question in a multitude of cases that include TOM’s shoes buy-one give-one model among a plethora of others. Business and non-profit critics will readily associate social enterprise with dark, ulterior motives, arguing that initiatives like these afford governments justification for inaction. They postulate that initiatives such as TOM’s provide little to no impact on real social issues, only focusing on peripheral issues that only serve to gain the corporation’s marketability. In addition, they argue that social enterprises merely serve as a “bandage” for a temporary problem; they fail to address the incessant and acute fundamental issues that long persist after the quote on quote bandage as fallen off.

The supposition that TOM’s has built an exceedingly flawed and inefficient business “one for one” model is undoubtedly true. Economics professor Bill Easterly of the New York University is one of many who has gone to the most extreme of lengths, commenting that “TOM’s is the worst charity in development.” The founder of TOM’s itself, Blake Mycoskie, has even acknowledged the company’s harshest critics on record in an attempt to recover TOM’s tarnished reputation. Thus, it has been immeasurably facile to jump to render the one for one model as effectively ineffective. Nevertheless, this notion is not completely true and deeper analysis into another one for one initiatives demonstrates that this model can and does indeed succeed, warranting agreement and support. 

Andrew Hall and Jeremy Bryant co-founded Mealshare in hopes of directly alleviating hunger in Canada. As of 11/17/2015, Mealshare has “shared” almost 500,000 meals, a substantial milestone for a nonprofit from humble beginnings.

One does not need to look further than this country to come across an initiative that has engendered a respectable degree of success. Mealshare is a Canadian hunger-alleviation program that has thus far been devoid of any medium of criticism. A non-profit organization, the program enables consumers to feed a needy individual within Canada upon the undertaking of dining out at a partner restaurant. A dollar is donated from every meal from the respective restaurant and directly assists charities and shelters whom feed the marginalized population. What is then biggest difference between the two one for one models? The answer lies in the type of corporation that each company has chosen to designate itself with. While Mealshare is unequivocally a non-profit, TOM’s designation is one of a for-profit organization.

The difference between the designations provides an explanation into the viability of one for one models. In the words of Mealshare co-founder Andrew Hall, Mealshare has been effective in its own respect because of its ability to build relationships with restaurants and charities effortlessly, thanks to its “nonprofit” association. On the other hand, TOM’s has been immensely incapable of creating substantial social value through its initiative, notwithstanding adopting a similar model. This can be strongly attributed to its bottom-line desire to garner more customers and revenue as a for profit organization by making customers “feel good” following a purchase of a pair of shoes, often neglecting the intricate details that a successful social enterprise would typically attend to. All in all, a one for one model has the potential to succeed and thus warrants cautioned agreement and support. This success is completely dependent on the mediums and methodology that the company chooses to tackle the social issue(s) at hand.

by: Tyler Chiu

11/08/15

The Michael Kors handbag has become ubiquitous in luxury brand circles around North America. In recent times, the brand has struggled to maintain its comparative advantage of providing accessories that have been classified as both quasi-luxurious and accessible. (Michael Kors)

For the better part of a decade, Michael Kors (NASDAQ: KORS) has efficaciously established itself as a mainstay in the densely-populated American luxury brand industry, solidifying itself as an incumbent among titanic competitors such as Kate Spade, Louis Vuitton and Coach. The brand has previously thrived tremendously due to its uncanny ability to provide exclusive yet accessible value to the typical American consumer via accessories such as handbags, purses and watches. In the past year, nonetheless, the firm that has been known for its unparalleled aesthetic practicality and functionality has faced extensive financial difficulty, reporting a 8.5% decline in same store sales last fiscal quarter. Consequently, share prices have dipped nearly 48% in 2015 and the stock that once consistently garnered the designation of “market outperform” from analysts has finally hit a rough patch.

A brand perception map demonstrates Michael Kors’ alleged status in a precarious consumer mind. With the firm’s attempts to increase its global brand awareness via accelerated sales growth and product expansion to different market segments, its prestige and exclusivity has now been called into question by both consumers and analysts alike. (BAV Consulting)

While c-suite executives in New York have attributed the decline of the brand to the fortuitous dollar, the true problems that have beleaguered the firm’s performance originate from its inability to recognize mercurial consumer tastes and acknowledge the declining demand for women’s handbags. Instead of qualitatively analyzing the changing landscape of the luxury market, Michael Kors has mistakenly attempted to restrengthen its brand name via the improvement of financial metrics, discounting a plethora of its products in hopes of clearing its inventory buildup and boosting its falling net income and sales. Although these decisions have created optimism for shareholders in the short-term, it does not address its needs that are essential for its long-term livelihood.

The true issue that underlies Michael Kors’ financial struggles is its failed attempt at attaining an advantage on both the luxury and affordable markets. According to Porter’s strategic terms, this position in the industry is deemed as being “stuck in the middle.” Although Michael Kors was previously capable of adopting an industry wide cost leadership and differentiation strategy, time and tastes dictate that in order for the firm to ensure future success, it must only select one of the four available strategies. With Michael Kors missing out on the cross shoulder and small handbag surge, the firm must now adopt a focus cost leadership strategy with its current products, directly competing with brands such as Calvin Klein and Ralph Lauren rather than competing with brands that have experienced eons of success in higher rungs on the luxury-hierarchy ladder. All in all, Michael Kors has reached a crossroads with its sudden lack of prestige; subsequently, time will tell whether the firm recovers from this fiasco.